In addition to providing a seller a loan preapproval letter, a buyer may also need to provide a proof of funds (POF) letter proving that the buyer has the cash needed to close the sale. This is especially the case for an all-cash transaction. Once you get preapproved for a loan, get your POF letter as soon as possible. Presenting a POF usually occurs early in contract negotiations so it can provide additional strength to your purchase offer.
Proof of funds can be evidenced with a simple letter from your bank, bank statements or proof of an open line of credit. A letter from your bank needs to have the name and address of the bank and a signature from an authorized employee.
A POF letter is often required when the buyer intends to flip a house or is a short-term investor who is using hard money funds to close the deal.