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Prequalifying Buyers

Financial Qualifications

When a buyer makes an offer to purchase your home, the strength of the offer highly depends on the buyers financial situation. As the seller you need to make sure the buyer is able to obtain financing to purchase your home, therefore when a buyer makes an offer they will typically include a letter from their lender stating that they have either been pre-qualified or pre-approved for a loan that will cover the cost of your property.

Pre-Approval vs. Pre-Qualification

What's the difference? When a buyer is pre-qualified, they have spoken to a lender to do a quick review of their financial situation. This often includes ballpark figures obtained from the buyer directly and not verified. They may or may not have actually pulled the buyers credit. Overall it is better than no letter, but it is not as strong as a pre-approval since actual numbers have not been used and/or verified.

The pre-approval process is a much more formalized step the buyer can take. The lender would obtain the buyer's tax returns, paystubs, credit reports, financial statements, and confirm that the buyer has the income and assets to obtain a loan for the property. If everything is approved, the lender will issue a pre-approval letter that shows the seller that they are able to obtain financing for the transaction.

Contingencies

Does your buyer have a home that they need to sell in order to purchase yours? If not, they are a very strong buyer! If they do have other property to sell, when they make an offer on your home it will state in the contract that their offer is contingent on the sale of the other property. This means that if you accept the offer, you agree to give them a specific amount of time to get and accept an offer on their property. This is very common however it can cause issues for you if their home will not sell.

Once you accept a contingent offer, in most situations you can still show your home to other buyers. If someone else makes you an offer and they are not contingent, depending on the terms of your contingent contract, you may be able to bump the contingency and accept the non-contingent offer. To do this you usually need to give the contingent buyer notice and an opportunity to remove their contingency instead. If they do not do this in the time allowed, you may cancel the original contract and proceed with the new buyer. Note that you cannot accept a second contingent offer, even if it is better, once you have accepted a contingent offer. But please review this with your attorney to make sure you are acting under the terms of your contract. 

Timelines

When does your buyer need to be in the home? When will your next home be available? If there are any unusual circumstances regarding your scheduling, you'll want to make sure the buyer can accommodate. If they need to be in your home in 30 days, but your new home is not ready for 90 days, you'll need to make other arrangements. 


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