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. The purpose of the proof of funds document is to ensure that the funds needed to execute the transaction fully are accessible and legitimate.
Understanding Proof of Funds (POF)
When an individual or entity is making a large purchase, such as buying a home, the seller usually requires proof of funds. This ensures not only that the buyer has the money available to make the purchase, but also has legal access to the funds, as the proof of funds comes from a verified authority, such as a bank. Particularly for the purchase of a home, the seller and/or mortgage company wants to see if you have enough money for the down payment and the closing costs.
It’s important to note that in the majority of instances, the proof of funds must refer to the liquid capital, primarily cash. Certain investments, such as retirement accounts, mutual fund accounts, and life insurance, do not qualify as proof of funds.
Requirements of a Proof of Funds (POF) Document
When providing a Proof of Funds Document, there is certain information that is required to be included. The following are some of the most common pieces of information that will need to be disclosed on a proof of funds document:
- Bank’s name and address
- Official bank statement
- Balance of funds in the checking and savings accounts
- Balance of total funds
- Signature of authorised bank personnel
If the funds you plan to use for the purchase are spread across multiple accounts, you will need this information for all of them. It may be easier to move all of your funds into one account, therefore having to provide this information only once, and making the total amount of funds available easier to follow. It is possible to get a proof of funds document within a day or two from most banks.
Once you have your Proof of Funds Document in hand you want to ensure that it is secure at all times. Some con-artists planning a financial scam may seek / request a proof of funds to make sure that they are concentrating their efforts on someone with significant financial worth. In addition, it contains important financial information that should be safeguarded. Therefore, it is important to make sure that you only give proof of funds to trusted individuals whom you have thoroughly investigated.
Proof of Funds (POF) vs. Proof of Deposit (POD)
In commercial banking Proof of Deposits is the financial institution’s verification that funds have been deposited into an account and where these deposits came from. To do so, the institution will compare the amount written on the check to the amount on the deposit slip. When applying for a mortgage in addition to demonstrating proof of funds, a buyer will have to demonstrate that funds in fact have been deposited into an account and demonstrate where they came from.
Mortgage companies typically want to see where the deposits originate from, whether they come from the borrower or are they gifts from other parties. This helps determine if the borrower will be able to furnish the mortgage loan.
In addition to a Proof of Funds Document and a Proof of Deposit, a pre-approval letter is required to give to the seller or the seller’s agent when purchasing a home. The pre-approval letter will prove that you are able to obtain a mortgage to pay for the rest of the home purchase.