Proof Of Funds Letter
A major short sale concern of the lender is investing the time and effort in negotiating a short sale then having the buyer not close on the short sale. Because of this possibility you can expect the lender to request a "Proof of Funds" or a "Mortgage Commitment Letter" as a required part of the short sale package.
This request is often a major obstacle for real estate investors that are flipping the deal with what is known as a double or simultaneous closing. What to do?
Here are several possible solutions:
- Bank Statement. If you have the funds available send the lender a recent bank statement as proof of funds.
- Obtain a Proof of Funds Letter. This letter can be obtained from your bank, mortgage broker, private money lender, hard money lender, or anybody that has the ability to fund the transaction.
- Mortgage Commitment Letter. I'm not a fan of the Mortgage Commitment Letter because a lender issues a loan commitment after it has approved both the house and you. The home appraisal must meet the lender's guidelines and the lender may require the property be in a better condition then the current state of the home. For this reason I feel a MCL is better suited for buying houses that do not involve a short sale.
- Home Equity Line Of Credit (HELOC). If you have available equity in a property a HELOC on the property can serve you well. First, there is no cost on most HELOC for unused lines of credit. Second, it meets the lenders guidelines as proof of funds even if these are not the funds you intend on closing with.
The bottom line is unless you have an established relationship with the lender it is likely you will have to show proof of funds in some manner. If you are new with limited resources find a good hard money lender to work with and they can provide the letter you need.