When a commercial real estate investor seeks to acquire income-producing real estate using any number of creative financing methods, one of the most important keys to their success is the ability to provide proper, verifiable Proof of Funding – POF – to both the seller and the lender. Funds verification can increase the investor’s credibility with the seller and meet the lender’s need to know that the borrower has the necessary funds to complete their transaction.
Proof of Funds
There are a few ways acceptable for lenders and sellers to show POF to complete your commercial real estate transaction:
- Bank statements or bank verification
- Broker account statements or verification
- Verification of escrow account
“Bank Verification” This is the most acceptable and widely used method of confirming that the investors can close the proposed deal. As such, money must be deposited into a bank account and verified by bank statements or letter from the banker. This is a “hard” (as opposed to a soft) verification method as money is deposited into an account in the buyer’s name to serve as proof that the buyer can complete the transaction.
“Intermediary Account Verification” Similar to bank accounts, intermediary accounts demonstrate acceptable means of completing a purchase transaction. Likewise, declarations or letters from the representative of the brokerage house are sufficient proof of sufficient financial strength. This is also a “hard” method.
“Escrow Verification” This is the only method that can be hard or soft proof of the required assets, as the escrow agent only needs to write a confirmation letter confirming that the borrower has finances to complete the transaction. It gets tricky when money is transferred into an escrow account that’s waiting to close.
Finally, there are companies whose sole purpose is to provide evidence of the financial standing of commercial real estate investors in order to complete their transactions. Many of them offer “proof of funds” and transactional financing. POF is required at the start of the deal and transaction funding is only for the day of closing. Both methods are a necessary part of an investor’s arsenal when using creative financing.