Offers can be exciting when you’re selling a home! However, if the potential buyer doesn’t have the resources to qualify for a mortgage, your sale will flop.
As a Realtor with over a dozen years in the biz, I still recall the first offers on my listings. I was beyond the moon! Of course, back then, a buyer only had to fog a mirror with their breath (prove they were breathing) to qualify. It was the wild days of the real estate boom.
Salt Lake City home sales are hot right now, but you still don’t want to waste time on an unqualified buyer.
I gauge a buyer’s financial status before recommending my sellers accept an offer and hopefully your agent will also. However, it’s still good for you to know what qualified buyers with follow-through potential look like so that you can understand your Realtor’s rationale. Here are the basics:
They are pre-approved for a mortgage
I typically state right on the listing that all offers must be submitted with a lender’s letter stating that they are pre-approved [not just pre-qualified]. A reputable lender will check the basics such as income, savings, and credit, before issuing this letter.
These buyers are in a much better position to obtain a mortgage promptly without a disappointing cancellation if they can’t get a loan.
They have enough cash on hand for a down payment and to cover closing costs – or the cash to buy outright
Ideally, buyers should have 20 percent of the home’s price as a down payment and between two percent and seven percent of the price to cover closing costs. If they plan to make a smaller down payment, such as with FHA, they will need to purchase mortgage insurance through either, a government guarantee program, or a private mortgage insurer. If they lack savings, you’ll likely see a request for you to help with their closing costs. While this isn’t deal killer, in fact it’s common with first time buyers, it indicates they are very close to the edge. A buyer with more cash on hand may be a safer bet given the choice.
If the buyer states they will pay all cash, it’s still important to see proof that they actually have the money to close. I know this sounds ridiculous, but it happens, I’ve seen it. In this case we would request a “proof of funds” from their bank or investment account.
If they need to sell their home – qualify THEIR buyer too
Occasionally a buyer will write an offer needing to sell their home first. It may already be in contract with a closing date. Don’t assume that they did their homework. Qualify their buyer too. Yes, be rude, ask questions, look at the same documentation you’d expect of your buyer. They want you to take your house off the market, so it could cost you real money.
An experienced Realtor will make sure to gather this information for you before suggesting you accept an offer. However, if you are selling by owner, use these tips to help discern a solid offer from wishful thinking.
The chances that a FSBO home will receive an offer from an unqualified buyer are higher because these folks tend to look for unrepresented sellers. Sometimes they’ll even press for owner financing or rent-to-own when they can’t qualify. Luckily, you now know the right questions to ask before signing.
If you have any questions about this post, or selling in general, give me a call at 801.893.2519. Even if you plan to sell by owner, I’m happy to share my expertise without a sales pitch.