How To Qualify Proof Of Funds

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Buying and selling property can be a highly complex process, and it is essential to know the ins and outs before you proceed. This helps you to protect yourself (and, of course, your money), as well as comply with all of the legalities and technicalities involved in such transactions. One of these of which it is important to be aware is ‘proof of funds.’

What constitutes ‘proof’ of funds for buying a house and/or obtaining a mortgage?

Proof of Funds UK

You will be required to furnish proof of funds to buy a house.

There are a few critical reasons for this:

The Estate Agent Works for the Seller

When we ask, ‘what does an estate agent do?’, one of the most important answers is that they work for the seller, ensuring that their property is marketed properly and that they find the right buyer – who will be willing to pay the right price. They must ascertain whether or not you have the financial capacity to complete the transaction. A proof of funds letter is often sufficient at this point; this may be a simple statement from your bank or investments including shares, bonds, ISAs, etc.

This is particularly important in cash situations. The ‘cash buyer only’ meaning is that sellers are only willing to work with buyers who have all of the funds necessary now. That is, they don’t have to wait for another transaction to go through before they can buy. They’re not involved in a property chain, waiting on one house to sell before they can purchase another. This speeds up the process exponentially, but again, a proof of funds letter is nothing short of crucial.

If you cannot provide this information, it makes you a less attractive candidate – or you may be discounted altogether.

Required Money Laundering Checks When Selling a House UK

Since 2020, the law has required money laundering checks when buying a house. One of the most important estate agents’ rules on offers is that they obtain proof of funds when a prospective buyer submits an offer. (Note: if you are new to this process, you can find a sample offer letter to purchase property UK very easily online and edit it to suit your needs). They are, of course, confirming that you can pay for the property, but they must also confirm that your funding was not acquired via the commission of a crime.

When you put in an offer as a buyer, be prepared to then share proof of bank details, statements, investments or other sources of financing and income. Anti-money laundering checks when buying a house are now required because of the increasing prominence of ‘cleaning’ money through property transactions. Because the market is so large and because the property is so valuable (particularly lately), organised criminals can launder a significant amount of money in just one transaction.

The Fifth Money Laundering Directive, passed by the EU in 2018, seeks to prevent money laundering and financing for terrorist groups. If an estate agent fails to conduct a check, they can be fined or even imprisoned.

What Counts As Proof of Funds?

You can provide the estate agent with:

  • A mortgage agreement in principle. This serves as proof of deposit for buyers with mortgages.
  • Bank statements reflect your deposit amount.
  • Bank statements reflect your cash amount (for cash buyers).
  • Gifted deposit proof of funds (i.e. evidence that the money for the deposit or sale has been gifted to you).
  • Proof that you are selling a property.

It is within the estate agent’s rights and responsibilities to ask you to provide more details of the source of your funds and proof of deposit for mortgage or cash sales if they feel they need more information. Remember, they must comply with the stricter anti-money laundering laws and they need to confirm that the money is from where you claim it is. This may involve providing the following:

  • A letter from the person who gifted you the money
  • Additional bank statements. When it comes to the source of funds, how far back must you go? It can be months or even years.
  • Receipts related to the sale of shares, gambling winnings or other larger amounts.

What do estate agents do after the offer is accepted? They will ask for proof of funding. They may ask earlier to determine if you can complete a purchase. What if you are buying a house with an estate agent? You will still need to provide proof, as we will discuss in a moment.

This all has to do with providing proof to the estate agent. But you will also need to be prepared to do the same at other points during the transaction, notably:

Proof of Funds Mortgage

You will need to provide proof of funds for mortgage applications. This lets the lender know that you have the financial ability to pay both the deposit and, realistically, monthly payments. Can an estate agent disclose offers in the UK? They must disclose all offers to the seller and they must inform buyers that offers have been made without disclosing the specific amount(s).

With proof of deposit mortgage or an agreement in principle, you can begin the house hunting process with greater confidence in your ability to come across as a good buyer and with a budget in mind.

Proof of Funds Solicitor

Be ready to provide proof to your legal representative. Again, this is done to ensure that you can afford the purchase and to check that the source of funding is not linked to criminal activity. When does a solicitor check proof of funds in the UK? They may ask for it early on in the process but as with the estate agent, you do not have to provide evidence until you have made an offer on the house.

Checks can take some time to complete, so the solicitor needs to ensure that the process is as streamlined and fast as possible. If you delay in providing evidence, it can slow down the work immensely. The best step is to make sure you have all of your documentation in place so you are ready to provide it at the right time.

The seller’s solicitor will also require proof of financing or funding. Typically, your solicitor shares this on your behalf. But when buying a house in cash do I need a solicitor? There is nothing in the law to say you must use a solicitor; you are within your rights to handle the legal aspects on your own. If so, you will be responsible for ensuring the seller’s solicitor has access to the proof they need.

Holding Deposit for House Purchase UK

If the deposit is held as an agent for the seller, this means that the seller’s legal representative can release the funds to their client at any time. When you send your house offer letter to the UK, it is important to make sure that your financial ducks are in a row.

As a seller, you may ask, ‘when do I receive funds from house sale UK?’ Upon confirmation of mortgage funds release, the money is transferred from the buyer’s solicitor to the seller’s or from the buyer to the seller’s solicitor, if that is the case.

What Does Cash Buyers Only Mean UK?

As mentioned, this means that the buyer already has the cash on hand necessary to complete the purchase. Some sellers are only interested in working with this type of buyer. As such, they don’t need to provide mortgage deposit proof, but they do need to provide evidence of their funds and clarity around its sources.

How does this work with Strike estate agents in London? How do Purplebricks make money? When using these types of options, be aware that they use a flat upfront fee structure and, in the case of a Strike estate agent, they will offer optional ‘value-added’ services. This can seem like a ‘cheap’ way to sell your house, but the success rate for these platforms is not impressive. Their failure rate, however, is.

Buyer – and seller – beware! Be educated as you go through this process.

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