Getting Pre-Approval from Seller's Lender. Should I do it?

Question

Hi All,

I've recently been looking at different RE investing opportunities in the Atlanta area and found two SF properties that I really liked. Unfortunately, the seller had demanded only cash offers for the properties, so I asked my RE agent to reach out to the seller's agent and ask him/her if the seller would entertain a financing offer. The seller's response was that he would accept a financing offer only if I would get pre-approval from his specific lender.

Has anyone been through this situation before? What are the pros and cons of going ahead and providing my information to the seller's lender?

Thank you for your help.

Hassan Mahmood · Answer

Thanks Chris Mason You pretty much summed up the reasons why I didn't want to do it. I actually work for a prominent bank in Atlanta, GA from whom I'll be getting my pre-approval. Given that the properties are in GA and I live/work in GA, the seller shouldn't raise much of an issue with the pre-approval letter. Any advice on how I could convince the seller/listing agent?

Wayne Brooks · Answer

@Hassan Mahmood I hear that mentioned frequently, but frankly it's a non issue.  We submit POF's for over a million, on $100-200k range sales all the time.  Just because you Have more than a seller is asking, doesn't relate to Paying more.  Remember, the whole reason for doing this is os the lender Will divulge you are comfortably qualified.

Hassan Mahmood · Answer

Jeff Beard Thank you both. I understand that I don't have to do my financing with the seller's lender, but just wasn't sure if the lender would share my personal financial situation with the seller, which might put me at a risk when negotiating. I'm sure that's illegal, right?

Wayne Brooks · Answer

Submit the DU report with it.

Chris Mason · Answer

@Hassan Mahmood

I personally refuse to do this. It feels slimy 100% of the time, homebuyers hate it, and immediately start thinking of kickbacks and whatnot. It's not necessarily slimy, but homebuyers feel it's slimy, so I don't do it. Nothing I hate more than doing a loan for someone that doesn't want me doing their loan.

It's also going to weaken your negotiating position. Officially, lenders are supposed to keep your financial details private. Unofficially... let's just say there's another reason I refuse to do this. It's reasonable to assume the seller will now 'mystically' know your max purchasing power, which typically isn't something you want a seller to know.

That being said, if you're writing offers from Georgia in the SF Bay Area, no one is going to trust a lender from out there, especially if it's a national big bank lender, and especially if the sellers are fishing for an all cash offer. Listing agents here are snobby and like local lenders that understand local RE norms, timelines, etc. It's a hot sellers market, as you may be aware.

Compromise position: Ask listing agent if she would be cool with you finding your own local (to the property) direct lender and getting preapproved through that individual. You still don't have to use that person, and it'll protect your privacy.

Hassan Mahmood · Answer

Thank you @Sarah Ziehr.

Jeff B. · Answer

Some will naively assume that the pre-approval mandates that the loan will be finalized by that lender. @Sarah Ziehr is correct and you the buyer still have freedom of choice.  If fact, I believe that attempting to force financing via a specific lender is illegal.  So, if your interested, get both the pre-approvial and proof of funds to submit with your offer.

Personally, my broker is instructed to refuse all offers out of hand unless they are accompanied by these letters ( and I will not show without an accepted offer).

Wayne Brooks · Answer

Agreed, we require this often.  Many "preapproval letters" aren't worth the paper they're written on, so we like verification from a lender we trust.

Sarah Ziehr · Answer

This happens all the time. Getting pre approved doesn't mean you have to use that particular lender, it simply means the seller is vetting the buyers to confirm their ability to obtain a loan.

You would be surprised how many people go look at real estate and make offers when they have not been pre approved.

Getting Pre-Approval from Seller's Lender. Should I do it?

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