Purchase Offers/ Proof of funds when using private lender money.

[Giovanni Cortorreal]

It is my understanding that real estate purchases using private money lenders are made as cash offers. However, when the offer is for a bank REO the bank want a proof of funds letter that shows that the person making the offer has the money in an account under his/her name showing that the funding is in place.
The problem is that the private lender is not releasing the funds to me so that I may place it in my account prior to making the offer. The funds will not be release until a wire transfer is requested by the closing agent.
In my research I also read that the potential private lenders information are kept in your database and presented the investment opportunity only after the distress property is placed under contract.

Can anyone out there explain the process and let me know if I’m mistaken in my understanding? I am still trying to understand how it all works so don’t afraid to correct my understanding.

Thanks for all your help; I look forward for your responses.

[J Scott]

When I make offers on REOs on behalf of other investors who plan to use hard/private money, I make the offer the same way I would a cash offer (no financing contingency, etc), and then in the special stipulations, I indicate exactly how the buyer is purchasing the property (with private/hard money). I then include a letter from the lender indicating a pre-approval for the funds.

This way the offer looks good (no extra contingencies), but is completely transparent with the financing details. I never call it a "cash offer" (it's not), but don't complicate it with all the extra amendments and contingencies.

If the buyer gets the property under contract and has to fill out an addendum that asks for financing type, I will always indicate that the purchase is financed if the buyer is using private/hard money.

And I'll always include however much time is needed for financing approval into the due diligence period, so there is only one contingency in the contract, not multiple.

Doing it this way allow us to be completely honest and transparent, but still give us the best chance of getting the property under contract.