This is a guest post by Grayson Bell who found himself with over $50,000 of credit card debt not too long after graduating college. After realizing that it would take him 40 years to pay off that debt he buckled down, made a plan and over the next four years he paid down all of his debt. He runs the extremely popular site Debt Roundup and I am very excited for him to share his story with you today. If you would like your personal finance story or article to be feature on Vosa let me know here.
I am continuing my real estate themed posts here on Vosa. Last time I spoke about how being a debt collector helped me buy a home.
Now, I am trying to sell said home. We have been on the market for about three weeks and it has been a wild ride already. I like to be deeply involved with any process and selling my home is no different. I am sure my Realtor is about to go insane with all of my questions, but that doesn’t bother me. I am the one paying her commission. I feel this is a great learning experience, especially since it is the first time we will be selling real estate. That being said, I have learned one thing during this process and I beg of you to follow it.
My Selling Experience
What better way to lead into my advice than to give you my selling experience. While three weeks is not a lot of time, we have seen some real characters come and go. The only reason I know what is happening is because I request that my Realtor get feedback from the showing agent. That is the only way we know how people feel when they tour our home.
After we listed our home for sale, I thought it was going to be a quick sale. The reason being is a couple came in the day after we listed and loved our home. They loved it so much that they wanted to put in an offer that day. My wife and I were excited that we could move on from this home and start the next chapter. Well, that all came to a halt the day after the showing. Here is what my Realtor texted me:
The buyers loved the home, but their lender didn’t verify their income. They weren’t pre-approved for a mortgage and one buyer’s credit score is too low. They can’t afford the home!
Well, how about that? Within the first few days, we had a super-excited buyer and then we had nothing. They couldn’t even afford our home. Why were they shopping at our price point? Were they just shopping around with no expectation? So many questions in my head, but then I realized something. They had no idea of their financial situation.
Why Getting Pre-Approved is Important
This is my advice to any home buyer out there. Please get pre-approved before you try to make any offers on a home.
You should get pre-approved before you even start searching for a home to purchase. Why? This process goes in depth about your spending habits. A mortgage lender should verify your income, your assets, and your debt. Depending on the lender, they will give you a number based on what they are comfortable lending you.
The pre-approval process will dig up your entire credit history. This gives the bank a picture of what type of borrower you will be. It is extremely important that you do this before you search for homes, but even more important before you put in an offer. This process will also provide you with numbers based on your financial situation*. It will tell you how much you can buy, how much it will cost each month, and a base range of taxes and insurance. It is very eye opening to say the least.
* Important Note: When you are pre-approved for a specific amount, please don’t use that amount for your home budget. This is typically the highest amount you can pay for a home. This doesn’t include your regular expenses. If you purchase a home at this amount, you will be cash poor right after signing the papers.
In the case of my potential buyers, one had such a low score that it couldn’t be used in the qualification. They had to rely on just one buyer and that buyer couldn’t get approved for a loan to cover our purchase price. We have been told that they are working on increasing the low credit score and still want to purchase our home. We will not be waiting for those buyers, as it takes time to increase a low credit score.
As a seller, I now will no longer accept offers from buyers that have not been pre-approved. No, I am not being a snob. I just want to know that any potential buyers can actually afford to purchase my home. I need to know if the bank will even approve them. If you accept an offer, then your home goes off the market. If the buyers can’t get approved, then you have to put your home back on the market. This just takes your home away from other potential buyers that can actually afford you home.
Buying a home is going to be the biggest purchase you make in life. You should not go into the process not understanding where you stand financially. Take the time to understand your credit report, credit score, and how much you can actually afford. Digging into your financials should be the first step in your home buying process. Everything else should start after you know where you stand. This makes it easier on you, as the buyer, and the seller.
Would you require a potential buyer of your home to be pre-approved to accept their offer? Did you get pre-approved when you were buying your home?
Afterword from Brent
From my experience, Grayson is not alone in as a seller who is requiring a potential buyer to already be pre-approved before accepting an offer.
I have come across many sellers over the years that won’t even look at your offer unless you attached your pre-approval or proof of funds letter from the bank. This is happening all across America and not just in the cities with expensive real estate.
If you’re buying a house and you’re not buying it with cash then you’re going to need to apply for and get approved for a mortgage anyway so why not get pre-approved so you can include that with your offer.
An offer with a pre-approval is stronger than an offer without a pre-approval. This could be the difference between getting your offer accepted or rejected. That, if nothing else, should be enough to book an appointment with your bank or mortgage broker so you can get pre-approved to buy your next home.