A proof of funds (POF) letter proves that the buyer has the cash needed to close the sale. This may be required in addition to providing a seller a loan preapproval letter. Having stable enough income and credit to be able to get a loan doesn’t necessarily mean the buyer has ready cash.
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.
This is also the case for an all-cash transaction. Having the ready cash to buy doesn’t imply that you have the additional cash saved up to pay closing costs. In fact, a POF letter is often required for short-term investors such as house flippers, who often pay cash so they aren’t saddled with loans after the property is sold.