Proof of funds question

Buying & Selling Real Estate
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Proof of funds question

Jeffrey Grieshop
New to Real Estate · Coldwater, OH · Member since 2018 · 105 posts · 61 votes

this is a pretty basic question. I better know the basics before the specifics. I am hungry for a rental property. I am ready to look at many and submit offers as well. Before that though, I want the buyer to know that I have the funds to fulfill my end of the deal. I want to be a cash buyer, so how can I become that? I have liquid funds, not enough to cover the purchase of properties I have been looking at though. They would cover some of the down payments, I believe, but not the full purchasing price. I do have a SEP that is pretty healthy for someone 32 years old. But, I think my ticket to financing the rental properties I am pursuing lies in my home. I have it paid in full. I purchased it for an amount of that which is usually 2 to 4 times greater than the investment properties I usually look at. I could nail down my criteria but I am not worried about that just yet. I am familiar with a HELOC, not entirely, but somewhat. Anyway, when I make an offer or I go to a showing I want to know that I have the funds to buy it. I emphasize I want to know I have the funds, not think I have the funds to make the purchase. How do I go into showings being that guy? What steps do I take?

Furthermore, a bit of what inspired this was something Brandon Turner said in The Book on Rental Prop. Investing. He said "those guys in the bank you talk to and say "ya, we can get you that loan" are not really the ones approving the loan. It still has to go to underwriting." So, I simply do not want to be misled and then surprised when I can not get funding.  

Also, I did talk to one lender recently about a loan. He said I was preapproved but I never received anything in writing. There was nothing concrete to show a seller. So, I am a bit confused on how to attack the proof of funds concept. I am seeking some direction

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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
7y
Originally posted by @Jeffrey Grieshop:

this is a pretty basic question. I better know the basics before the specifics. I am hungry for a rental property. I am ready to look at many and submit offers as well. Before that though, I want the buyer to know that I have the funds to fulfill my end of the deal. I want to be a cash buyer, so how can I become that? I have liquid funds, not enough to cover the purchase of properties I have been looking at though. They would cover some of the down payments, I believe, but not the full purchasing price. I do have a SEP that is pretty healthy for someone 32 years old. But, I think my ticket to financing the rental properties I am pursuing lies in my home. I have it paid in full. I purchased it for an amount of that which is usually 2 to 4 times greater than the investment properties I usually look at. I could nail down my criteria but I am not worried about that just yet. I am familiar with a HELOC, not entirely, but somewhat. Anyway, when I make an offer or I go to a showing I want to know that I have the funds to buy it. I emphasize I want to know I have the funds, not think I have the funds to make the purchase. How do I go into showings being that guy? What steps do I take?

Furthermore, a bit of what inspired this was something Brandon Turner said in The Book on Rental Prop. Investing. He said "those guys in the bank you talk to and say "ya, we can get you that loan" are not really the ones approving the loan. It still has to go to underwriting." So, I simply do not want to be misled and then surprised when I can not get funding.  

Also, I did talk to one lender recently about a loan. He said I was preapproved but I never received anything in writing. There was nothing concrete to show a seller. So, I am a bit confused on how to attack the proof of funds concept. I am seeking some direction

 Reality is you're not a cash buyer unless you have the cash.

If the only place you can get cash is from a HELOC on your owner occupied residence and you're comfortable leveraging your home for an investment property, do it. Many people get their starts that way.

Another way would be leveraging your home and getting a hard money loan.

Get the HELOC and then get a hard money loan for the down payment and renovation costs until you're reimbursed by the HML. Once you're reimbursed, the project is sold and you replenish the HELOC. Rinse and repeat. Another way people leverage other people's money to take their margin.

You may also be able to get a loan against your SEP, but I think the HELOC is a better way to go. As @Fred Shatzoff said, make sure you've got a financing contingency in the contract if you don't have the cash.

Best of luck

Stephanie

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  • Fred Shatzoff
    Lender · Member since 2019 · 604 posts · 160 votes
    7y

    @Jeffrey Grieshop  Make your offer contingent upon  financing to protect your self.  

    1Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    7y
    Originally posted by @Jeffrey Grieshop:

    this is a pretty basic question. I better know the basics before the specifics. I am hungry for a rental property. I am ready to look at many and submit offers as well. Before that though, I want the buyer to know that I have the funds to fulfill my end of the deal. I want to be a cash buyer, so how can I become that? I have liquid funds, not enough to cover the purchase of properties I have been looking at though. They would cover some of the down payments, I believe, but not the full purchasing price. I do have a SEP that is pretty healthy for someone 32 years old. But, I think my ticket to financing the rental properties I am pursuing lies in my home. I have it paid in full. I purchased it for an amount of that which is usually 2 to 4 times greater than the investment properties I usually look at. I could nail down my criteria but I am not worried about that just yet. I am familiar with a HELOC, not entirely, but somewhat. Anyway, when I make an offer or I go to a showing I want to know that I have the funds to buy it. I emphasize I want to know I have the funds, not think I have the funds to make the purchase. How do I go into showings being that guy? What steps do I take?

    Furthermore, a bit of what inspired this was something Brandon Turner said in The Book on Rental Prop. Investing. He said "those guys in the bank you talk to and say "ya, we can get you that loan" are not really the ones approving the loan. It still has to go to underwriting." So, I simply do not want to be misled and then surprised when I can not get funding.  

    Also, I did talk to one lender recently about a loan. He said I was preapproved but I never received anything in writing. There was nothing concrete to show a seller. So, I am a bit confused on how to attack the proof of funds concept. I am seeking some direction

     Reality is you're not a cash buyer unless you have the cash.

    If the only place you can get cash is from a HELOC on your owner occupied residence and you're comfortable leveraging your home for an investment property, do it. Many people get their starts that way.

    Another way would be leveraging your home and getting a hard money loan.

    Get the HELOC and then get a hard money loan for the down payment and renovation costs until you're reimbursed by the HML. Once you're reimbursed, the project is sold and you replenish the HELOC. Rinse and repeat. Another way people leverage other people's money to take their margin.

    You may also be able to get a loan against your SEP, but I think the HELOC is a better way to go. As @Fred Shatzoff said, make sure you've got a financing contingency in the contract if you don't have the cash.

    Best of luck

    Stephanie

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    cash buyer denotes cash in the bank..  if U don't have that get it.

    heloc easiest open one up.. draw on it put it in the bank.. when asked for POF simply copy your bank statement showing the cash in there .. easy as that.

    Keep in mind helocs can get frozen in a down market.. read the small print.

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    2Reply
  • Charlie MacPherson
    China, ME · Member since 2014 · 3k+ posts · 4k+ votes
    7y

    @Jeffrey Grieshop  If the lender who pre-approved you did not review your supporting docs (pay stubs, W2s, tax returns and bank statements), you are not pre-approved.  What you might have is loosely referred to as a pre-qualification - and that's not worth the paper it's printed on.

    Until that lender has reviewed those supporting docs and run your credit, he has absolutely no idea whether you can buy a property or not.  A sharp seller's agent will call the lender and drill down on those answers before recommending that a seller consider your offer.

    The same holds true for hard money lenders.  They won't need those same docs, but many will let you print off your own proof of funds right from their website.  Again, a sharp agent will catch that.  If I were the seller's agent, I'd be looking for a large non-refundable deposit.

    What the seller's agent is trying to prevent is accepting an offer from what turns out to be an unqualified buyer.  If that happens, the seller is off the market for a period of time when they shouldn't have been and then have to go back on market with what is now a stigmatized property.  

    The whole world knows that it was under contract but the deal blew up.  Buyers will assume that there must have been something wrong with the property.

    If you want to be a true cash buyer, get that HELOC and put the funds into an account. A bank statement for that account is a solid proof of funds.

    1Reply
  • Jeffrey Grieshop
    OP
    New to Real Estate · Coldwater, OH · Member since 2018 · 105 posts · 61 votes
    7y

    You guys rock! That is the information I was looking for. I need the HELOC beforehand. @Charlie MacPherson I learned a lot from that post, thanks.

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