Even though you're not a mortgage lender and you don’t have access to a client’s credit report and tax returns, there are ways to recognize a qualified buyer as a real estate agent.
Some people hate renting and can’t wait to become homeowners. But in their excitement and eagerness to buy a home of their own, they make the mistake of meeting with a real estate agent prematurely, and searching for a home without knowing whether they're eligible for a mortgage.
While you don’t want to turn away a potential client, you don’t want to waste your time either.
By asking would-be buyers a few questions during your initial meeting, you can discern whether they’re a qualified buyer.
1. Have you met with a mortgage lender?
When meeting with a potential buyer, it’s important to know early on if he’s working with a mortgage lender. If a buyer has sat down with a lender to review a Loan Estimate and received the green light to search for a property, you’re dealing with a serious buyer who’s ready to move forward with a purchase.
If the buyer hasn't met with a lender, don’t automatically assume he isn’t qualified to purchase a home. The truth is, some buyers skip the pre-qualification step and contact an agent the moment they decide to purchase a property. Some of these people are just as qualified as pre-qualified borrowers, so you shouldn’t ignore these clients. However, before showing properties, encourage these people to meet with a lender to discuss their loan options and learn whether they meet the qualifications for a loan. This way, there’s no doubt as to whether the person is qualified and ready to make a purchase.
2. Can you provide an earnest money deposit?
Some buyers, especially first-time homebuyers, are unaware that buying a house involves including an earnest money deposit with their offer. You might have to educate some buyers on earnest money by explaining that it’s a “good faith” deposit that lets sellers know they’re a serious buyer.
To pre-qualify a buyer yourself, briefly explain the steps of buying a home, which includes writing up an offer after they find a property. Be sure to mention that they’ll need to include with their offer an earnest money check between $500 and $1000 based on what's customary for the area.
If the buyer hesitates or seems unable to come up with the funds, this may indicate he’s not ready to purchase a home. Buyer who can’t afford an earnest money deposit may have trouble coming up with funds for other mortgage-related expenses, such as closing costs and their down payment.
3. Do you know your credit score?
Another way to pre-qualify a potential buyer is to see whether they know their credit scores. A person who’s serious about buying a home has likely done his homework on mortgage requirements. This includes reviewing his assets to see how much he has in reserves for the purchase, as well as pull his credit report to make sure his credit score is high enough to qualify for a mortgage.
If you bring up the topic of credit scores or credit history and a buyer scratches his head or doesn't have a clue about his personal rating, he may be less prepared for a home purchase than he realizes.
You shouldn’t get too personal and ask the buyer about his credit habits, but you should encourage him to pull his credit report and check his credit scores as soon as possible. If you have a relationship with lenders, maybe you can provide printed information about qualifying for different mortgage programs, or information about minimum credit scores for certain programs. Most mortgages require a minimum credit score of 620, but qualifying for a favorable interest rate often requires a credit score of 680 and higher. Refer potential buyers to AnnualCreditReport.com so they can review their own credit history.
4. What’s your price range?
Knowing a buyer’s price range is another way to determine whether they’re qualified. Depending on where you live, buyers might have to pay a pretty penny to purchase a property. If you talk with a potential buyer and learn that their price range is considerably less than average prices for the area, there's a chance this buyer will not find a property within his price range in the area. And unfortunately, you might have to encourage him to postpone a purchase until home prices come down or his income increases.