Thanks for joining us for part 4 of our five-part blog series about setting up expectations during the home buying process. This series covers:
- Introduction (August blog posted; see here: link)
- Escrow Process (September blog posted; see here: link)
- Disclosures & Investigation Responsibilities (October blog posted; see here: link)
- Financing Process (This blog post)
- Pre-Closing & Final Steps (December blog post coming)
Parts 2-5 of this series are split into two parts—one tailored for buyers, like this post, and one for sellers—because the concerns and responsibilities can differ greatly depending on your role in the transaction. Now, onto the Buyer Financing Process From the Seller’s Perspective!
Every home seller dreams of a smooth escrow — one where the buyer brings an “all cash” offer, no loan involved, and the process moves swiftly to closing.
However, the reality is that most sales involve mortgage financing, which adds time, complexity, and a degree of risk for the seller. Understanding how the financing process works from your side of the table can help you prepare, stay calm, and protect your best interests throughout the transaction.
When the Property Won’t Qualify for Financing
In some cases, the home itself is the challenge. Lenders have minimum property condition standards, and if the home doesn’t meet them, it may not qualify for financing. We see this often with estate or trust sales — especially when the property has significant deferred maintenance.
For example, flooring that’s damaged beyond repair or missing altogether can disqualify a home from conventional financing. If the estate lacks funds to make repairs, the seller or trustee may be limited to pursuing cash buyers. While this can reduce the pool of potential buyers and potentially impact price, that’s a separate conversation for another time. If this is a potential problem for you, reach out to Team Plunkett as we can help!
How Financing Adds Risk for Sellers
Even when a property qualifies, the financing process can delay timelines and introduce uncertainty. If the buyer ultimately fails to secure their loan, the escrow may fall through — leaving the seller to start over and face questions from future buyers about why the first deal didn’t close.
While most of the work in this process falls on the buyer, the seller carries real risk: the home is effectively off the market while the buyer’s contingencies remain in place. Time is money, and in a shifting market, those weeks can make a difference.
Appraisal and Loan Contingencies: What They Mean for You
Most contracts include two separate financing-related contingencies: the appraisal contingency and the loan contingency. They may sound similar, but they protect very different things.
The Appraisal Contingency
The appraisal contingency focuses on the property. The appraiser’s report represents their opinion of fair market value and helps the lender limit their risk by not lending more than a certain percentage of that value — typically 80% in a conventional loan.
This protects the lender in two ways:
A. If the borrower defaults, a foreclosure sale should yield enough proceeds to cover the loan.
B. With at least 20% of their own money invested, buyers are less likely to walk away during difficult times.
An appraiser is sent to evaluate the property and determine value. However, appraisers vary in experience and local expertise. Your agent should meet the appraiser, confirm their familiarity with the neighborhood, and provide comparable sales and insights about current market activity.
This sharing of information matters — appraisers rely heavily on historical data, while agents are tuned into what’s happening in real time. That difference can be critical to ensuring your property appraises at or above the contract price. If the appraisal comes in low and the buyer’s lender refuses to fund the full amount, the buyer may cancel before removing their contingency, sending you back to market.
The Loan Contingency
The loan contingency focuses on the buyer. It determines whether the buyer is financially qualified and able to secure the mortgage. As the seller, there’s little you can do once the contract is in place, which is why vetting the buyer’s financial readiness upfront is key.
Before accepting an offer, your agent should call the lender directly to discuss the buyer’s file — verifying that it’s in process, understanding the lender’s workload and turn times, and confirming the loan representative’s experience in your market. Once the offer is accepted, your ability to influence the process is limited until deadlines come due.
Key Notes for Sellers
- Pre-Qualification vs. Pre-Approval: A pre-qualification is based solely on unverified information from the buyer, while a pre-approval means the lender has reviewed financial documentation. A pre-approval is always stronger.
- Conditional Approval: Once the lender issues conditional approval, the loan is almost ready — pending a list of final conditions. Your agent should stay in contact with the buyer’s agent to understand how easily these conditions can be met. Some are simple, like providing updated bank statements. Others may be more difficult and require problem-solving between agents and lenders.
- Closing Disclosure (CD): Once the lender issues the CD — a detailed summary of final loan terms and costs — the clock starts ticking. By law, the buyer must wait three days after receiving and acknowledging the CD before signing loan documents.
- Final Steps Before Closing: Your agent should coordinate with escrow and the buyer’s agent to confirm that the buyer has wired their final funds, signed loan documents, and completed all required steps so the transaction can close on time.
Timing and Communication Are Everything
The financing process involves many moving parts, and delays can easily derail timelines. A missing document or late submission can push the file to the back of the queue, especially with lenders operating in different time zones. Strong communication among the lender, escrow officer, and both agents can make all the difference.
A proactive, detail-oriented agent helps ensure that when closing day arrives, your buyer’s financing is complete — and your sale closes without a hitch.
Leverage the strength of Vista Sotheby’s. Experience the dedicated attention of Team Plunkett. Sell with confidence.
Note: Some details may vary by region. Always consult your agent for guidance specific to your local market.
