If you're applying for a mortgage, you'll need to provide some information to the lender. Your mortgage company will need proof that you can handle the down payment as well as the monthly principle and interest payments on your loan. This means showing proof of funds, a generic term that simply means a statement of the money you have available to buy a property.
Negotiating a Purchase
Before they approve your application, mortgage lenders want to make sure you have enough money on hand to close on the sale. This means not only down payment money, but also closing costs, which can total thousands of dollars depending on the purchase price of a home. The lender will estimate you payment needed at closing, but you can get a fairly good idea of this amount from a lender disclosure. This form will give at least the minimum cost information required by your state's law.
Proof of Funds Documentation
The lender will require proof of funds. The most basic documentation would be your most recent bank statement showing the current balance of any savings or checking accounts. The lender may require that the statement show not only sufficient cash on hand but regular income sufficient to meet your living expenses until the sale closes. Proof of funds can also come from investment accounts (stocks, mutual funds or other assets), a documented gift from a relative, or the proceeds of the sale of your last home.
Proof of Funds Letter
You may also request a proof of funds letter from the bank where you keep your cash. The letter takes the place of a statement, and is valid for a limited time (often 30 or 90 days). A POF letter carries more weight than a simple bank statement, as it is signed by a bank officer, appears on the bank's letterhead, and carries a precise dollar amount of money available as of the date it is written.
Lenders offering mortgages backed by the Federal Housing Administration must follow the FHA's guidelines for proof of funds. This includes a copy of the borrower's most recent bank statement or a verification of deposit, a form issued by the bank that shows balances on hand in a checking or savings account, as well as the opening date of the account, names of account holders, and account states. In addition, the FHA requires an explanation for any recent unusually large deposits; the lender must also verify that the borrower did not incur large debts to come up with the down payment.
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