What is proof of funds and how to get it?
When amid negotiations for a large transaction, such as buying or selling real estate, it becomes necessary for the buyer to be able to assert that they have funds on hand to cover the purchase and any associated costs. This is where a proof of funds document comes into play.
Proof of funds is a document or a letter from the bank that verifies whether an individual or the organisation has the capital necessary to complete a particular transaction. The seller in real estate deals often requests the proof of funds to validate the legitimacy of the buyer to purchase the property before taking it off the market. If the buyer is opting for a mortgage when buying a home, the lender may also request a proof of funds letter to ensure that the buyer can finance the transaction. A proof of funds document is also required when applying to immigrate to a country to ensure that applicants have the finances to cover living expenses.
Furnishing proof of funds document
If you need to furnish a proof of funds document, remember that this applies to liquid assets that you can easily withdraw from your savings or checking accounts, while a line of credit or a money market account will also do. Investments — including stocks, bonds, mutual funds, life insurance, or untapped equity — do not qualify to be included as proof of funds.
There are a few ways to show proof of funds, and the first one that comes to most people’s minds is a bank statement. But it is important to remember that a bank statement also includes substantial personal information. Ensure that your personal information is protected if you decide to opt for this route. You could also request a proof of funds letter from your bank to verify the money in your account. Another option is a certified financial statement that is audited before being signed off by an accountant. Homeowners can also open a home equity line of credit (HELOC) and use that equity as proof of funds, while investors can choose to receive proof of funds letters from hard money lenders to assure that the money is available for funding the purchase.
How to get proof of funds?
You can apply for a proof of funds verification from your bank. This letter should be signed by authorised bank personnel and must include the following points:
- Details of the bank, including name, address, and contact information
- An official statement from the bank verifying the concerned individual’s financial status
- Money market account details
- Balances in savings and checking accounts
- A financial statement certified by the bank
- An online banking statement
Here are the requirements of a proof of funds letter for visa applicants and individuals attempting to enter immigration programs:
- Must be on the bank’s official letterhead
- The concerned individual’s name
- Details of the individual’s accounts and dates when they were opened
- A list of all the individual’s debts, balances, loans, and obligations
- The past six months’ average balance in all accounts
Verifying proof of funds
Once an individual provides proof of funds or proof of income documentation, the mortgage lender has to verify these documents to determine the level of risks involved. While manual verification processes are tried and tested, they can be extremely time consuming; this is where the digitisation of mortgage operations comes in. In the interest of more efficient processes, faster loan cycle times, and improving the borrower experience, most mortgage lenders have progressed beyond paper-based documentation for their operations. While these paperless processes are aimed at speeding up the mortgage closing process, electronic files must be stored in a way that they can be efficiently updated, tracked, and retrieved when necessary. This necessitates the replacement of traditional workflows with seamless digital operations that make the most out of modern technology.
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