When you’re selling your home, waiting for your first offer can be agonizing. When it finally comes in, you may be tempted to accept it on the spot – especially if it matches your asking price. However, before you consider an offer to buy your home, it’s imperative to make sure your buyer can actually afford to do so.
There are two ways in which a buyer can prove his financial viability: pre-approval and pre-qualification. With pre-approval, a buyer visits a lending institution, fills out an application, and is approved for a mortgage for a specified amount. Pre-qualification is a less formal “unofficial estimate” of the mortgage a buyer can afford.
Buyers can get pre-qualified through several methods. Local mortgage brokers are often willing to call your buyer and complete prequalification on the phone, or you can ask a buyer visiting your home to log on to sites like iOwn.com, LendingTree.com, or Lending.eTrade.com to get pre-qualified on the spot. There is also a mathematical formula that balances a buyer’s income level against their debts, but with simpler options available, it’s seldom used.
No matter how attractive an offer may appear, it’s worthless if your buyer can’t secure a mortgage. You could waste months while a buyer with poor credit tries to get financing – potentially missing out on other offers. Requiring buyers to get pre-qualified or pre-approved before you accept an offer will give both parties peace of mind as you move forward to sell your house.