The importance of a Proof of Funds letter

What is a Proof of Fund Letter?

A Proof of Funds Letter, also known as a Pre-Approval Letter, is a letter issued to a buyer showing the seller, often a real estate listing agent, that you have been pre-approved for a real estate investment loan. The letters are commonly submitted with an offer and include the lenders name, your name or company name, the amount of the approval, the general requirements of the loan, and the estimated time to close. For real estate investors, the Proof of Funds Letter is an important document to include in an offer because it shows the seller that you are prepared to close.

In this article we will explore the use of a Proof of Funds Letter issued by a Hard Money Lender, also known as private money lender, and used by real estate investors to buy an investment property. Many of these real estate investors are buying single family homes and multi-family properties with a Fix and Flip Loan, Fix and Hold Loan, Bridge Loan, or New Construction Loan.

Why is a Proof of Funds Letter Important?

The Proof of Funds Letter is extremely important in today’s competitive real estate market. In fact, most sellers will not accept an offer without a Proof of Funds Letter. Experienced real estate investors will often obtain a Proof of Funds Letter from a reputable Hard Money Lender, such as TaliMar Financial, to strengthen their offer and show the seller they are prepared to close quickly.

When Should I Get a Proof of Funds Letter?

Obtaining a Proof of Funds Letter is commonly done prior to submitting your offer. This allows the Hard Money Lender to underwrite you as a borrower prior to receiving a loan request. By getting pre-approved, the underwriting and funding process will go much quicker and will be one less step in your closing process. Knowing that the closing process on an investment property can be chaotic, anything you can do to eliminate a step will save you time and reduce the risk that you can’t close on your purchase.

How do I get a Proof of Funds Letter?

Obtaining a Proof of Funds Letter can be easy. Most Hard Money Lenders will be happy to issue you a Proof of Funds Letter knowing that you will be a potential borrower in the future. It also shows the Hard Money Lender that you are serious about purchasing a real estate investment property.

The first step in obtaining a Proof of Funds Letter is to reach out to local Hard Money Lenders. Before you commit to a specific Hard Money Lender, I would suggest speaking with other real estate investors in your area to get their recommendations. I would recommend contacting at least three Hard Money Lenders to learn about their general loan guidelines. Remember, don’t just focus on their pricing, but get an understanding of the types of loans they fund, their underwriting guidelines, the amount of time they need to close, and their history of recently funded loans. You may find a Hard Money Lender with low rates, but if they can’t close quickly or they don’t specialize in the loan type you need, the pricing is not going to matter.

After you have identified your preferred Hard Money Lender, request they provide you a Proof of Funds Letter. Most likely they will have you complete a basic application which may or may not include a credit check. TaliMar Financial offers a Preferred Borrower Account Program which provides real estate investors that buy and sell residential and commercial investment properties, a Proof of Funds Letter, Expedited Closings, and access to our Real Estate Wholesale Platform. The application can be completed online by clicking here.

Once you have the Proof of Funds Letter, it’s now time to look for your next deal. Remember, keep the Hard Money Lender updated with any offers that you submit so they are prepared to take a call from the seller. A short e-mail with the address of the property and the offer amount should be sufficient.

Property Specific Proof of Funds Letters

A property specific Proof of Funds Letter is similar to a pre-approval letter but includes the property address. These types of letters may give the seller a higher lever of confidence because it shows you have done your due diligence on that specific property. However, for many Hard Money Lenders, issuing multiple property specific Proof of Funds Letters maybe to onerous and therefore will only issue a general Proof of Funds Letter. You will want to ask your money lender their preference.

Conclusion

The Proof of Funds Letter issued by a Hard Money Lender has become an important component of becoming a successful real estate investor. Real Estate investors that use a Proof of Funds Letter to submit with their offers have a higher likelihood of having their offer accepted. A Proof of Funds Letter should be obtained prior to submitting an offer and can easily be obtained through a local Hard Money Lender. A property specific Proof of Funds Letter can sometimes increase your chances of having your offer accepted, but you will need to reach out to your preferred Hard Money Lender to see if they offer these types of letters.

Thanks for taking a moment to read our article. If you are interested to learn more about our hard money loans, click here to sign up for the TaliMar Newsletter.

About TaliMar Financial

TaliMar Financial is a San Diego hard money lender that specializes in funding residential and commercial Fix and Flip, Construction, and Bridge Loans. As a direct private money lender, we offer aggressive financing options and typically close our transactions in less than 7 business days. We work directly with real estate investors and property owners as well as real estate agents, mortgage brokers, and other real estate professionals.

Contact TaliMar today at (858) 242-4900  with your loan request or visit talimarfinancial.com to learn more about our hard money lending programs.