Qualifying in the New Economy

It used to be that us Realtors defined Qualifying as asking the Buyer "Will you be paying cash or financing, and what is your price range?" Fact was there were plentiful buyers who had good enough credit to get a loan, and in a sellers market sellers didn't have too much to worry about. Boy how quickly things change. In this new economy everything has to be qualified. What I mean is that Realtors have to perform serious due diligence to truly Qualify the Buyer, the Seller and the Property.

Qualifying Buyers: Two years ago it was very easy to qualify Buyers. Fact is the banks would approve almost any loan app that came across their desk based not on the Buyer's ability to pay, but on the propertie's anticipated appreciation. The Buyer was just one part of the calculation. Not anymore, now the whole qualification process is dependent on the Buyer's ability to pay. Realtors and buyers I know, including myself, got used to this part of the process being fairly easy during the boom years. As an example, we have Buyers coming in now who need financing but have not even started the pre-approval process. Many sellers, including the Banks selling their foreclosures, now require that a pre-approval letter accompany the purchase agreement. In other words, if your not paying cash, (Cash used to be King, but now it's the Dictator), have all your ducks in a row before you go shopping.

Qualifying Sellers: Wow, used to be a Realtor would get a disclosure from the seller and that was enough. In the New Economy Realtors have to be much more diligent in gathering information about the sellers and the property. In a world where many sellers are upside down on their mortgages and overall debt positions, all kinds of surprises can be thrown into a closing. In addition to upside down mortgages just a few other examples of surprises include second mortgages, delinquent taxes, delinquent home owner association fees, judgements and declining (deferred) property maintenance. When you see an upside down mortgage you can pretty much expect to see many other surprises.

Qualifying Properties: Lenders have gotten much stricter about the properties they will collateralize. Lenders scrutinize location, septic/sewer, percentage of default rates in a given location, and even cost of living index for a location that a buyer is relocating to. As just one example, lenders now want the financial statements from the Home Owners Associations of condos, homes and lots that fall under H.O.A. management. I recently had a conversation with a local mortgage broker who told me that if any Home Owner Association in Angel Fire has a delinquency rate of 15% or more they will not approve the loan. The lenders also require that the associations have substantial reserves. This is to avoid unexpected special assessments that could make a mess out of an owner's financial statement. I have seen this happen, and many Owners have lost their properties or seen closings interrupted because of H.O.A. special assessments. If you're current you might need to become more concerned about attending H.O.A. meetings to protect your equity. Your ability to sell is part of a buyer's ability to buy. In other words, if any kind of H.O.A. is part of the property, check their financials...

In closing, Buyers need to protect or repair their credit, sellers need to be sure of their ability to close, and the term "Qualified" needs to include the property. Till next time.

Kyle.