Positive Pre-Qualification

Once you have made the decision to buy land, a farm, or a property of any type, the very next step you should take is financial pre-qualification. If you have 100% of the cash on hand to use to make your purchase, and it came into your possession legally, I guess you can stop there. For most, this is not the case. For many with the cash, it makes sense to borrow anyway. That’s accountant stuff, and I won’t go there. Let’s just suffice to say that many would rather pay interest than Uncle Sam. Back to the majority of the world who will be needing financing: There are many advantages to getting pre-qualified with the proper type of lender before you ever look at a property. This can be a daunting process for some, so many people try to put this off. Here’s some advice you can take to the bank- you may as well do it sooner than later. At the end of the day, pre-qualifying will put dollars in your pocket. Most good agents can point you in the direction of several good lenders, but not all lenders are capable of loaning on all types of property. Some lenders who are capable, are not necessarily the best fit. Get pre-qualified with the right lender on the front end of your purchase, and it will save you time, money, and frustration throughout the entire process.

If you haven’t noticed, there’s a lot of properties on the market, and fewer agents in the business than a few years ago. This puts more demand on the time and resources of those of us who are still around. Professional agents will need to make sure they spend their time wisely. Agents have commitments to many buyers and sellers. If you want to move up our priority list, then getting pre-qualified is the first place to start. Agents like to work with those who have their financial house in order, and are willing to let us know. This work shows a degree of sincerity on the buyer’s part. Our time is limited, and we want to serve you best. We can better serve you when we know you have put in the time and effort to get pre-qualified. Agents know what properties to spend your time and our time looking at. We know the best timeline for helping you make the purchase, and we can help save you money- because you are pre-qualified.

Sellers want you to be pre-qualified as well. I have properties listed where the seller has instructed us not to bring anyone to see the property unless they have stated they have cash, or have been pre-qualified by a lender that works with their type of property. Think about this from the seller’s perspective: If you were the seller, would you want someone going through your property, seeing what you have in your house, around back, and after doing all of the prep work sellers do so that their property will show its best…only to find out they could not buy it anyway? Buyers are strangers to them. How many of you are really OK with the idea of a total stranger walking into your bedroom? Getting pre-qualified gives the seller a level of comfort that your intentions are good, and that you can buy. It goes a long way.

Negotiations: When I’m working with a well-qualified buyer, it’s one of the first things out of my mouth when speaking to a seller or agent about a property. Having a well-qualified buyer lets them know that we are not wasting time, and that the buyer is serious. Many times I get a response from seller’s and agents that helps my buyers’ bargaining position. Again, think about this from the seller’s perspective: You make an offer for less than listing price, the seller sees the offer, and then sees that the offer is contingent upon financing. The very first thing that goes through their mind is, “Can this person actually get the money, if we do come to an agreement?”. Now, do you think a seller is more willing to negotiate with someone who is pre-qualified, or somebody who is not? If the seller has an agent representing them, you can bet that agent advises them on the strength of the offer, and pre-qualification sometimes speaks louder than price.

Let’s look at one more scenario. You have two properties you are considering, one about $50,000 more than the other. You like them both, and are trying to decide which one to make an offer on. You’ve spent days talking with family and considering the properties, and have considered all of the ins and outs. Countless phone calls answering questions and getting a better understanding have been made. You did not get pre-qualified first. The choice was very close but you decide on one that is $50,000 higher and make an offer for $25,000 less than the seller is asking. You reason that you can borrow the money, since your credit is good and you have good job income. The seller accepts your offer and you begin to go through the loan qualification process, only to find out it’s not quite as cut-and-dry as you expected. Lending regulations are tough these days. During this time you notice that the other property, the one that was close, is “under contract”. Two weeks later, you find out that you qualify for about $25,000 less than your agreed upon purchase price. You convey this news to your agent, who then conveys it to the seller or seller’s agent. You ask the seller to take $25,000 less to keep the deal alive, only to find out there is a pre-qualified buyer that has just been waiting to see if your deal was going to go through or not. The seller has already received the bad news that you cannot complete the deal you agreed upon. Consequently, the seller opts to accept an offer from the other buyer that was $25,000 less than the offer you initially made. The same price as the other property was listed at. The seller reasons that they are better buyers, because they had those financial issues dealt with beforehand. You have now done all of the work of looking at the property, completed inspections that cost a few hundred dollars to a few thousand, been on cloud nine because you were buying your dream property, and went through all of the qualifying process…just to miss out on two properties you really liked. You notice the other property- the less-expensive one that you did qualify for and the one that was so close to the one you acted on- is now sold and the new owners are moving in. These things really happen, and then you are stuck with a bucket of “if”s” and “but’s”, and it’s everybody else having a Merry Christmas. If only you’d taken those few extra steps on the front end. If only you’d chosen the other property. But why did the seller choose the other offer over mine when the offers were the same on paper? You have lost all of this time, probably more coin that you care to throw to the wind, and are just generally frustrated with the entire notion- and you still had to do the work of qualifying too.

Here’s a bit of information on finding the right lender. Make sure that whichever lender you choose does your type of loan as their normal course of business. Most mortgage loans will not work when the land that you are buying is more valuable than the improvements. Some mortgage brokers understand this and will tell you up front. Others won’t. They will be more than happy to tell you anything to get your business, and then try to figure out how to make it work, after you have given them all the information and spent time, effort, and money working with them. I’m not just pulling this out of thin air either. As they say, “Been there, done that, got the T-shirt”. For land and farms, you need a lender with programs for land and farms- somebody that understands the intricacies of rural land ownership, and makes a living helping people finance farms and land. For a house in town, it’s going to be hard to beat a good mortgage broker. Most banks are making their living on commercial loans these days…at least in my part of the world. That’s why I advise you to talk with a good agent to get you pointed in the right direction. Good agents know their markets and have been through the hoops and loops. These things vary from market to market, and an agent working in a particular market will have better knowledge of lenders for the type property you are buying.

I hope you can see the benefit of taking that important first step. Get pre-qualified with the right lender. Go ahead and get your tax returns and that list of assets and debts together. I know it’s not your favorite thing to do, but fortune, or good-luck if you will, tends to follow those who are prepared…those with good knowledge. Knowledge is power in real estate transactions. You need to hold all the power that you can to make sure you are getting a deal that works for you. You will save time, money, and effort. Agents and sellers will receive you better and you will be happier in the end. Positive pre-qualification.