Proof of Financing: Why to Ask Before You Choose a Buyer
Ask every interested buyer, before you commit to one, whether their bank has already confirmed financing. Proof of financing shows that an offer isn't just a good number on paper, it's money that can actually be paid. That protects you from relying for weeks on a buyer whose financing later falls through.
This guide covers what proof of financing is, when to ask for it, and what it does and doesn't tell you.
What is proof of financing?
Proof of financing is a letter from a bank or a mortgage broker confirming that a buyer is, in principle, able to finance a given amount. It isn't a final loan approval, but it shows the bank has already reviewed the buyer's income, equity and creditworthiness.
Banks use different names for this document: a financing confirmation, a mortgage in principle, or a pre-approval letter. What matters for you as a seller is simpler: does a bank stand behind the offer with a solid yes, or is the financing still an open question?
Why ask before you decide?
When several buyers make offers, the highest one looks most attractive at first glance. Whether it actually holds up only becomes clear once the financing is in place. So ask during the offer round, not after:
- You avoid losing time. If you commit to a buyer without secured financing and it later falls through, you lose valuable time, and by then the other buyers may have moved on.
- You compare more fairly. A slightly lower offer with confirmed financing is often more reliable than a higher one where financing is still open.
- You can follow up specifically. A buyer without a confirmation yet can often get one from their own bank within a few days, giving you something concrete to base your decision on.
Because offers in an offer round aren't binding until a formal purchase contract is signed (more on that below), proof of financing is one of the few signals that tells you how serious an offer really is before that point.
When should you ask?
The best time is at the start of the offer round, asking every buyer the same thing, for example when you invite them to a viewing or to make an offer, the way our guide How to Run Your First Offer Round describes. That has two advantages: everyone knows from the start that financing is part of the decision, and you treat all buyers equally.
At the latest, once you're close to deciding, follow up specifically with the strongest offers if a confirmation is still missing, so you don't end up choosing an offer that turns out not to be financeable afterwards.
What if a buyer doesn't have a confirmation yet?
That doesn't have to disqualify them. Some buyers only get their bank to confirm financing once an offer looks serious, for good reason: a mortgage inquiry takes time and effort, and buyers sometimes only request one once a sale looks likely. In that case, give a short, clear deadline, a week is reasonable, for the confirmation to follow.
What matters is applying the same rule to everyone. Giving one buyer more time than another undermines exactly the fairness a good offer round depends on.
Does proof of financing protect you completely?
No, and that's worth knowing. Proof of financing is a strong signal, but not a guarantee: the final loan approval can still fall through over details, for example the bank's own valuation of the property. How binding offers are, and when a sale actually becomes final, depends on the country:
- Germany: a property purchase contract must be notarized. Until then, neither the buyer's offer nor your acceptance is binding.
- Switzerland: a property purchase is only valid with public notarization, so the same applies.
- England and Wales: an offer isn't legally binding until contracts are exchanged.
- Scotland: the deal becomes binding once the missives are agreed.
- Sweden: a sale is concluded with a written contract signed by both sides. Offers before that aren't binding.
- Austria is different: a signed purchase offer (Kaufanbot) can bind the buyer for the period it names, so buyers there should get advice before signing one.
In most of these cases, that means you don't have to accept the highest offer. You can weigh offers on several criteria, and secured financing is one of the most important. Our guide Is the Highest Offer Always the Best? covers how to compare offers overall.
How Truvalo helps
In Truvalo, you see every offer with its amount and time, and can keep notes on each offer and each buyer, for example whether and when proof of financing arrived. That keeps everything in one place, even when several buyers are making offers at the same time.
Offers themselves stay non-binding. You choose freely who to sell to in the end. For a full walkthrough of running an offer round, see Several Interested Buyers? How to Handle Competing Offers.
Frequently asked questions
Does every buyer need to provide proof of financing? You can ask for it, but you don't have to. Many sellers only request it from the strongest offers, once they're close to deciding.
Is an offer without proof of financing automatically not serious? No. Some buyers only sort out financing shortly before a decision. In that case, set a clear deadline that applies to everyone equally.
What if the financing falls through later anyway? Since offers aren't binding until the formal purchase contract is signed, you can turn to another buyer in that case. Keep the other buyers informed and on good terms until the final decision for exactly this reason.
Does proof of financing replace the final contract? No. It only shows that a bank considers the financing possible in principle. The sale becomes binding only once the formal purchase contract required in your country is signed.
A simple question with a big effect
Asking about proof of financing costs you nothing and protects you from unpleasant surprises. Ask early, ask every buyer the same question, and weigh the answer alongside price, conditions and the handover date.