How to Quickly Pre-Qualify a Potential Buyer

By Andrea “Andy” Tolbert

You’ve found the house and fixed it up. Now what? Without a buyer, you may be stuck paying huge carrying costs for months! So much for profit! So you start your marketing program (yard signs, classified ads, flyers, etc.) and the calls start coming in. Now what? Personally, I don’t want to sit around waiting for the phone to ring. And, when it does ring, I don’t want to waste a lot of time on “Dreamers” with no cash and even less credit. One or two trips across town to show a property to someone with no job, no down payment, and 400 credit scores will teach you really quickly to do some screening on the phone before setting an appointment. Remember: Time is Money!

How can you speed up this process? Well, it is very important to develop a working relationship with a bank or mortgage company. The advantage of an independent mortgage company is that they usually represent multiple leaders and can submit the borrowers’ application to several to obtain the best program. Most will offer a pre-qualification for no charge, but this is a benefit that can quickly be used up. Many mortgage brokers and loan originators are paid based on commissions only, so if you are sending them prospects that are totally un-workable, they will soon start dodging your calls and emails. On the other hand, if you are consistently sending them people that are viable clients, they will love to work with you, and they will not only take your calls, but they will start referring both buyers AND sellers to you!

A few key questions when you first talk to the prospect could save you many hours of waiting anxiously for an answer on someone who was never a real prospect to begin with. A few suggestions are:

1. How much money do you have available for a down payment? (In real life, very few people qualify for the $0-$500 down loans.) Keep in mind this can be more than just cash on hand, it can include gifts or loans from family members, upcoming bonuses, tax returns, loan against a 401k, seller-held second mortgages, etc. I usually ask something along the lines of “is there any other money that you may be able to use for the down payment, like tax refunds, a gift from a family member, or a loan on your 401k?”

2. Establish their credit history. Don’t ask, “How’s your credit?” because their automatic response will be “Good.” Ask specific questions to get to the truth.

a. Have you had a bankruptcy in the last 24 months? If yes, have you established any new credit since?
b. Have you had any cars repossessed? If yes, has it been paid or satisfied yet? How long ago? (Less than 12 or 24 months may be a problem)
c. Have you ever had a property foreclosed? (This is a red flag!)
d. Have you had any payments more than 30 days late on any credit cards or loans in the last 12 months? 24 months?
e. Have you broken a lease with a previous landlord or apartment?

3. Have you been on the same job (or at least same line of work) for two years? Frequent job-hopping and gaps in employment make financing difficult.

4. Are they self-employed? If so, they need to be self-employed for more than two years. Also, many self-employed people tend to write a lot of expenses off their income tax returns, leaving a very low reported income. If they show strong cash flow through their bank account, or have great credit, there are still programs that may work for them.

These tips are not intended to make you a mortgage expert. However, with the answers to these questions in hand, you can quickly find out from your lender whether the prospect is worth pursuing or not, possibly saving you both a lot of wasted time.

One more tip: tell the prospect that you may have a mortgage professional call them for additional information and be sure to find out the best way to contact them. If your lender does have additional questions it will speed up the process if they don’t have to go through you.

GOOD LUCK!

Andrea “Andy” Tolbert has been actively investing in the crazy Florida market for over eight years. Her passion is teaching other investors some of the secrets she’s learned in both her investing and her ‘other life’ as a mortgage broker. She can be contacted at Andy@AndyTolbert.com or 407-328-0970. © 2006 rei123.com