In today’s smoking hot real estate market, buyers need to move fast. To have the best chance of securing the winning bid and successfully acquiring the asset, Self-Directed IRA investors, like everyone else, need to be fully prepared going into a transaction. This is particularly important in the hotter, more competitive markets, where sellers are entertaining multiple bids from competing buyers.
Sellers do not want to waste time working with unqualified buyers with barriers to close. They will quickly weed out weak buyers who cannot even come up with down payment funds.
One thing buyers love to see is a proof-of-funds letter. For most people, this is simply a verification letter from their bank they have enough cash on hand – or access to a ready line of credit – to make the necessary down payment on the property. This is especially valuable if you have not been pre-approved for a mortgage. It is not uncommon for sellers to request the letter as part of the offer to purchase. As such, you may need to secure a proof of funds letter from American IRA early in the process. Ideally, having one on hand even when previewing properties is a good faith component for sellers. If you have a pre-approval letter from the lender, if any, it is nice to be able to provide that as well. If you are doing an all cash purchase, in or out of a Real Estate IRA, have a proof-of-funds letter is even more important!
The proof of funds letter should contain your name (or if you are using an Self-Directed IRA, the name of your IRA account), the financial institution’s name and contact information, and language similar to this:
We confirm that John Doe, owner of the John Doe Self-Directed IRA, has available funds in the sum of $_______ as of [date]. If you desire further verification of those funds, please feel free to contact us at [phone number].
[Authorized financial institution representative]
In the private end buyer market, conventional mortgages could require 10-20 percent down. They can be as low as 3.5 percent for FHA and zero down for VA loans. In the Real Estate IRA world, down payments of 35 to 50 percent of the price of the asset are not uncommon. Add in 3-5 percent for miscellaneous closing costs and fees.
To lock the home down in a purchase contract, you may need to secure a proof of funds letter from American IRA, LLC early in the process.
Tips: Consolidate assets within your Real Estate IRA into a single cash or money market account before you go home shopping. Money in stocks or mutual funds usually will not count as funds on hand, because the assets are so volatile, and you cannot write a check on these assets. We can liquidate them for you and move them into a cash account, of course, and then send you a check, but it adds another day or two to the process, and as mentioned earlier in the article, timing is key.
Remember, if you are buying a property for your Real Estate IRA, every dime must come from within that Self-Directed IRA account. You cannot contribute any of your own personal money from outside of your Self-Directed IRA to acquire IRA assets.
For more information about Real Estate IRAs, or to arrange a no-obligation consultation, or if you are a client and need a proof-of-funds letter for a pending real estate transaction, call American IRA today at 866-7500-IRA (472), or visit us online at www.AmericanIRA.com.
We look forward to serving you.