
A Proof of Funds Letter, sometimes referred to as a Pre-Approval Letter, is a document provided to a buyer that demonstrates to the seller, often a real estate agent, that the buyer has been pre-approved for a loan to purchase real estate. This letter is typically submitted with an offer and outlines details such as the lender's name, the buyer's name or business name, the approved loan amount, key loan terms, and an estimated closing timeline. For real estate investors, including a Proof of Funds Letter with an offer is crucial as it assures the seller that the buyer is financially ready to proceed with the purchase.
In this blog, we will focus on Proof of Funds Letters issued by Hard Money Lenders (also known as private money lenders), which are commonly used by real estate investors to finance property acquisitions. Many investors utilize these funds for single-family homes or multi-family properties, often through loans like Fix and Flip, Fix and Hold, Bridge Loans, or New Construction Loans.
Here are 4 important facts you should know about a Proof of Funds Letter:
A Proof of Funds Letter plays a vital role in today’s competitive real estate market. In many cases, sellers will not consider an offer without one. Seasoned real estate investors typically secure a Proof of Funds Letter from a trusted Hard Money Lender, such as Boston Trust, to enhance their offer and demonstrate to the seller that they are ready to close swiftly.
Securing a Proof of Funds Letter is typically done before submitting your offer. This gives the Hard Money Lender the opportunity to review your qualifications as a borrower before you formally request the loan. By getting pre-approved, the underwriting and funding process can be expedited, making the closing process smoother and quicker. Since the closing of an investment property can often be hectic, taking steps to streamline the process will help save time and minimize the risk of not being able to close on your purchase.
Getting a Proof of Funds Letter is straightforward. Most Hard Money Lenders are willing to issue one as it shows you’re serious about investing in real estate.
Start by contacting local Hard Money Lenders. It’s a good idea to consult with other investors for recommendations and speak with at least three lenders. Ask about their loan types, underwriting criteria, closing times, and recent funded loans—not just their rates.
Once you’ve selected a lender, request the Proof of Funds Letter. You’ll likely need to complete a basic application. Boston Trust offers special programs that provide expedited closings and access to additional resources.
After receiving the letter, keep your lender updated on any offers you make so they’re ready to assist when needed.
A property-specific Proof of Funds Letter is like a pre-approval letter, but it includes the specific property address. This type of letter can offer the seller greater confidence, as it demonstrates you’ve thoroughly evaluated that particular property. However, some Hard Money Lenders may find issuing multiple property-specific letters burdensome and prefer to provide general Proof of Funds Letter instead. It’s a good idea to check with your lender to understand their preference.
Overall, a Proof of Funds Letter from a Hard Money Lender has become a key element for successful real estate investors. Investors who submit this letter with their offers tend to have a better chance of having their offer accepted. It’s advisable to secure a Proof of Funds Letter before making an offer, and this can typically be obtained from a local Hard Money Lender. While a property-specific Proof of Funds Letter may enhance your chances of acceptance, it’s best to contact your preferred lender to confirm if they provide this type of letter.
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