If you are starting this entry by asking.."what is a pof" then you are NOT ready to buy a bank owned home. After reading this post though, you can easily fix that!
A POF is a "proof of funds." I have been involved in selling bank REO properties for almost 15 years and if anybody tries to tell you that you can wait to get your offer accepted to provide evidence that you really can buy the property....fire them! They are not qualified to represent you in purchasing a bank owned home!
Simply, the banks do not like to accept an offer, take the house off the market, and then find out that the buyer can't perform due to financial reasons. Therefore, the REO seller requires evidence that the buyer has funds available to complete the purchase.
This proof of funds can come in a variety of different forms:
On a bank/mortgage company letterhead. In the last few years more and more banks will not accept a letter from a mortgage broker. The POF requirement will need to be from the actual entity producing the funds. This letter can say that the buyer is approved to buy the property at a certain address up to the list price, or if the lender does not mind updating their letter, just have them state the offer amount. The key components of this letter are:
Lender Letterhead
No more than 30 days old
State a dollar amount
Provide contact information
If the buyer is planning on using cash, somehow they need to provide evidence of the existence of this cash. I usually suggest taking a copy of the bank statements that document the existence of the funds and blacken out the account numbers and any other private information. These bank statements need to be in the last 30 days also.
Beleive it or not, I have actually had on two different occassions buyers submit photocopies of actual dollar bills! Besides the humor in this, it is hard to convey that this is not acceptable. First it is not acceptable because how is the seller to confirm who these bills really belong to? Second, with many of the new money laundering laws, unless you are buying a property for under $10,000 your funds will have to be wired to the title company and that will require a deposit in a bank. So, actual copies of bills just do not fly!
The other area where buyers agents make a mistake is presenting an offer with a proof of funds from what is known as a "hard money lender" and calling this a cash offer. Hard money lenders are individuals who make a living loaning money at pretty steep rates and costs. Many investors have turned to hard money lenders due to the lack of normal credit available in the market or the investors own credit issues, and the short term nature of their planned use of the funds. If the buyer intends to "flip" the property, the fees for the short term loan can be built into the resale and the interest will not accrue for long. Even if the hard money lender has committed to make the loan to the buyer, these are still loans and the proof of funds needs to be disclosed as being based on a loan, not cash.
So, before an REO buyer starts looking, getting a proof of funds to go with their offer is a must. You really are not prepared to make an offer on a bank owned home if you have not got your POF.
Other posts in the series "Are You Really Prepared To Buy A Bank-Owned (REO) Home?"
Can You Stomach Competing With Multiple Offers?
Wilmoth Home
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