Proof of Funds: Documenting Your Down Payment and Reserves

Complete guide to proof of funds for Seattle homebuyers: document savings, RSUs, gifts, and investments properly while protecting your privacy.

Tags:proof-of-funds, down-payment, financing, washington, seattle, documentation
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You're pre-approved for $900,000. You have $150,000 saved. You make an offer. The seller asks for "proof of funds." What do you send?

In Seattle's market, sellers want to see that you actually have the money you claim. A bank statement showing $150,000 isn't enough if it also shows your account number and personal transactions. You need to provide proof while protecting your privacy.

This guide covers everything you need to know about documenting your funds properly, from basic bank statements to complex RSU liquidations common among Seattle tech workers.

Table of Contents

What Is Proof of Funds?

The Basics

Proof of funds: Documentation showing you have cash available for down payment, closing costs, and reserves.

Why sellers require it:

  • Verify you can actually close
  • Reduce risk of deal falling through
  • Compare competing offers
  • Protect their time and money

When you need it:

  • With initial offer (sometimes)
  • After offer acceptance (always)
  • During escrow (lender requires)
  • At closing (final verification)

What you need to prove:

  • Down payment amount
  • Closing costs (2–3% of price)
  • Reserves (2–6 months expenses)

Seattle example ($825,000 home, 10% down):

  • Down payment: $82,500
  • Closing costs: $20,000
  • Reserves: $36,000 (6 months)
  • Total needed: $138,500

Timing Requirements

Proof of funds documentation typically needs to be current within 30–60 days of your offer. The timing requirements reflect the need for current information about your financial position and help ensure that your funds remain available throughout the transaction process.

Understanding these timing requirements helps you plan your documentation updates and ensures that you can provide current information when required. Regular updates may be necessary for longer transactions or when significant time passes between your initial offer and closing.

Types of Fund Sources

Savings and Checking Accounts

What to provide:

  • Bank statements (2 most recent months)
  • All pages (even blank pages)
  • All accounts that total to needed amount

Example:

  • Chase checking: $45,000
  • Chase savings: $60,000
  • Ally savings: $35,000
  • Total: $140,000 ✓

What lenders look for:

  • Consistent balance (not sudden deposits)
  • Seasoned funds (in account 60+ days)
  • Explanation for large deposits
  • Source of all funds

Red flags:

  • Large recent deposits (over $1,000)
  • Funds transferred between accounts
  • Borrowed money
  • Unexplained deposits

Investment Accounts

What to provide:

  • Brokerage statements (2 most recent months)
  • Showing account value
  • Type of investments

Acceptable:

  • Stocks
  • Bonds
  • Mutual funds
  • ETFs
  • Money market accounts

Considerations:

  • May need to liquidate before closing
  • Capital gains taxes apply
  • Market volatility risk
  • Liquidation takes 2–3 days

Example:

  • Vanguard account: $80,000 in index funds
  • Need to liquidate: $50,000
  • Capital gains: $10,000 gain
  • Taxes (15–20%): $1,500–2,000
  • Net proceeds: $48,000–48,500

Pro Tip: Liquidate investments 30+ days before making offers. Avoids last-minute market volatility and tax complications.

Retirement Accounts (401k, IRA)

Can you use retirement funds? Yes, but not recommended.

Options:

401k loan:

  • Borrow up to 50% of balance (max $50,000)
  • Must repay with interest
  • If you leave job, must repay immediately
  • Counts as debt (affects DTI)

401k withdrawal:

  • 10% early withdrawal penalty (if under 59½)
  • Income taxes on withdrawal (22–37%)
  • Reduces retirement savings

First-time homebuyer IRA withdrawal:

  • Up to $10,000 penalty-free
  • Still pay income taxes
  • Must be first-time buyer (no home in 2 years)

Example (401k withdrawal):

  • Withdraw: $50,000
  • Penalty (10%): $5,000
  • Taxes (24%): $12,000
  • Net proceeds: $33,000
  • Cost: $17,000 in penalties and taxes

Better option: Save longer or buy less expensive home.

RSU Liquidation (Tech Workers)

How it works:

  • Sell vested RSUs
  • Proceeds available in 2–3 days
  • Use for down payment

Tax considerations:

  • RSUs taxed as income when vested
  • Additional capital gains if stock appreciated
  • Need to account for taxes

Example:

  • RSUs vest: $100,000 (already taxed as income)
  • Stock price at vest: $100/share (1,000 shares)
  • Stock price at sale: $120/share
  • Sale proceeds: $120,000
  • Capital gain: $20,000
  • Capital gains tax (15–20%): $3,000–4,000
  • Net proceeds: $116,000–117,000

Documentation needed:

  • Brokerage statement showing RSUs
  • Sale confirmation
  • Tax documentation
  • Explanation letter

Timing considerations:

  • Liquidate 30+ days before offers (funds seasoned)
  • Watch stock price volatility
  • Consider tax implications
  • Plan for quarterly estimated taxes

Pro Tip: If liquidating large amount of RSUs, consult tax advisor. May want to spread sales across tax years.

Stock Options

How it works:

  • Exercise options (pay strike price)
  • Sell shares immediately or hold
  • Use proceeds for down payment

Tax considerations:

  • ISOs: Complex tax treatment (AMT risk)
  • NSOs: Taxed as ordinary income on spread
  • Capital gains if held after exercise

Example (NSO):

  • Options: 5,000 shares at $20 strike
  • Current price: $100/share
  • Exercise cost: $100,000
  • Sale proceeds: $500,000
  • Spread: $400,000
  • Income tax (35%): $140,000
  • Net proceeds: $360,000

Documentation needed:

  • Option grant documents
  • Exercise confirmation
  • Sale confirmation
  • Tax withholding documentation

Important: Consult tax advisor before exercising options. Tax implications are complex.

Gift Funds

Can you use gift money? Yes, with proper documentation.

Who can give gifts:

  • Parents
  • Grandparents
  • Siblings
  • Fiancé/spouse
  • Domestic partner

Who cannot give gifts:

  • Friends (usually)
  • Employers
  • Real estate agents
  • Sellers
  • Anyone with interest in transaction

Documentation required:

1. Gift letter (required):

I, [Donor Name], am giving [Recipient Name] a gift of $[Amount] 
to be used for the purchase of property at [Address].

This is a true gift with no expectation of repayment.

Donor Information:
Name: [Full Name]
Address: [Full Address]
Relationship: [Parent/Sibling/etc]
Phone: [Phone Number]

Donor Signature: _________________ Date: _______

2. Donor's bank statement:

  • Showing donor has funds
  • Before transfer

3. Transfer documentation:

  • Wire transfer confirmation
  • Check copy (front and back)
  • Deposit confirmation

4. Recipient's bank statement:

  • Showing gift received
  • After transfer

Timing:

  • Gift should be transferred 30+ days before closing
  • Allows funds to season
  • Simplifies documentation

Loan type restrictions:

Conventional:

  • Gift can cover entire down payment
  • No minimum from borrower required

FHA:

  • Gift can cover entire down payment
  • No minimum from borrower required

VA:

  • Gift can cover entire down payment
  • No minimum from borrower required

Jumbo:

  • Usually require 5–10% from borrower
  • Gift can cover remainder
  • Varies by lender

Seattle example:

  • Home price: $825,000
  • Down payment (10%): $82,500
  • Gift from parents: $50,000
  • Your savings: $32,500
  • Total: $82,500 ✓

Certificates of Deposit and Money Market Accounts

Certificates of deposit (CDs) and money market accounts can be excellent sources of funds for your home purchase, offering competitive interest rates while maintaining liquidity. These accounts are typically well-accepted as proof of funds, as they represent secure, liquid assets that can be readily converted to cash.

When using CDs or money market accounts for proof of funds, provide documentation that shows your account balances and any maturity dates or early withdrawal penalties that may apply. Understanding these terms helps you plan your fund access and avoid unexpected costs or delays.

Alternative Funding Sources

Home Equity Line of Credit (HELOC)

If you own a current home, a home equity line of credit (HELOC) can be an excellent source of funds for your new home purchase. HELOCs provide flexible access to your home equity and can be used to supplement your down payment or cover closing costs.

When using a HELOC for proof of funds, provide documentation that shows your available credit line and demonstrates that you can access these funds when needed. Some lenders may require verification that the HELOC is properly established and that you have sufficient equity to support the credit line.

Pledged Asset Programs

Pledged asset programs allow you to use investment assets as collateral for your down payment without liquidating the investments. These programs can be particularly valuable for buyers who want to maintain their investment positions while accessing funds for their home purchase.

When using pledged assets for proof of funds, provide documentation that shows your investment positions and demonstrates your ability to pledge these assets as collateral. Some lenders may require specific documentation and verification processes for pledged asset programs.

Seasoning Requirements and Large Deposits

Understanding Seasoning Requirements

Seasoning requirements refer to the length of time that funds must be in your accounts before they can be used for your home purchase. Most lenders require funds to be "seasoned" for at least 30–60 days, meaning they must have been in your accounts for this period before they can be counted toward your proof of funds.

Understanding these seasoning requirements helps you plan your fund transfers and ensures that your proof of funds meets lender requirements. Planning ahead helps avoid delays and ensures that your funds are properly seasoned when you need them for your purchase. The seasoning period helps lenders verify that the funds represent legitimate assets rather than borrowed money.

Explaining Large Deposits

What counts as large:

Lender definition: Any deposit over $1,000 (some lenders) or 25% of monthly income (other lenders)

Seattle tech worker example:

  • Monthly income: $15,000
  • Large deposit threshold: $3,750 (25%)
  • Deposits over $3,750 need explanation

Common large deposits:

Payroll:

  • Regular paycheck
  • Bonus
  • RSU vesting
  • Stock option exercise

Documentation:

  • Pay stub showing amount
  • Employer letter
  • Tax withholding documentation

Tax refund:

  • Federal or state refund

Documentation:

  • Tax return
  • Refund check copy
  • IRS letter

Gift:

  • Money from family

Documentation:

  • Gift letter
  • Donor's bank statement
  • Transfer documentation

Sale of asset:

  • Car, furniture, collectibles

Documentation:

  • Bill of sale
  • Receipt
  • Transfer documentation

Transfer between own accounts:

  • Moving money from savings to checking

Documentation:

  • Both account statements
  • Showing transfer out and transfer in

Investment sale:

  • Selling stocks, bonds, mutual funds

Documentation:

  • Brokerage statement
  • Sale confirmation
  • Proceeds transfer

Explanation Letter Template

[Date]

To Whom It May Concern:

This letter is to explain the deposit of $[Amount] on [Date] 
in my [Bank Name] account ending in [Last 4 Digits].

This deposit was from: [Source]

[Detailed explanation]

Supporting documentation is attached.

Please contact me with any questions.

Sincerely,
[Your Name]
[Contact Information]

Example:

October 20, 2025

To Whom It May Concern:

This letter is to explain the deposit of $15,000 on October 1, 2025 
in my Chase checking account ending in 3456.

This deposit was from: RSU vesting at Amazon

On October 1, 2025, 150 shares of Amazon stock vested as part of my 
compensation package. These shares were automatically sold and 
deposited to my checking account after tax withholding.

Supporting documentation attached:
- Pay stub showing RSU vesting
- Brokerage statement showing sale
- Deposit confirmation

Please contact me with any questions.

Sincerely,
John Smith
john.smith@email.com
206-555-1234

How to Redact Bank Statements

What to Redact

Redact these:

  • Full account numbers (leave last 4 digits)
  • Transaction details (individual purchases)
  • Payee names (for checks/payments)
  • Personal information (SSN if shown)

Don't redact these:

  • Account holder name
  • Bank name
  • Statement date
  • Beginning balance
  • Ending balance
  • Large deposits (need to explain these)
  • Account type

Redaction Methods

Option 1: Black marker (physical)

  • Print statement
  • Use black permanent marker
  • Cover information completely
  • Scan back to PDF

Option 2: PDF editor (digital)

  • Use Adobe Acrobat
  • Use redaction tool (not highlight)
  • Apply redactions permanently
  • Save as new file

Option 3: Image editor

  • Open PDF as image
  • Use black box tool
  • Cover information
  • Save as new PDF

Pro Tip: Use PDF redaction tool, not just black boxes. Black boxes can be removed. Redaction permanently removes information.

Example Redacted Statement

Before:

Chase Bank - Checking Account
Account: 1234-5678-9012-3456
Statement Period: Sept 1-30, 2025

Beginning Balance: $45,230.18

Transactions:
09/05 Amazon.com           -$127.43
09/08 Safeway              -$83.21
09/10 Payroll Deposit    +$7,500.00
09/15 Rent Payment      -$2,800.00
...

Ending Balance: $48,156.32

After redaction:

Chase Bank - Checking Account
Account: ████-████-████-3456
Statement Period: Sept 1-30, 2025

Beginning Balance: $45,230.18

Transactions:
09/05 ████████           -$███.██
09/08 ████████           -$███.██
09/10 Payroll Deposit    +$7,500.00 [Explained: Regular payroll]
09/15 ████████         -$█,███.██
...

Ending Balance: $48,156.32

What's visible:

  • Account holder name
  • Bank name
  • Last 4 digits of account
  • Beginning and ending balance
  • Large deposits (with explanation)

What's hidden:

  • Full account number
  • Individual transaction details
  • Payee names
  • Small transactions

Proof of Funds for Offers

What to Include with Offer

Minimum:

  • Pre-approval letter
  • Bank statement (redacted) showing down payment + closing costs

Better:

  • Pre-approval letter
  • Bank statements (redacted) showing down payment + closing costs + reserves
  • Explanation letters for large deposits

Best:

  • Pre-approval letter
  • Bank statements (redacted) showing substantial reserves
  • Explanation letters for large deposits
  • Employment verification letter
  • Proof of additional assets

Seattle competitive market: More documentation = stronger offer.

How Much to Show

Conservative approach:

  • Show exactly what's needed
  • Down payment + closing costs + 3 months reserves

Aggressive approach:

  • Show more than needed
  • Down payment + closing costs + 6–12 months reserves
  • Shows financial strength

Privacy vs strength trade-off:

  • More documentation = stronger offer
  • More documentation = less privacy
  • Balance based on market conditions

Hot market: Show more to compete Slow market: Show minimum to protect privacy

Organizing Proof of Funds Package

Create PDF packet:

Page 1: Cover letter

Proof of Funds for [Property Address]

Buyer: [Your Name]
Offer Date: [Date]
Purchase Price: $[Amount]
Down Payment: $[Amount] ([%]%)

This packet includes:
1. Pre-approval letter
2. Bank statements (2 months)
3. Explanation letters
4. Gift letter (if applicable)

Total funds available: $[Amount]

Contact: [Your Name]
Phone: [Number]
Email: [Email]

Page 2: Pre-approval letter

Pages 3–6: Bank statements (redacted)

Pages 7–8: Explanation letters

Page 9: Gift letter (if applicable)

Pro Tip: Create professional-looking packet. Shows you're organized and serious.

Common Issues and Solutions

Issue 1: Funds in Multiple Accounts

Problem: Down payment split across 5 different accounts.

Solution:

  • Provide statements for all accounts
  • Create summary sheet showing total
  • Consider consolidating before offers

Summary sheet example:

Total Funds Available

Chase Checking (3456):     $45,000
Chase Savings (7890):      $60,000
Ally Savings (2345):       $35,000
Vanguard Brokerage (6789): $25,000
                          ________
Total:                    $165,000

Required:
Down Payment:              $82,500
Closing Costs:             $20,000
Reserves:                  $36,000
                          ________
Total Needed:             $138,500

Surplus:                   $26,500

Issue 2: Recent Large Deposit

Problem: Deposited $20,000 from RSU sale 2 weeks ago.

Solution:

  • Provide explanation letter
  • Provide brokerage statement showing sale
  • Provide pay stub showing RSU vesting
  • Provide tax withholding documentation

Why it matters: Lenders need to verify funds aren't borrowed.

Issue 3: Gift Not Yet Received

Problem: Parents will gift $50,000 but haven't transferred yet.

Solution:

  • Get gift letter signed now
  • Get donor's bank statement showing funds available
  • Schedule transfer ASAP
  • Provide transfer documentation when complete

Timing: Gift should be transferred 30+ days before closing if possible.

Issue 4: Funds in Foreign Account

Problem: Down payment in bank account in India.

Solution:

  • Provide foreign bank statement (translated if needed)
  • Show transfer to US account
  • Explain source of funds
  • May need additional documentation

Challenges:

  • Currency conversion
  • Transfer fees
  • Transfer timing (can take weeks)
  • Additional scrutiny from lender

Pro Tip: Transfer funds to US account 60+ days before making offers.

Issue 5: Cryptocurrency

Problem: Down payment in Bitcoin.

Solution:

  • Liquidate to cash 60+ days before offers
  • Transfer to bank account
  • Provide exchange statements
  • Explain source of crypto
  • Pay capital gains taxes

Challenges:

  • Lenders don't accept crypto directly
  • Need to convert to cash
  • Tax implications
  • Volatility risk

Important: Most lenders won't accept crypto as proof of funds. Must convert to cash first.

Issue 6: Incomplete or Outdated Documentation

Incomplete or outdated documentation is one of the most common causes of underwriting delays. Providing current, complete documentation that meets all lender requirements helps ensure that your verification process proceeds smoothly and without delays.

When preparing your proof-of-funds documentation, ensure that all required information is included and that your documentation is current within the required timeframe. Regular updates and maintenance of your documentation help prevent timing-related complications.

Summary: Key Takeaways

  • Proof of funds = bank statements showing down payment + closing costs + reserves
  • Redact sensitive info - account numbers, transaction details, but keep balances
  • Explain large deposits over $1,000 or 25% of monthly income
  • Gift funds allowed with proper documentation (gift letter, donor statement, transfer proof)
  • RSU liquidation - plan 30+ days ahead, account for taxes
  • Tech workers - document RSU sales, stock options, complex income carefully
  • Create professional packet - cover letter, statements, explanations, organized PDF
  • More documentation = stronger offer in competitive market

Next Steps

  1. Calculate total needed - down payment + closing costs + reserves
  2. Gather bank statements - 2 most recent months, all accounts
  3. Redact statements - remove sensitive information properly
  4. Write explanation letters - for any large deposits
  5. Get gift letter - if using gift funds
  6. Create PDF packet - organized and professional
  7. Have ready for offers - can provide immediately when requested

This article provides general information about proof of funds and should not be considered financial or tax advice. Requirements vary by lender and loan type. Consult with your lender and tax advisor for guidance specific to your situation.

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