When investing in real estate the time will come when you are submitting offers on properties and the seller will expect you to provide a proof of funds or a verification of deposit as confirmation that you have the cash on hand for the deal.
In this article we are going to look at what defines a proof of funds and a verification of deposit as well as their use and purpose.
Both the proof of funds and the verification of deposit are used in the case of cash offers. They are presented with your written offer to a seller to show you have the money in the bank to make this deal happen as smoothly and as quickly as possible. These typically come from a hard money or private money lender. Here is the definition and descriptive use of both:
- Proof of Funds Letter – This is typically a free and simple letter from a lender/funder stating that you, as a buyer, have the amount of cash needed to purchase the property. The funds are in an account within the institution described in the letter. This letter has both the contact information and details of both the buyer and the location of the funds provided by the lender/funder.
- Verification of Deposit – This is an actual bank statement from a lender/funder that has your name on it showing the details of your account with the funds needed to complete the purchase. The only stipulation is that the bank account number is blackened out for information security purposes. Most of these lenders/funders will charge a fee for a verification of deposit.
In some cases, property sellers and their agents might express concern about a proof of funds letter based on its appearance and format. The issue they may have with this letter is that it is coming from a lending institution, giving the appearance of a finance deal, rather than a cash deal.
In lieu of this concern, make it clear that this is where you keep your funds for real estate investing activities. Explain that you have more control over accessing your funds and you have potential tax benefits by not keeping your funds in a personal bank account.
Ultimately, make use of these two fund verification methods so your seller can feel confident moving forward with your cash offer.