As published in the Savannah Morning News - 2 December 2012
Is Your Buyer Qualified?
It’s always exciting when you receive an offer to purchase your property. It leaves you hopeful that this buyer might be the one. But, drats! Not all buyers are qualified. So, how do you know which buyers are real?
The past few years have brought about job losses, foreclosures, short sales, and bankruptcies…all damaging to credit scores, which takes years to rebuild. These people are now driving around with Realtors® (yikes, not in my car!), looking to buy again. Many have not recovered from their losses, and will “tie up” your property while they apply for a loan and subsequent approval.
During conversations with a buyer (or buyer’s agent), your Realtor® will have some “test” questions they will tactfully ask to help determine if the buyer sounds qualified. Some might be:
· Do you have a house that must be sold prior to purchase?
· Are you paying cash or will you need financing?
· Have you been approved for a loan?
· Is this a job relocation or career change?
· How long have you (and your spouse) had your current job(s)?
Their answers tell us a lot. More issues that raise red flags:
· Job loss
· Death in the family
· Reduced income
· Foreclosure/short sale of last home
· Low Credit Score
Lender requirements are constantly changing. Staying on top of updates helps to qualify a buyer, and I ask enough qualifying questions to get a feeling about them. To consider making or receiving an offer, I want to see a Buyer Preapproval Letter, or preferably, an Approval Letter.
Preapproval Letter: It should be attached to an offer, demonstrating the buyer is already in the process of loan approval. A preapproval, or prequalification letter, does not guaranty the buyer’s approval. However, based upon a buyer’s representation of facts, the lender feels comfortable in stating he/she is preapproved.
Approval Letter: This is the cat’s meow! Here, the lender gets down to the nitty gritty. Once the back-up information is provided and the loan goes through the underwriting process, the buyer will be provided with an Approval Letter. However, the deal’s not done until the fat lady sings!
After a buyer has loan approval, things can change: death, divorce, job loss. These affect a buyer’s qualification. Another pitfall: through closing, buyers should not buy anything major (like a car), nor apply for credit, or be late on bills, all which will lower a credit score. Credit will be rechecked prior to closing, so maintaining an acceptable credit score is crucial.
I asked Michael Caputo at Starkey Mortgage to share any updates on buyer qualification. Michael stated,
“We live in a society tied to credit scores. Risked-based pricing is the new reality, so it is important that buyers focus on their credit scores. Credit scores impact the interest rate and the ability to get approved.”
So sellers, beware. Accepting an offer does not mean smooth sailing to the closing table. Passing inspections, the appraisal, and negotiations are only good if the buyer is approved for the loan. At a minimum, be sure you have a preapproval letter before you take your property off the market. The ultimate: an Approval Letter, which is often difficult to get up front, as many buyers apply for a loan while house hunting. If you can, consider it gold!
Next week, we will discuss How to Determine Your Net Proceeds. Stay tuned!