Mortgages & Home Loans Financing Your Home Purchase Why Sellers Demand Proof of Funds From a Buyer What to Look for in a Proof of Funds Letter By Elizabeth Weintraub Elizabeth Weintraub Facebook Twitter Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV's House Hunters. learn about our editorial policies Updated on April 25, 2021 Reviewed by Lea D. Uradu Reviewed by Lea D. Uradu Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients. learn about our financial review board In This Article View All In This Article What Is a Proof of Funds Letter? Why Do Buyers Need Proof of Funds? What Is a Cash Buyer? Frequently Asked Questions (FAQs) Photo: Eric Audras/PhotoAlto Agency RF Collections / Getty Images Sellers often require proof of funds from a homebuyer—whether the buyer is obtaining a mortgage or is a cash buyer. Most sellers want to see evidence that the buyer actually has the funds for a down payment and/or closing costs before agreeing to sell to them. A preapproval letter isn't always enough. A buyer's word is not enough. Learn more about providing proof of funds and what it should look like. Key Takeaways A proof of funds letter effectively guarantees that a homebuyer has the resources available to make the agreed down payment and pay closing costs.A homebuyer may need more than one proof of funds letter if their funds are held by multiple institutions.The “letter” doesn’t have to be written or authorized by a bank officer. A bank statement detailing an account or line of credit will often do.A cash buyer must substantiate that they have sufficient liquid, available assets to cover the entire purchase price and closing costs. What Is a Proof of Funds Letter? A proof of funds letter provides evidence that a homebuyer has the money for a down payment and closing costs. Any proof of funds needs to list the following items, preferably on official letterhead from the institution where the funds reside: The dateThe name of account holderThe balance of funds on deposit Note Whether the verification of funds is to prove that the buyer has money for the down payment or all of the cash necessary to avoid getting a mortgage, the process is basically the same. The buyer will need to produce a document. The document can sometimes be verified by a loan officer. More often than not, the seller and the seller's agent will want to see the actual document. Here are a few sample types of documentation: An original bank statement An online banking statement An open equity line of credit A copy of a money market account balance A certified financial statement Depending on how the buyer saves their money, it may be hard to provide proof of funds. If they prefer to stuff their mattress with cash, for example, that wouldn't transfer very well into a proof of funds letter. Depositing that cash into the bank might be a problem, too. Federal law requires banks to report cash deposits over $10,000 to the government. Why Do Buyers Need Proof of Funds? Sellers often demand proof of funds because a listing agent has most likely advised them to keep theie home on the market until the agent receives proof of funds from the buyer. When a buyer provides proof of funds to the seller, it gives the seller peace of mind to know that the buyer can financially hold up their end of the deal. In that case, the seller is more likely to hold the home for the buyer while the transaction finishes processing. Note Above and beyond the earnest money deposit for the purchase contract, there are the funds necessary to close escrow, the balance of the down payment, and closing costs. A buyer's closing costs can amount to about 3% or more of the sales price. What Is a Cash Buyer? Simply put, a cash buyer is a person or entity who has cash on hand to close. There is no loan involved and no mortgage—just cash. Many buyers may consider themselves to be cash buyers, but they actually are not. People in the following situations are not considered cash buyers: In the process of selling stocks or mutual funds Holding a certificate of deposit that has not yet matured Borrowing money from a relative Refinancing a personal residence to raise the cash Waiting for a probate court to distribute assets Borrowing against securities Liquidating funds from a retirement account Obtaining a mortgage secured to the property they are buying In other words, if the money is not liquid and readily available, then the buyer is not a cash buyer. They are making an offer that is contingent on another set of circumstances happening. Sometimes, buyers who are obtaining hard-money loans present offers as cash when they are not cash. That kind of behavior is considered deceptive at a minimum and may even violate contract law. Note Accepting an all-cash offer can be attractive, because it cuts the time to close to as little as two weeks. However, a seller needs to take special care to avoid becoming a victim of a scam, and a proof of funds letter can help. Frequently Asked Questions (FAQs) How do you get a proof of funds letter? Depending on what the seller requires, obtaining the proof can be as easy as logging into your bank account and downloading a copy of your account statement. If the seller wants an official document that's verified by the institution, then you'll need to submit an official request to your bank. Official requests could come with a fee. How long does it take to get proof of funds? Proof of funds can be prepared within a week or less. For example, U.S. banks processes these requests within three business days. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Consumer Financial Protection Bureau. "Shop for Title Insurance and Other Closing Services." U.S. Department of Housing and Urban Development. "What Explains Variation in Title Charges?" Page 6. Consumer Financial Protection Bureau. "What Are Some Classic Warning Signs of Possible Fraud and Scams?" U.S. Bank. "Verification of Deposit (VOD) Contacts and Fees."