Understanding proof of funds | Infosys BPM (2024)

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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.

For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience,and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.


How can Infosys BPM help?

The Infosys BPM Digital Mortgage Operations offering is specifically designed to overcome digital mortgage challenges using artificial intelligence, machine learning, and advanced analytics to streamline, simplify, and automate the mortgage lifecycle. Reach out to know more about how Infosys BPM can revolutionise the lending and mortgage industry.


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Understanding proof of funds  | Infosys BPM (2024)

FAQs

How do you explain proof of funds? ›

What Are Proof of Funds? Proof of funds (POF) refers to a document or documents that demonstrate a person or entity has the ability and funds available for a specific transaction. Proof of funds usually comes in the form of a bank, security, or custody statement.

What are acceptable proof of funds? ›

Proof of funds usually comes in the form of a bank security or custody statement. These can be procured from your bank or the financial institution that holds your money. Bank statements are the most common document to use as POF and can typically be found online or at a bank branch.

Why do realtors ask for proof of funds? ›

A realtor asking for proof of funds (POF) reassures them and the home seller that you're a serious buyer capable of purchasing the home you want. Realtors often encourage sellers to ask for proof of funds along with a pre-approval letter from their lender to cover their bases.

How to show proof of funds for cash offer? ›

A POF letter should confirm a buyer has enough cash in an account or line of credit and include the name of a bank contact who can verify the information in the letter. Your real estate agent or the seller may accept a copy of a recent online bank statement as proof of funds.

What is a typical proof of funds letter? ›

Proof of funds letters are typically written on the financial institution's letterhead and state the total amount of funds available in the account, as well as the date these funds were made available. The letter is usually signed by an official of the institution.

Can I show my credit card as proof of funds? ›

Credit cards are not proof of funds. They are proof of debt.

Does a 401k count as proof of funds? ›

If your money is in a savings account or investment account, a signed letter from the bank will usually be enough to qualify as POF. However, if your money is in an account that takes some time to draw funds from like a 401(k) or IRA, you will have to move the funds to a more accessible account in advance.

Is a bank statement enough for proof of funds? ›

Many mortgage lenders allow you to provide bank statements as proof of funds. In some cases, though, you might need a formal letter. You can request a proof of funds letter in person at your bank or online. Your lender might be able to fill out a request form on your behalf instead.

What is a hard proof of funds? ›

A Hard Money Proof of Funds letter tells the world that you're pre-approved for financing drastically different from a regular loan. It sends a message that your funding is not contingent on property inspections or complex underwriting.

Can you submit an offer without proof of funds? ›

Even if you want to make a cash offer on a property, the seller is going to want to know that you actually have the money to back it up. This is where a Proof of Funds letter comes in. A Proof of Funds letter or “POF” is simply a document proving the liquid cash that you have available.

How long is proof of funds good for? ›

Proof of cash or funds letters don't have a hard expiration date, but they don't last forever. Their entire purpose is to verify how much money you have right now.

Do stocks count as proof of funds? ›

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.

Can you use a 401k as proof of funds for a mortgage? ›

Can I use a 401k as proof of funds? In almost all situations, a 401k cannot be used as proof of funds because it is not readily accessible and you will pay penalties for an early withdrawal.

What does EMD mean in real estate? ›

An Earnest Money Deposit (EMD), also known as a “good faith deposit,” is an amount of money that the homebuyer gives when signing a sale contract on the home or property they wish to buy. When you make a good faith deposit, you are letting the seller know you are serious about purchasing their property.

Can you ask for proof of another offer on a house? ›

Question: Can I get proof that there are multiple/competing offers on a property? Answer: The short answer is no.

What is an example of a source of funds document? ›

Business income/profits: copies of recent financial statements, bank statements or tax returns document not older than 12 months reflecting income and profits. Salary/bonus/income: a salary/bonus/income slip not older than three months or a letter from the client's employer confirming the payment.

What is a source of funds example? ›

Examples of Source of Funds

A legitimate example of a source of funds can include anything where the money was obtained through legal means, such as: wages, bonuses, dividends, and other income from employment. pension payments. interest from personal savings.

How to explain cash deposit for mortgage? ›

How to Explain a Cash Deposit for a Mortgage
  1. Copies of receipts or contracts related to the transaction, especially if you earned the money via a side gig or freelancing.
  2. A gift letter stating that the money is a gift and you do not have to pay it back.
Jul 14, 2020

Can you use a fixed deposit as proof of funds? ›

Other methods to show proof of funds may include tax returns, pay slips, and employment letters. If your parents plan to help you pay for your living expenses while you study, you can show a fixed deposit statement to show that they will regularly put money in your account.

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