Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Depending on where the money comes from, you may be asked to provide: Three or more months of bank statements. Investment statements • Notice of Assessment (to show an income tax refund) • The purchase agreement from your previous home, if you're using the money from the sale for your down payment.
Key takeaways
A proof of funds letter, or POF letter, proves you have the funds to buy a home. You might need one whether you're getting a mortgage or paying for the property with cash. Many mortgage lenders allow you to provide bank statements as proof of funds. In some cases, though, you might need a formal letter.
If you're applying for a short-term loan, a POF letter verifies for your lender that you have the money to cover your loan payments. Some sellers may request a POF letter to make sure you have the funds to afford a down payment and closing costs.
You can submit an offer without a proof of funds letter, but the seller may ask to see one before accepting. And if you're bidding in a seller's market, submitting an offer without a proof of funds letter makes your offer less competitive.
Savings Accounts
This is the most common and straightforward source for down payment funds in California. You've saved up some money in the bank, and you now want to put it toward a home purchase. And that's perfectly acceptable.
Down Payment Asset Breakdown
If someone plans to gift you money for your down payment, you must document the money before it's given to you — your loan originator can give you a template. This is formally called a gift letter; at Waterstone Mortgage, we provide a gift letter that you can complete with the details .
The answer is YES, but you can't just show up with stacks of cash to buy your house. There's a little bit of a process. Most banks (probably 99% of banks) are going to require that you season that money.
Proof of deposit (POD) is either a verification that a mortgage borrower has the funds for down payment or that the dollar amount of a deposit is correct. Mortgage lenders will require POD to show that the borrower has sufficient funds to pay the downpayment for a property.
There are a few ways to show proof of funds, and the first one that comes to most people's minds is a bank statement. But it is important to remember that a bank statement also includes substantial personal information, which is crucial when you provide a proof of funds for a real estate transaction.
To be considered “acceptable funds” the money must be yours and accessible. Here are the rules for funds: Cash, cash advances, personal loans, credit card advances, borrowed funds, etc. are not acceptable sources of funds.
It's illegal to repay gift money
You cannot repay a gift. This is a type of mortgage fraud and is a criminal offense. Gift money must be freely given, and there must be no expectation of repayment. Otherwise, it's a loan – which is much different and may disqualify you from mortgage approval.
Conventional mortgage lenders and FHA mortgage lenders forbid the use of personal loans as a down payment for a home. If you were to take out a personal to use as a down payment, you'd be on the hook for two debts — the mortgage payments and repayments for the personal loan.
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%).
The answer is undocumented cash on hand. Acceptable sources for a down payment include funds from a checking or savings account, gifts from relatives, the cash value from a life insurance policy, the sale of another property, or a seller contribution. Undocumented cash on hand is not an acceptance source.
Your down payment plays an important role when you're buying a home. A down payment is a percentage of your home's purchase price that you pay up front when you close your home loan. Lenders often look at the down payment amount as your investment in the home.
The more money you put down upfront, the less you need to borrow and the lower your monthly mortgage payment will be. The less you need to borrow, the easier it can be to qualify for a mortgage. You may be eligible for more mortgage programs, as well as better interest rates.
When you tell a lender how much money you'll put down on a home, they don't just take your word for it. You must prove you have the funds. They'll ask what account the funds will come from and then will require the last two months of statements from that account.
You must show you can comfortably afford your down payment and closing costs. Though less common, your mortgage lender may also ask to see a proof of funds letter during the application or underwriting process to confirm that you're using for your closing costs and down payment isn't from a loan you received.
Proof of funds refers to a document that demonstrates the ability of an individual or entity to pay for a specific transaction. A bank statement, security statement, or custody statement usually qualify as proof of funds. Proof of funds is typically required for a large transaction, such as the purchase of a house.