It is a common practice in the real estate industry for sellers to require buyers to get pre-approval for financing for any sale. This is true even in cases where a buyer has the liquid assets available to potentially purchase a property outright, without needing a mortgage. So why do sellers tend to require pre-approval for a mortgage before they will sell, and why should you do the same?
What Does it Mean to Get Pre-Approval for Financing?
Put simply, getting pre-approval for financing on a mortgage means going to a bank and getting a promise that they will issue you a mortgage for a home you are looking to purchase. While this is not strictly binding, getting pre-approval for financing is as close to a guarantee that a seller can get that a sale will be financed. Typically, this pre-approval only lasts for a limited time, meaning that anyone who wants to take advantage of it has a small window to act on it before they must go through the process again.
How Do You Get Pre-Approval?
Getting pre-approval for financing on a home is, in many ways, similar to applying for a mortgage outright. Like with applying for a mortgage, you must submit significant financial information to a bank, including your income and assets, and they evaluate you to determine the maximum amount they are willing to lend to you. They then give you paperwork that affirms that they are willing to give you a mortgage up to a certain amount, which can then be presented to a seller as a sort of guarantee that the purchase price will be covered.
Why Do Sellers Require Pre-Approval for a Mortgage?
Sellers like to require pre-approval on financing for a mortgage for two major reasons. The first is that it helps to dissuade potential buyers who might try to buy a home that is outside their price range, by filtering out those who cannot secure a mortgage. The second reason is that it minimizes the risk that a seller will not be paid for their transaction, or that they will be paid less than what they agree to.
What Should You Do?
If you own real estate and are looking to sell, you should seriously consider requiring pre-approval on financing from any prospective buyers. If you are looking to buy real estate, you should consider the process of applying for pre-approval as a reality check on what kind of property you can actually afford. And whether you are looking to buy or sell, you should get help from an expert to ensure you get the best price possible for your transaction.
At Liongate Homebuyers, we assist our clients with a variety of services related to buying and selling real estate. For more information, please contact us at 516-548-6553, or visit our contact page.
