Proof of Funds: What can be used and how does it work?

Often abbreviated to POF, a Proof of Funds, is, as the name suggests, a document showing that the buyer has the money available to proceed with the transaction. This usually occurs in the form of a bank statement or any accessible financial account. While a POF is asked for in many different types of transactions, for the purpose of this article it will be to purchase a property in NYC.

What is acceptable as a Proof of Funds?

An acceptable proof of funds varies depending on the lender but most lenders will want to see an accessible account which is not funded by a loan. This means you cannot borrow money to borrow money. However, some lenders will accept an open line of credit depending on the amount of money needed to be shown.

In order to safeguard against short term borrowed money, banks will ask where the source of money in a bank account originated from. They will usually ask that the money be “seasoned” for at least two months. This means that the money has to have been in the account for 60 days. There are, however, companies that lend money soley for the purpose of showing a POF. They will allow the borrower to season the cash for 2 months. This is a contentious issue as the mortgage provider would be unlikely to lend to the borrower if they knew the money in their account was borrowed.

Sample types of documentation for a POF include:

Original bank statement

Online banking statement

An open equity line of credit

Copy of a money market account balance

Certified financial statement

Can a family member give me the POF?

Yes as long as it is a gift and not a loan. The lender will require that the family member sign a notarized “gift” letter, stating that the money they are giving is not a loan and they do not require it to be returned.

Can I use cash as a Proof of Funds?

No, not cash as in a briefcase full of money cannot be uses as a proof of funds. The lender has no way of sourcing this as it could be a loan. The money would need to be deposited into a bank account and seasoned for two months. If the amount is over $10,000, Federal law requires banks to report this money to the government for tax purposes, which could present a problem for the borrower if the money is loaned.