Across the Picket Fence - Can the Buyer Afford It?

Across the Picket Fence

Seller: How do I go about pre-qualifying buyers? I don't want to take my house off the market for someone who won't be able to afford it.

Simply request that the buyer provide you with a letter of pre-qualification fron a lending institution within a certain number of days (five business days is customary) verifying they should qualify for the mortgage amount required. This request should be stated in the Purchase & Sales contract (it is standard in many contracts). If the buyer fails to produce the letter, the contract is cancelled.

What is the difference between "pre-qualified" and "pre-approved"?

"Pre-qualified" means that the lender has checked the prospective borrower's income, assets, and debt ratio figures supplied by the borrower, and has determined that the borrower will qualify for the mortgage provided all the information is accurate and the credit report is acceptable.

"Pre-approved" means that the lender has already verified the information supplied, the borrower's credit report is acceptable, and the loan has been approved. Typically a pre-approved buyer is able to close as soon as the appraisal and title search are completed.

Seller: How do people deal with multiple offers? We have three parties interested, and all seem equally qualified. I've told them we have to wait to negotiate tomorrow when my husband is back in town, but I have no idea what to do then!

That's a nice problem to have! The fairest thing to do is let all buyers know that you have two other parties interested so that they have an opportunity to present their best offer. You might want to do a "sealed bid" arrangement where you give them a deadline to make their offer, and there is no further negotiation. This will avoid your being caught in the middle of a bidding war.

Seller: What happens if the buyer's financing doesn't come through in time for the closing? Is the contract still legal?

Lawyer: Yes. Unless you put "time is of the essence" on the contract, the closing date is not considered to be of importance by the court.

Seller: I'm thinking of offering full or partial owner financing, and wondered if you could tell me how that works, or direct me to someone who can advise me.

PFP: Lenders have told us that it is possible in Vermont for owners to offer owner financing on their primary or secondary home, but there is legal controversy over whether VT H565 permits financing on open land, investment or commercial properties (unless it is to a family member). In general, sellers have to have more equity in the property than they are financing, and will have to pay off any amount owed on their mortgage in full before they can sell it to a buyer. If the buyer defaults on the loan -- i.e. doesn't make payments -- your only recourse is foreclosure, which can take many months and possibly years.

There is a lender in Vermont that assists sellers in offering owner financing: Kittredge Mortgage, in South Burlington (802-658-5145). They educate and advise sellers about owner financing, offer seller protection against unlicensed clients, and provide overall knowledge of the buyer's financial history to help the seller make an educated decision of the risk they're taking with a particular buyer. They can also facilitate the transaction and closing so the buyer walks away with the keys and a mortgage (payable to the seller), and the seller walks away with a promissory note.