Income
Proof of Funds: Definition & Example
Also called: POF
What Is Proof of Funds?
Proof of funds is documentation showing that a person or business has enough money available for a purchase or investment, usually a recent bank or brokerage statement or a bank letter.
What does proof of funds mean?
Proof of funds is about assets on hand, not income. Sellers ask for it before accepting a cash offer on a home, lenders ask for it to confirm down payment and closing costs, and sponsors of private investments may ask for it before accepting a commitment.
Acceptable proof usually shows the account holder’s name, the institution, the date, and an available balance at least equal to the amount needed. Funds should generally be liquid, such as checking, savings, money market, or brokerage accounts.
Because statements can be edited, some sellers and lenders ask for a letter directly from the bank or data pulled from the account with the owner’s permission.
Proof of funds example
A buyer makes a $310,000 cash offer on a house. The seller’s agent asks for proof of funds, and the buyer provides a brokerage statement from the past week showing $180,000 in a money market fund and a savings statement showing $145,000, for $325,000 in total liquid funds.
Related terms
- Liquid AssetsLiquid assets are cash and other holdings that can be quickly converted to cash without significant loss of value, such as checking, savings, money market accounts, and publicly traded securities.
- Cash ReservesCash reserves are liquid funds a borrower or business still has available after a transaction closes, often measured in months of housing payments or operating expenses.
- Verification of DepositVerification of deposit (VOD) is a form, commonly used in mortgage lending, in which a bank confirms an applicant’s account details, current balance, and average balance.
- Due DiligenceDue diligence is the investigation a buyer, investor, lender, or partner performs before a transaction to verify facts, uncover risks, and confirm what they are getting.
- Proof of IncomeProof of income is documentation showing how much money a person earns, such as pay stubs, tax returns, bank statements, an employer letter, or a benefits statement.
Proof of funds FAQ
- What is the difference between proof of funds and proof of income?
- Proof of funds shows money a person has right now. Proof of income shows money they earn over time.
