If you’re able to buy a house for cash, your transaction will be much easier than a standard home purchase with a mortgage. But there are some things you’ll need to know to ensure your transaction goes smoothly. Most importantly, you will need to provide a proof of funds (POF) if you want to make a cash offer on a house. POFs are documents that prove that you have enough money to pay for the house and show where the money came from.
Talk to your agent and be upfront about how you plan to pay for the home. They will advise you about the right way to show your proof of funds so you can make a competitive cash offer.
Why do you need proof of funds?
Much like you’re usually required to have a pre-approval letter to put in an offer on a house you plan to mortgage, cash offers often require a POF to show that you have the funds to pay for the house. Many sellers won’t accept a cash offer without one, but even if it’s not required, a seller is more likely to accept your offer if you have a POF.
What type of sale requires this proof?
POFs are usually required for any large cash purchases, but in relation to buying a home, the only time you need a POF is a cash offer. If you’re planning to get a mortgage, you’ll only need to put down your earnest money and give your agent your pre-approval letter.
Can you provide bank statements?
You can’t simply make an offer with your bank statement from last month showing that you have the money. There’s no proof that the money is still in the bank as of the day you bring in the letter.
Before you make a cash offer, talk to your agent about acceptable POFs and how soon you will need them. The most common POF is a signed letter from your bank on its letterhead, dated the day you’re making your offer, that shows your current balance. This will demonstrate that the money is available to you on the day you make your offer.
What if the money is in another type of account?
If your money is in a savings account or investment account, a signed letter from the bank will usually be enough to qualify as POF. However, if your money is in an account that takes some time to draw funds from like a 401(k) or IRA, you will have to move the funds to a more accessible account in advance.
Your real estate agent can give you detailed information about your case, so be sure to let them know your intention to pay with cash and where you’re keeping your funds before you find a house.
Can you pay in actual cash?
As a rule, you never want to pay for any large purchase with an actual briefcase of cash. Buying a home for cash simply means that you’re paying the total amount with your own readily accessible funds, and without a loan from the bank.
For the actual closing, you’ll need to bring a cashier’s check, which you can get from your bank. The title company handling the closing will tell you the exact amount you need to bring in so you’re ready with the full amount at closing. You don’t usually need to show any additional POF during the rest of the transaction as long as you provided adequate proof when you made the offer.
