I hope everyone enjoyed their Thanksgiving with their families and friends The other week, I know I did!
Slowly but surely I see that more people coming into the market are a bit more prepared to purchase and some that are not. Whether me providing them a referral for a mortgage person or them seeking out one.
I explained and educated them to realize that to compete and not potentially lose a home or an apartment that they are bidding on, they must have that most important letter of qualification.
To receive that letter one must provide two years tax returns, at least four most recent pay stubs, a full credit inquiry is done by the mortgage person (if they want a commitment letter) as well as any debts on credit cards and other types of loans one has.
They might also have to pay off credit cards to make sure your debt/income ratio meets their requirements. if you will be using that particular mortgage person, you will be asked to fill out an application your lender, will check to make sure you are still gainfully employed on the same job, and that your situation has remained similar to when you initially applied for your mortgage.
If any serious items were to pop up at the last minute to change your qualifications, they have the right to cancel your mortgage commitment right up to the closing.
Obviously, the bank’s role is to minimize their downside risk and maximize their upside, to make sure that not only are you qualified but that they will receive their mortgage payment each and every month for the length of the time initially agreed upon.
In this current market, 24 hours can make a difference between and acceptance or turn down on an offer.
If you snooze, you may lose! Even though inventory has increased year over year, the number of desirable homes still isn’t abundant, so the choices are still very narrow.
Having that all-important crucial letter allows you the buyer(s) to know exactly what you are qualified for; because the realtor must have this information in order to do his or her job to search out those properties that will first fit financially in your budget and then hopefully satisfy some of your “needs and wants.”
Recently, I was involved in a situation where the owners who were selling and then buying had to get pre-qualified. They were initially looking in a price point of $800,000, but after speaking with our mortgage person, realized in their specific situation, that they would only qualify for a $550,000-$600,000, due to their available funds for a down payment on their next home. I had thought that their income was higher and they were driving a BMW and Mercedes, which really has no relevance to what many can afford!
What someone drives doesn’t always have any relevance to what they can afford. So after finding a buyer (which they had tried to find over a three-year period with several other agents), they decided to stay put!! UGH!!! Oh Great! a few other explicatives, but what can I say, things happen in this business that are not always controllable! But the lesson to me is don't believe everything you hear, only what the mortgage person has in a pre-qual letter that has been verified. Most important, if there is not much money down, wait til there is enough to make sense of both sides of the transactions, sell and buy!!!
We also realized that they needed all the money from the sale of their home to purchase the next one and their purchase had to be contingent on the sale of their home.
How many sellers want to get involved in a contract, where they are taking their home off the market for three to four months, to wait for their purchaser to sell and then if the deal doesn’t happen, to let the buyer walk away without any ramifications.
It’s an excellent deal for the buyer, since there is no risk financially, but the seller is risking losing time out of the market.
Sometimes, if a buyer is in contract on their home and it’s a non-contingent sale and the inspection has been completed, and they are qualified in advance of their next purchase; that would be the exception to the rule and the seller would have relatively less risk in waiting, knowing the sale of the buyer’s home was pretty much going to happen.
But how many transactions are there like that? I am sure there are very few!
I told my sellers to not spend any more time spinning their wheels and just to continue to save more money for a larger down payment and also to increase their income to better qualify for the home that they will want to purchase.
Their situation is not that much different than other situations that I have come across, where it can be somewhat complicated and a big waste of everyone’s time to try to make this happen, where the downside risk for the seller is greater than the upside.