Why Proving Your Financial Backing is Essential for Homebuyers
If you've made an offer to buy a new property, you might have been asked to provide 'proof of funds'. But what is meant by this? Read this article for everything you need to know...
The property industry is filled with jargon and phrases that estate agents, financial advisors and solicitors use every day. Still, they can sometimes forget that it is not common language for everyone. Even those of us who have bought and sold properties many times might only do so every decade or so, meaning that new phrases or language can be brought into the process that you might be unfamiliar with.
Asking to see your proof of funds is an essential part of the property-buying process. Buying a property is not only likely to be the most expensive single purchase you will make; it takes a long time to work through the legal transaction. Of the offers that are accepted, almost a third of them might collapse at some point in the process, which can be heartbreaking if you've committed to a purchase that subsequently falls apart. To mitigate these potential issues, the estate agent will ask to see proof of your funds, and there are several reasons why.
To confirm that you can afford the offer that you've made: Simply, can you pay the price that you've offered? Whether this is in cash, saved in your bank, with mortgage funds or from the sale of your property, the first question is, can you make that payment?
To confirm the timescale: If you have cash saved in your account to pay for the property, then you are a 'cash buyer' in the true sense of the term. This means that you are likely able to move through the process very quickly and will enable the sellers to make plans to move out in line with your ability to move quickly. However, if all of your funds are tied up in your current property, the status of that property will dictate the timescale of the sale. Are you on the market yet? Do you have a buyer? Is that buyer ready to proceed with all of their finances in place? These questions will all have an impact on the time it takes to complete a sale.
To confirm the legitimacy of your funds: It is a legal requirement for the estate agent to check that your funds are 'legal'. This is to comply with the Anti-Money Laundering regulations that are in place to prevent people from buying property with the proceeds of crime or undeclared funds.
Being well-prepared with your proof of funds can significantly enhance your property-buying experience and bolster your negotiating position. By demonstrating, at the offer stage, the source of your funds and their readiness, you can instill confidence in the seller, enabling them to swiftly consider your offer.
So, how can you prove your finances?
You need to show evidence of any property that you need to sell to raise funds to make the purchase, which can be in the form of the marketing listing of your property or proof that you have accepted an offer, as well as the details of your estate agent.
Evidence of your deposit. Any cash element that you will be including in your purchase, either by a bank statement or a letter from a bank manager, accountant or financial advisor, clarifying that you have available funds to the amount that you intend to spend on a property if you'd prefer not to show bank statements. These funds must be readily available, or you should be able to indicate when or how the funds will be released.
Evidence of any loans you intend to take out. It is not possible to apply for a mortgage until you have an agreed purchase, so at this stage, you could provide a mortgage promise, also known as an agreement in principle, or confirmation from your mortgage advisor.
None of this is so that the estate agents can see how much money you have and then force you to offer more. It is rather that they can confidently make an offer to the sellers of a property on your behalf that you can support. Estate agents act as intermediaries, ensuring that both parties are in a position to proceed with the transaction. There is no requirement to provide evidence of all of the money that you have in the world, only enough to cover the price that you've offered.
Selling a property is an emotional process, and it can be heartbreaking when a sale collapses after the parties involved have committed to solicitors and surveys, not to mention the associated costs. Estate agents should check the financial position of a buyer before accepting offers to mitigate the chances of a sale collapsing.
If you're selling your home, it's crucial to ensure that any potential buyer has been financially verified before you accept their offer. Choosing a reputable estate agent to sell your property is key, as they will rigorously verify any potential buyer before accepting their offer for the sale of your home, providing you with peace of mind.
Don't hesitate to reach out to our team of property experts. We're here to provide you with the guidance and support you need, ensuring that any potential buyer has been thoroughly vetted before you commit to a sale, giving you the confidence to proceed.