What exactly do estate agents mean by "proof of funds?"

This week I had a call with a client who wasn't exactly sure what was meant by "proof of funds". It was this client's question which provided the inspiration for today's blog.

What is meant by proof of funds?

When an estate agent asks you for proof of funds, they are looking for written proof that you have access to sufficient funds to complete the purchase of the property you are bidding on. See below for various types of "Proof of funds"

Why should estate agents look for proof of funds from buyers?

A buyer is often asked for proof of funds when they place a bid on a property. In my view this is an example of best estate agency practice. By allowing only those buyers who have provided proof of funds to place a bid, the selling agent avoids a situation where one bidder, who doesn't actually have the means to buy, is driving up the price for those bona fide buyers who actually are in a position to fund a purchase.

Do all agents ask for proof of funds at the bidding stage?

Not all agents ask for proof of funds when you place a bid on a property but the bigger agents such as DNG and Sherry Fitzgerald usually do.

So here's exactly what they mean by proof of funds.

What is typical proof of funds for First Time Buyers?

First time buyers typically borrow to buy their first house. If you're borrowing, then an agent will want to see a copy of your loan "Approval in Principle" (AIP). This is a letter which is addressed to you or to your mortgage broker in relation to you. This Approval in Principle will need to be in date. I usually block out the actual € amount that my client's are approved for on the basis that to show the selling agent how much my client can borrow is potentially giving them too much information.

What is typical proof of funds for people who are selling one house to buy another?

If you need to sell your home to finance the purchase of another one, then the estate agent who is selling the house you want to buy will want details of your own property sale. The agent will want to know are whether the buyer of your house has signed a legally binding contract to buy it. So proof of funds for you in this case will mean a letter from your solicitor stating that contracts have been signed by the buyer of your home or an email/phone call from the estate agent selling your house to the agent handling the house you want to buy, confirming that contracts have been signed by the buyer of your house.

If the proceeds of the sale of your house aren't enough to cover the purchase of the house you want to buy, the agent who is selling the house you want to buy will also want to see proof of cash or loan "Approval in Principle" to cover the difference.

Bear in mind that this is very much a "seller's market" eg. there are more people who want to buy property than there are properties for sale. This means the seller is likely to have a selection of cash or loan approved buyers willing and eager to buy his property. The seller may not wish to entertain a buyer whose finance is subject to the sale of their own property.

What is typical proof of funds for cash buyers?

If you're in the fortunate position of having sufficient cash to buy a property than proof of funds for you can take one of two forms.

1. A letter from your bank manager saying that "Ms. Mary Smith is a customer of ours. I confirm that she is in a position to fund the purchase of a property such as 123 Main Street ( state the address of the property you are buying) without recourse to borrowing".

or

2. A screen shot of your bank account showing the necessary balance.

That's all for now. I hope this was helpful?