Monday, April 1, 2019 / by Michael Picciuto
A Questionable Loan
There are several ways to finance a house, and when you’re selling, you should understand how the buyer plans on paying. Shane Nguyen, broker and owner of 1st Priority Realty, says, “You want to evaluate the probability of closing easily.” A cash offer is often your best chance, but you want to request a proof of funds letter to ensure the buyer actually has the cash available.
More often than not, however, a buyer will finance the house with a mortgage. While all serious buyers should have a prequalification letter (a letter indicating they qualify for a loan), a preapproval letter is better. It means the lender has evaluated the buyer’s finances and credit report in detail, while a prequalification letter only relies on information supplied by the buyer.
Even with preapproval, a mortgage can still be denied, so you should be familiar with the lender and the type of loan. An experienced agent likely has experience with a range of lenders and could offer insights.
Abrams explains, “You have to do some research to see if it is a valid lender. You want to ask what type of loans do they normally do if you are not familiar with them.”
In terms of the type of loan, FHA loans (mortgages insured by the Federal Housing Administration) often come with a longer list of home inspection requirements than a conventional loan. According to Abrams, the requirements can make it more difficult for a buyer to secure the final approval. “You have to call and have an open dialogue with the lender to figure out if the buyer is actually going to be able to close,” he says. Your agent should be able to find out details such as the buyer’s credit score and debt-to-income ratio.
Even without talking to the lender, there are clues that might suggest the buyer can’t afford your home. Two factors to consider: the amount of earnest money the buyer offers and the percentage he or she puts down. If either is low, it could mean the buyer does not have much cash on hand, which could result in the buyer not getting approved for a loan. A weak financial position could also increase the likelihood of the buyer backing out of the deal.
A Less-Motivated Buyer
Investors who plan to rent out the property once they buy are common in Las Vegas, but because they may make offers on multiple homes, they may be less likely to close than a first-time buyer who is planning on living in the home. “First-time buyers most likely do not want to lose a house. Investors, on the other hand, are OK if they don’t get the house,” Nguyen says.
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Buyer's Plans Clash With HOA Rules
If you live in a development with a homeowners association, you need to understand how restrictions may impact potential buyers. For example, many HOAs do not allow homes to be rented, so an offer from an investor wouldn't be considered. Or, perhaps your HOA does not allow owners to park a car outside overnight, which would pose a problem if a buyer owns multiple cars. It's also common for an HOA to have restrictions on pets. “When I am selling a home in an HOA community, I always ask the seller to see their resale package first,” Nguyen says.
Ultimately, experts agree that every sale is unique, and every offer should be evaluated case by case. When you're considering agents, ask them how they present and evaluate offers because working with a diligent agent is a great way to avoid running into a red flag. Abrams says, “My job is to lay out all of the offers. Call every agent and every lender, and give advice to my client on which offer is going to be the best.”