Proof of Fund and Its Necessity
Proof of fund which is a type of bank instrument is often demanded by a seller from home buyers, in case when the buyer obtains a mortgage. The main reason for demanding this proof of fund is to see the evidence if buyer has a down payment or closing costs or both agreeing the deal to sell to that particular buyer. Because now-aday a preapproved letter or a buyer’s word alone is not enough.
Moreover if the buyer claims to be a cash buyer then the proof of fund becomes a necessary requirement for them to present to a seller. Because most of the time the listing agent advice the seller to keep the house on the market until they receive the proof of fund from a cash buyer.
Now-a-day no one believe in the word of mouth especially in case of money, so in order to buy a home the buyer have to show a purchased own or leased ban k proof of fund proving that they have money to buy that house.
A cash buyer is a person that has cash on their hand to make purchase without any involvement of loan or mortgage and most of the buyers considered them as cash buyer even when they are not. Buyers that are in the process of selling their stocks or mutual funds, holders of deposit certificated that not matured, waiting on the probate court to distributing the assets, borrowing from a relative etc , often considered themselves as cash buyers. But the truth is, if the cash is not liquid and readily available on a short notice then, they are not considered as cash buyers.
In case the offers cash and show them as cash buyer by obtaining hard money loans then their behavior is considered deceptive at minimum since they lie to the seller as cash buyer when they are clearly not, which lead to the violation of the contract law.
Beyond the earnest money deposit for the purchase, you will have to pay some additional fee to close escrow, the balance of the down payment and need to pay closing costs too. As the closing cost a buyer need to pay 3% of the sale price in most of the cases.
It is not uncommon to find buyers that argue with the seller for demanding proof of fund as they have a very high standing in the society. But in a business even a millionaire buyer is asked to show their proof of fund since it is a proof stating they have capability to make the purchase.