Can a seller require you to fill out a loan application just to make an offer on a home?

My wife and I have been looking for a new home. We've been through the home buying process three times so we're not exactly newbies to the process. However, we've run into a situation recently that I'm really curious about. 

We found a house we love and wanted to make an offer. Sounds simple enough right? Well, the seller is a company - not an individual who ever lived in the home. The seller (company) bought the home, made a nice round of updates to the home and put it back on the market for a higher price. What's strange is that this company also does home loans, and they are requiring us to fill out (entirely) a loan application, despite the fact that we have been fully pre-qualified and have already made arrangements for a loan with our lender of choice. 

Just to be clear - to even have our offer for the home considered, they want:

a. Paystubs covering a 30 day period.  If paid monthly must supply at least 2 paystubs.
b. 2010, 2011, and 2012 for both W-2's and Personal Tax Returns.
c. If self-employed, Business Tax Returns for 2010, 2011, and 2012.
d. If you haven't filed for 2012 for either Personal or Business, then proof of extension.
e. Documentation of Assets - Most recent bank statements covering 60 days for all funds used to close.
And this is all to just make an offer, before we even know if we'll be buying the house! We already went through all this with the lender we plan to carry our mortgage with on whatever the next house we purchase is, but they don't care and still require all this to even entertain an offer. Is it just me or does this seem rather shady?

I'm wondering if this is even legal. Does anyone have more experience or information on this that they can enlighten me with?
  • September 05 2013 - US
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

Answers (15)

Best Answer

Some places (alot of builders and flippers) want to have a buyer go through the second pre-approval simply to scrub the buyers once extra time.  It often times can be annoying and it could be just as much a ploy to try to get them to use the second company.  If they do ask for it, maybe ask if it is a hard run of the credit, which could cause issues.  As wet said below, pre qualified and approved are two different things of course....
  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

This issue is not as common as most would imagine, nevertheless, if this home is for you, considered to be worth your time and effort, providing these docs to the seller would be worth it. The seller, perhaps have had offers on the home more than once and the offer did not go thru due to qualification of the buyer.
  • September 07 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Hi Steve,
Thumb rule: 1) Get pre-approved not pre-qualified......major difference in everyones eyes! Including sellers if you are competing? It irons out the "Kinks" as I like to say! 2) Get a letter from a direct lender/major bank. Direct lenders are ones who fund their own loans. ( In Silicon Valley no one accepts letters from loan brokers!!)
They can ask for you to go through their process and you can deny or go through them. As long as you understand that multiple credit checks on Mortgage loan can/does bring your score down! They can not force you to use them and you are not obligated to do so. Some sellers require you to go through their "whetting" process as Karl said (builders etc).
  • September 07 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Unfortunately, we are in a very competitive market place BUT that being said, approximately 25% of the contracts fail. I understand asking for some supporting documents...these seem excessive and would make me wonder about the sellers in general. There are also agents who do not properly screen and pre-qualify their clients as well, which creates big issues.
 I have been seeing some really kooky negotiating lately be aware.

As far as filling out paper work for their lender, this sounds like a ploy to reel people into using their lender of choice.  This happened to a recent buyer of mine where she was HIGHLY encouraged to use a particular lender.  She spoke to them and found that they were much higher than others she had talked to and had nearly no customer service ie-didn't return calls readily. The long and short of this story is that she purchased the property through her lender of choice who was awesome.
At the end of the day...be prepared to walk away so as to not make a bad business decision.
  • September 07 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for PamKrichev
I've encountered this several times with bank-owned properties. It' s a little annoying, but you probably have those documents handy anyway, since you're either just provided them for your own lender or you're about to have to. I do indeed believe the bank is trying to get you to use them. They did with my customers. And at first the deal they were offering sounded good. But as my buyer learned more about the loan terms he decided to stick with his original lender. Good luck!
  • September 07 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for virtualps
If you are pre-approved (which is a step up from pre-qualified), simply provide the pre-approval document from your lender.
  • September 06 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I usually recommend to be approved when you are shopping for homes. I say this because getting pre-approved gives you a good idea of home much you can afford so you can look for houses in your price range. Also, sellers take offers with pre-approvals more seriously than offers that don't have pre-approval. So in essence, yes it is okay for the seller to ask for that.

Well I hope this helps![self promotion deleted by ZIllow moderator. Please see our Good Neighbor Policy for posting guidelines]
Good Luck!
  • September 06 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

You've all been really helpful! I sincerely appreciate the feedback. We'll probably jump through the hoops. The house is really nice, but I just wanted to make sure there wasn't anything to worry about here. It does seem like a bit of a conflict of interest with the seller also being a lender who is aggressively pursuing the lending side of the purchase as well as the sale.
  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Yes it "should" but if you are in a strong sellers' market, the sellers call the shots.
  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

We have provided documents that show our liquid assets in excess of the asking price of the house and both our credit scores are above 775 and we have practically no debt. All that, combined with a pre-qual should account for something...
  • September 05 2013
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for wetdawgs
Pre-qualified is not worth the paper it is written on.  Pre-approved carries a bit more weight.

I agree that your lender should make a call once you are pre-approved to talk to them.

  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

This is not unusual in our area (San Francisco East Bay), particularly with bank owned properties. In the past, many pre-approval letters have not been worth the paper they were written on so the seller wants to be sure that you can get the financing you need.

They can't require you to use their lender of course. Just show them that you will get loan approval.

In today's market, where inventory is very low, if you want a particular home you have to be prepared to jump through a few hoops.
  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I would ask your agent to call theirs and see if they are able to work around it.  Over the weekend I submitted and offer to a builder of a new home for a client that required the same thing.  I had seen the pre-qualification, and knew that they were qualified buyers (most purchases in my area are second homes and income isn't usually a problem for most of my buyers) with more than enough to ensure that they would not lose the house because the lender pulled the loan.  After discussing this with the agent he agreed that they were good to go with the current pre-qualificaiton and said to send the offer in.  We opened escrow on Tuesday this week.

Hopefully your agent has a connection or reputation that shows they are trustworthy and they also believe in you, that can go along ways.
  • September 05 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Wow, thanks so much for the quick replies!

Karl - yes they wanted to hard run our credit again and since we had just had that done we obviously did not want them to do that again. 

We are pre-qualified, not pre-approved, and I understand what you're saying about that. The thing is though - we are selecting our lender and their approach seems to be the other way around. I think they probably have a decent result from trying to manipulate buyers this way. Like Wetdawgs said though, we'll just move on to the next one if they continue to be unreasonable.

Thanks!
  • September 05 2013
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for wetdawgs
If you are pre-approved (which is a step up from pre-qualified), simply provide the pre-approval document from your lender.   Let them know that you've provided all that information to your lender and have no intent of providing it to their lender.  

If they won't budge, then you will need to move on.

  • September 05 2013
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.