Obtaining a proof of funds letter is one of the first stages in beginning to invest in real estate. You can show property sellers that you have genuine capital backing up your bid on their home by calling a hard money lender and requesting a proof of funds letter. Because real estate transactions move rapidly and individuals don’t appreciate wasting their time, having proof of finances while bidding on a property might help you stand out from other bidders who don’t have solid proof that the transaction will go through. We’ll go through what a proof of funds letter is, how investors can get one, and what you should do with it once you get it.
What is the purpose of a proof of funding letter?
Many real estate investors believe they can make an offer on a property and then locate a hard money lender to help them complete their project. Unfortunately, this is a fast way to miss out on jobs and fall behind your competitors. A proof of funds letter establishes credibility and allows you to stand out in a competitive real estate market. Consider your proof of funds letter as leverage: if you and another real estate investor approach a deal, but only one of you can present proof that you have the funds to buy the property, that person will most likely get the deal. You place yourself in contention for obtaining extremely sought homes if you can demonstrate that you’re a genuine investor with the purchasing capacity to move forward. This becomes more important as the property becomes more competitive—if multiple people want to place bids and are trying to offer above asking price, being able to show your financial backing matches the other offers will keep you in the running for a property that could have been lost due to a lack of a proof of funds letter.
How can I obtain a letter of evidence of funds?
A proof of funds letter is simple to obtain, as hard money lenders normally only require a minimal amount of information and a one-time charge. The lender’s questions are basic, and they help to demonstrate that you’re trying to use the evidence of funds for a real estate transaction. They’ll inquire about the property address, which will include the city and state, as well as the projected purchase price. To help the lender understand your exit strategy and overall investment plan, include them. Your proof of funds letter should arrive quickly, usually within one business day of your request. If it takes longer, you should consider working with a different hard money lender, since you want to work with someone who moves promptly rather than dragging their feet on the first step. Your real estate investment journey can truly begin after you receive the proof of funds letter!
What happens now that I’ve received my proof of funds?
Bidding for a property is the most competitive phase of real estate investing. Many investors accomplish this through short sales, sometimes known as sheriff sales, in which a number of repossessed homes are offered to bidders. This provides discounted distressed homes, which are ideal for fix-and-flip investors looking to acquire property with minimal cash and optimize the deal’s potential profitability. Investors can also use the proof of funds letter to place an off-market bid or directly approach property owners if they’re interested in selling and use the POF letter to demonstrate them that it’s a legitimate offer. Once you’ve secured your project, contact the lender that granted your proof of funds to discuss the following steps in getting your real estate investing loan started. When you close a deal with a reputable lender, they will credit your proof of funds fee back to you, thereby eliminating the cost and allowing you to leverage their resources for free!