Why do some builders require mandatory application with the preferred lender?

It is very common for builders to require that a home buyer complete a mandatory application with their preferred lender as a part of the home buying process. Builders require this step so that they can be confident that buyers are being pre-approved by a reliable lender.

Any builder who has been around a while has certainly been “burnt” buy a home-buyer who was supposedly pre-approved. After accepting an offer to purchase a home the builder commits resources to customize a specific house for a specific home-buyer. If that buyer cannot perform on the purchase because of mortgage qualifying issues the builder is left with a home with custom features that may not be as valuable to other buyers. As a result, they get stuck with a loss.

Therefore, builders have put into place a mandatory application with a reliable preferred lender to reduce the incidence of this occurring.