Proof of funds question

7 Replies

Hey everyone, I wanted to bid on a foreclosed property and the real estate agent required me to submit proof of funds as an investor. I don't have the funds for it however my partner does and he will pay for half the value of the property. We're trying to have a mortgage on the property under my name to get a good rate as a first time home buyer. Did anyone come across a situation like this? What ways can I provide proof of funds if I personally don't have it? Thanks in advance.

Proof of funds are used when you make a cash offer and actually have the cash (in your name) required to complete the purchase. Since you intend to get a mortgage, you should be submitting a financed offer along with a preapproval letter from your lender. 

The first time home buyer deals usually require that the buyer be the occupant; sounds like you are flipping, so probably not a sound approach. Since you realize you have to finance your acquisition, you should explore and understand your financing options, probably before you make offers.  EDIT - your lender would supply a pre-approval or pre-qualification letter that usually will work as proof of funds, but you still need a financing contingency because the lender can still say "no" to funding a deal they don't like. 

Assuming you did succeed in buying this, after closing how will the repairs / renovations get funded?

Originally posted by @Rafat Abdelrehim :

I don't have the funds for it however my partner does and he will pay for half the value of the property. We're trying to have a mortgage on the property under my name to get a good rate as a first time home buyer. 

In this case, you need to get prequalified for a mortgage before bidding on that property.  If your partner is putting up half the cost, you'll need a proof of funds statement from his bank.  Then you'll need a pre-qualifying letter for your half.  That should do it.

If you haven't gotten prequalified yet, you're not actually ready to buy.

Good luck.

I am going through this right now. I am in the process of trying to purchase my second rental property. I submitted an all cash offer yesterday on a SFH because I know I have the financial backing of a family member. My realtor told me I still need to show POF now. I sent my 401K statement. I also have a prequalification letter from 2 banks.

My partner will be funding all renovations. He is funding everything cash. Thank you all for the feedback.

So here's how I understand how this works:

The issue is that you are submitting an all cash offer because there's no bank involved and you aren't actually borrowing money.  Your partner will have an equity position in the property - they aren't loaning you money.

There are a few ways around this:

1) Your partner has to be on the property as well as you.  You buy it jointly.  Your partner shows proof of funds for the full amount.

2) Your partner gives you the money now and you put it in your bank account.  You let it sit there for two full statement cycles.  This is called "seasoning" the funds.  At this point, you do not have to prove where you got the money and you can use your account for proof of funds and buy properties in your name only.

3) You and your partner form an LLC. Your partner contributes the money to the LLC and you deposit it into the LLC account. You then buy properties for all cash in the name of the LLC. If you do so before two full statement cycles of the account, you will also have to show an operating agreement that discusses the financial contribution of each member.

If you have to pay back your partner or family member, this is called a loan and you should be submitting offers that have a financing clause.  Submitting cash offers means that Proof of Funds will absolutely be required in the name(s) of the people or entity on the contract.  A cash offer does not mean "no bank".  A cash offer means "I have the money and it's mine and I have full rights to it."

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