WHY IS POF IMPORTANT IN A REAL ESTATE DEAL?
August 22, 2017 | Richard Sites
POF is the Key to a Successful Transaction
POF is a term currently being found in residential real estate listings. What is POF and why is it important to a successful closing?
Let’s drill down a little and talk about it.
When a seller gets an offer on their home with a financing contingency, they take the home off the market until the financing is approved. This is usually takes a couple of weeks.
Until recently, the standard residential real estate contract in Florida (commonly called the “FAR-BAR”) called for a “mortgage commitment” at the end of this contingency period. This language was changed to simply call for “mortgage approval” since some lenders, particularly those on-line, do not issue commitment letters anymore.
If the contract calls for a commitment yet the lender does not provide one, what happens? This problem is exactly why contracts only ask for only an “approval” now.
Where Does the Money Come From?
When it comes to a successful real estate transaction, having the money to buy the house is key. So where does this money come from?
A Mortgage with a Lender
Assuming you, as buyer, are not paying cash for the house, you will be borrowing from a lender. This lender will provide a pre-approval or pre-qualification letter for you to present to the seller with your offer.
This is hard copy proof that you can complete the deal. However, the drawback with these letters is that they can be done very casually, sometimes over the phone. And they don’t ensure that the financing will go through.
So even though you have made the effort to speak to a lender this letter might not stand up when your finances are completely examined by the lender’s underwriters.
What if you are paying cash for the home?
This is where the POF or Proof of Funds comes in.
When you make a cash offer on a home the seller has a right to know if you have the money. So most listings today ask for a Proof of Funds letter to accompany all offers on the property.
This is only reasonable since the seller will be taking the home off the market.
What is a Proof of Funds?
There is no specific letter or formula but something that shows adequate funds to make the purchase is required. This could take the form of a bank statement, a brokerage statement or a letter from a private banker.
Basically, sellers want buyers to show that they have the means to complete the deal. Of course, the buyer could still go spend these funds and the deal could crash but that is highly unlikely.
The Take Away
If you are buying, whether paying cash or financing, get you financial house in order before looking at houses. You should: 1. Get your financing in order, 2. Interview several agents and choose one, 3. Go look at homes.
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