With a VA loan, you can enjoy one of the most powerful mortgage products on the market for eligible veterans, active duty service members, and surviving spouses when buying a home. Because VA loans do not require a down payment or private mortgage insurance, lenders are naturally more cautious because they still want to be sure you are financially capable of managing the responsibility. One of the most common documents your potential lender may ask for is a Proof of Funds letter.
The document is used to show that you have the funds required for certain home buying expenses: earnest money, closing costs and fees not financed by the loan. Let’s take a look at the Proof of Funds letter and how it factors into the VA loan process: what it is, what’s included and how you can get ready to submit one.
What Is a Proof of Funds Letter?
A Proof is a written statement from a lending institution which explains that a buyer has enough funds to complete a property purchase. In the case of a traditional loan, this letter provides proof the buyer can afford its down payment; for a VA loan, the letter shows the buyer will not need to meet a down payment requirement.
While you can save thousands on a house with no down payment, you don’t want to be cash poor when you close.
- Earnest money deposit
- VA funding fee (if not financed)
- Closing costs
- Home appraisal fees
- Prepaid taxes and insurance
The POF letter provides lenders and sellers with assurance you are financially ready to fulfill such obligations.
Is a Proof of Funds Letter Required for VA Loans?
In technical terms, if you’re a VA approved builder, the VA doesn’t have a POF letter requirement. But VA approved builders can use them if they want, based on the profile of the loan and the condition of the market. In competitive markets, sellers may ask to see a Proof of Funds letter before agreeing to sell to you.
Note: VA no longer issues builder IDs; builders must be licensed and accepted through our builder review.
A POF letter shows that you’re a motivated buyer, and it may speed through the underwriting process. Here’s where it comes in handy:
- Paying the VA funding fee out of pocket
- Offering earnest money to secure a property
- Covering closing costs without lender assistance
What Should a VA Loan Proof of Funds Letter Include?
Your Proof of Funds letter needs to be from a reputable & legitimate financial institution i.e. bank, credit union, investment firm, etc. It should explicitly mention that you hold liquid cash in your name and must consist of the following:
- Your name as the account holder
- The type of account (checking, savings, etc.)
- The current balance (sufficient to cover your obligations)
- Date of issuance (must be recent, ideally within 30 days)
- Bank’s contact details and signature
Note that when you have large deposits during underwriting, it could become a question mark for the underwriter. Be prepared to have a source of these funds and for them to be acceptable according to VA loan guidelines.
Where Do You Get a Proof of Funds Letter?
You may obtain a POF letter directly from your bank or by visiting your credit union. Many universities will supply them on request, and some can be downloaded via your online banking. Or, if you are working with a mortgage lender, your loan officer can help you collect the necessary documents.
If you’re ready to apply for the VA loan, understand the application process, as well as the rest of your VA loan packet, or if you’re just looking to get prescreened and obtain a prequalification to work with, the please choose all that apply and at the end finish the short application here to start pulling together your paperwork so when you speak with one of our Intercap Home Loan expert to get Pre Qualified with Confidence.
VA Loan Proof of Funds vs. Preapproval Letter
The Proof of Funds letter is often mistaken by many homebuyers for the pre-approval letter. They both add a feather to your cap as a buyer, but for different reasons:
- A preapproval letter shows you’re qualified to borrow a specific loan amount
- A POF letter shows you already have funds available for out-of-pocket expenses
Documents like these are essential during the VA home loan process because they help buyer and seller alike understand what the buyer is offering, what the seller is agreeing to, and what comes next when closing time arrives.
VA Loan-Related Costs You May Need Proof of Funds For
While VA loans are intended to be low cost, there are a few fees you may be required to pay out of pocket. Which is where the POF letter comes in:
1. Earnest Money Deposit
This is an earnest deposit you make when submitting an offer on a home. Although often refundable, in many cases you must demonstrate that you have the money in place.
2. VA Funding Fee (If Not Financed Into the Loan)
With the VA home loan funding fee, the government can help keep the program going. The fee depends on your military service and the size of your down payment (if any). One way to estimate this cost is to check out our VA Home Loan Funding Fee Calculator.
3. Closing Costs
VA loans restrict what you’re allowed to pay in closing costs, but there are still items that can land on your shoulders. These may be title fees, taxes and homeowners insurance.
- Property location (affecting taxes and fees)
- Whether you’re financing the funding fee
- Estimated closing costs
- Any prepaid expenses (such as property taxes or insurance)
Your loan officer will help you decide what to put in the POF letter. A little extra covering random changes is always better than not enough.
Final Thoughts: Be Financially Prepared with a POF Letter
A Proof of Funds letter might not be mandatory for VA loans, but it’s a big help in this real estate market. It comforts sellers, speeds up your loan process and makes you an organized buyer.
If you plan on purchasing a home with a VA loan, we recommend being prepared and organized. Sign up for our Rate Notification and get notified when rates change that affects your home buying decision.
Having your Proof of Funds letter ready and knowing what they are can help make your VA home buying experience easy, credible, and stress-free.
