Flipping Real Estate | Everything You Need to Know About Proof of Funds

On today’s video I’m going to show you what a Proof of Funds (POF) is, when it’s needed and the 5 steps for how to get it even if you don’t have the cash. Get ready to learn everything you need to know about proof of funds.

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Hi it’s Jerry Norton and as a real estate flipper your offers must be presented as “all-cash.”

Most people misunderstand what that means. It doesn’t necessarily mean you have a suitcase of $100 bills equal to the offer price. It doesn’t even necessarily mean you have liquid cash sitting in a checking account at the bank.

It could mean those things but what it really means is that you don’t need traditional financing with a bank and that your offer is not contingent upon getting financing approval from the bank.

In other words It removes the financing contingency. This makes your offer better and stronger than other offers that do have a financing contingency.

So as a flipper you should always make your offers “all-cash” and what’s nice about wholesaling is you’re going to flip your contract to an eventual cash buyer and don’t actually need the cash anyways.

Often times before a seller will agree to go under contract with your all-cash offer, they want to see proof that you’re an all-cash buyer. “Show me the money!”

Agents will request proof of funds before accepting your offer. They don’t want to go under contract and take the property off the market unless they feel comfortable that you can actually close on the deal.

Now there are 2 forms of proof of funds, soft POF and hard POF and it’s critical you understand the difference. I’m going to break it down for you on this video.

Soft proof of funds is a letter from a financial institution that states they have a relationship with you and that they will give you the funds for the deal as long as it meets their lending guidelines. In other words - a pre-approval.

Many private and hard money lenders will give you a soft proof of funds in the form of a letter that you can provide to the agent or seller but you need to understand it’s not a full approval to lend you a specific amount of money on a specific deal.

And in most cases a soft proof of funds in the form of a letter is sufficient for agents and sellers but sometimes they require a hard POF.

A hard proof of funds is either proof of liquid funds such as a suitcase full of cash or a bank account statement showing the cash or a full loan approval from a lending institution. That means the lender approved a specific dollar amount for a specific property and agree in writing to fund the deal.

Now here’s where it gets tricky…You can’t get a hard POF unless you have a contract because a hard money lender isn’t going to approve you for a loan unless you actually have a contract.

Well what if a seller doesn’t want to go under contract unless you have a hard POF.

You can’t get a hard POF without the contract an you can’t get a contract without a hard POF.

Now what…?

Here’s how I handle this situation…
If the agent or seller will not accept a soft PofF letter and require hard proof of funds, I try to meet in the middle following these 4 steps.

Step 1: explain to the agent and/or seller that you can’t get a full loan approval without first having the contract.

Step 2: put in writing that you upon acceptance of the contract you have 5-7 days to provide a hard proof of funds otherwise the contract is null and void.

Step 3: To give further comfort to the agent or seller, offer to leave to property active so they continue to get showings and don’t lose any time coming off market. You also can offer to increase your EMD to help the seller feel even more comfortable.

Step 4: Once they seller agrees and you have an executed contract, immediately get your contract to your hard money lender and get them to fully approve your deal in writing. Inform them of your contingency and deadline so they know the urgency.

Step 5: Once you get the approval, get it to your seller and remove the POF contingency and move forward with closing either top buy the deal using hard money or wholesale it to a cash buyer.

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Jerry Norton is the nation's leading expert on flipping houses and has taught thousands of people how to live their dream lifestyle through real estate.

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