It is no wonder that you have started thinking about investing in real estate, or that you have already joined this world. Whether you are a beginner, or a seasoned investor, though, there is one thing that you will absolutely understand. To put it simply, this world is quite competitive, and time often plays a major role in whether you will close a specific deal, or someone else will get it. Of course, your credibility plays a huge role there as well, because if you’re credible, you are bound to shorten the time necessary for you to get the funding and thus secure the deal.
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Anyway, whenever you want to close a deal, and get the funding you need to do so, you will need to prove to the seller you’re working with that you are, well, credible, reliable, and ready and able to close that deal quickly. They need this kind of assurance because they don’t really want to work with anyone, and assume a lot of risks. So, whether you want to buy a rental property, a fixer-upper, or anything else, chances are that you will need to work with these lenders, and chances are that you will need to prove your trustworthiness to the sellers.
How can you do that, though? Well, there is one concept that is quite well known in the world of real estate investing, and that you should absolutely get familiar with if you are a beginner investor. Even if you’ve been investing for a while now, but you don’t quite understand the concept I’m about to mention, you should take your time to get a clearer picture and figure out what it really is and why you should have it. To cut to the chase, I am talking about a proof of funding letter, and we are now going to check out what it is, and why you should have it when getting a hard money loan to fund your investment project.
What Is a Proof of Funding Letter?
Clearly, we are going to begin with the question of what this concept really entails. To put it simply, a proof of funding letter, or a POF letter, is actually a document that proves that you have access to the funds that are necessary for completing a specific real estate transaction. The sellers will require it in order to get a better idea about your trustworthiness, and about whether you will actually be able to pay the amount they are asking for.
These letters are, as you may have guessed it, issued by the lender that you are working with. So, you should do your best to get hard money proof of funds from the lender you are working with, in order to let the sellers know right away that you are serious about the purchase, and that you have the necessary money to actually buy the property you are after. Before we get to the part about why it is that you should get the POF letter from your hard money lender, let us first ensure that you understand what hard money loans are in the first place.
What Are Hard Money Loans?
Whether you are a new investor or a seasoned one, this is a concept that you should absolutely be familiar with. So, let me quickly explain it to you here. Basically, a hard money loan is a short term loan that is secured by the actual real estate that you are buying, which means that your credit score doesn’t play a major role in whether you will get the funding or not. They are typically used by investors looking to get a rental property, or to complete a fix-and-flip project, or generally for any kinds of real estate deals that they want to close quickly.
The fact that your credit score is not the main factor considered in the approval process is a huge plus, as it means that you can get the funding even if you don’t really have a great score. But then, hard money loans are also appealing because the entire process of applying and getting approved, and thus getting the money, is pretty quick, allowing you to snatch a property before someone else does. Additionally, the terms are flexible, and the repayment period is short, meaning you won’t be in debt for too long if you decide to use this financing option.
Why get the Proof of Funding Letter?
It is precisely because of the fact that these loans are asset-based that sellers, or agents for that matter, often require you to have proof that the funds are actually ready and that you will deliver your part of the deal. So, that is the main reason why you may want to get a POF letter – because the sellers will require it in order to assess your trustworthiness and ensure that you’ll be able to pay up, especially if working with a hard money lender. Click this to get an even better understanding of what a hard money loan is.
Clearly, thus, a POF letter proves your credibility. But, it also improves your chances of getting your offer accepted, and speeds up the whole transaction. Plus, it is often necessary for auctions. In few words, thus, you need this proof in order to be able to show your trustworthiness to the sellers and thus ensure that they will stick with you instead of selling to someone else, meaning that you often may not be able to close the deal if you don’t secure this letter. So, make sure to always ask your hard money lender for it.