How do I prepare for a cash purchase?

Just like documenting your ability to purchase via mortgage, you’ll also need to provide documentation of your ability to purchase via cash.

You’ll need to obtain a Proof of Funds (POF) Letter from the financial institution you’ll be withdrawing the funds from.

Things to know about obtaining a POF Letter

How much to have it written for?

You’ll need to provide a Proof of Funds Letter for at least the amount of your offer/purchase price to communicate to the seller that you are submitting a bona fide contract. Just like a relevant mortgage Pre-Approval Letter, however, you don’t want to match a $500,000 cash POF Letter with a $200,000 purchase offer, as the seller is likely to counter for a higher purchase price.

Your financial institution will not write a POF Letter for non-liquid assets. In other words, you cannot obtain a POF Letter for $200,000 if you have $150,000 in mutual funds and $50,000 in cash. You would need to liquidate those mutual funds before you can obtain a $200,000 POF Letter.

POF in personal or business’ name?

The POF Letter needs to match the name on the contract.

Your financial institution will not write a POF Letter for any name other than the name on the bank account.

If you’re wanting your LLC’s name on the real estate contract, you’ll need to have the POF in the name of the LLC.

Some investors use funds from a personal checking/savings account to fund their LLC’s acquisitions. In that case, especially if purchasing a bank or government-owned property, your personal name would need to be on the contract instead of your business’ name. The other alternative is to have a bank account in the name of your LLC and to move your personal funds into that bank account and have the LLC’s banker write the POF Letter.

If you purchase in your personal name, you could transfer ownership from personal to business at or after closing.

Who at my bank writes the POF Letter?

If you have a personal or business banker that you like to talk with, simply request them to write you a Proof of Funds Letter for a real estate purchase. Tell them the amount you want it written for, and it shouldn’t take them longer than 15 minutes or so to deliver it if you have the liquid funds.

You can also just walk up to your bank’s tellers and they’ll connect you with someone to write the letter for you.

Once you have the letter, you can scan and email it to your Buyer’s Agent to have on file for your intended purchase, and they’ll take it from there.

Can I deliver the POF after I know we have a deal?

You’re supposed to provide POF documentation to your Realty Buyer’s Agent before you start visiting and offering on properties, but sometimes the situation allows for obtaining a POF Letter later in the process, in which case you should at least provide a financial statement to your Realtor for their due diligence purposes.

If you don’t want to liquidate or move assets simply to obtain a POF Letter until you have an accepted contract, we can add a provision to the contract that you’ll provide the POF Letter by a certain deadline or else the deal falls through. This is only possible if the seller is agreeable, which usually isn’t the case for bank or government-owned properties.