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- Qualifying is making sure that the buyer can get a loan to purchase the
property that they may be interested in.
- You qualify the buyer before you show them any possible purchases.
- The theory there is that if they need a loan to buy the property,
why would you show the property
before you knew if they could get a loan?
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- You must question the buyer before you start showing the buyer
properties. If you don’t, you are
wasting your time, and probably giving the buyer false hope.
- Your first qualifying effort then is to ask questions to see if the
buyer is really a buyer. Are they
able to purchase a home now? Will
they have to sell their home first?
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- Buyer Questionnaire
- 1. When do you want to move?
- 2. How long have you been looking?
- 3. If we find a home today, are you ready to buy it today?
- 4. Are you working with any other real estate agents?
- 5. How many in your family?
- 6. Do you own or are you renting?
- 7. Are you on a month to month or are you leasing?
- 8. Will you have to sell your home before you can purchase your new
home?
- 9. Have you found any homes that you liked?
- 10. What price range have you been considering?
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- 11. What would you feel comfortable with as a monthly payment?
- 12. If we found a home that you simply had to have would your down
payment and monthly payment have any flexibility?
- 13. How much do you have for a down payment?
- 14. Again, if I found a home you simply had to have would that down
payment have any flexibility?
- 15. How many bedrooms will you need?
- 16. Do you have an area that you prefer?
- 17. Is there anyone else that will be helping you with the decision?
- 18. Are there any “Have to haves” that you will want for
your new home?
- 19. Do you have any special requirements that you can thing of?
- 20. Where are you employed?
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- 21. How long have you been employed there?
- 22. Do you have a significant other?
- 23. Where is your significant other employed?
- 24. What are the best times for you to look?
- 25. Right now I am going to show you how we find homes on
the computer. Then we are going to make
- an appointment to see several, we’ll look at them and then
come back and discus what
you saw and what
- I think you saw, fair enough?
- 26. Before we state that, is there anything that you need me
to know? Like special needs or special wants?
- 28. Let me ask you one more question, Is there anything
that I should have asked you that I didn’t ask you?
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- 29. What I mean by that is do you have an Aunt, Uncle,
Brother, Sister, Friend, Mother or Father that you
already owe your real estate buying loyalty to?
- 30. I want to commit to you, to show you all of the properties that you
should be seeing, that takes a lot of my time, that takes a lot of your time. (tip of the iceberg dialogue)
When I make that kind of commitment I expect a
reciprocal commitment from you.
I think you know
what I mean. Do You ?
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- 31. I am going to concentrate all of my efforts on your buying needs,
and
just like you, I have to get paid for that. When you go to work
everyday you go to the boss that pays you the most, right?
Well the way we do that in real estate is with the “Exclusive
Authorization and Right to Acquire Agreement” you and I are
committing to work together.
I will be working with you and
two or three other buyers, but you can only buy from me.
This means that if you see an open house, if you see a sign on
a
house, you call me, not them.
If you talk to another real estate
agent you tell them that we are contractually committed.
Is that something that you would like? Your own exclusive real
estate agent?
- 31. I want to take a little time right now to explain just what it is
that I do
for you, would that be alright?
- (Go to your Buyer Book at this point)
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- You should be getting a picture of two qualifying situations going on
here.
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- Basically 99% of Home Buyers, first time or repeat buyers, have to be
qualified for a loan to purchase real estate.
- There are a few people who, maintaining constant credit lines in
business, can be quickly qualified with a lender who they deal with on a
constant basis.
- I would warn you that many times this open credit line for business is a
very poor line of credit for real estate purchases.
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- When we qualify a buyer to purchase real estate, we are qualifying the
availability of their income to allow them to make payments on a new
obligation, without impeding the normal standards of their lifestyle.
- We will see if they have enough income to make the payments on the loan
that they need to get.
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- Ideally, you want to qualify the buyer before you start showing them
real property.
- Qualify before showing should be a hard and fast rule for you.
- Sometimes today, buyers will tell you they have already been
pre-qualified, or pre-approved by a lender who they know or became aware
of.
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- When that is the case you will need to know who the lender is, and have
an open access to their lending practices.
- This is simply because with so many people going into the real estate
business, mortgage brokers, and lenders, are telling people that they
are approved before there has been any attempt to find out if the
borrower can actually qualify for the loan.
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- When we qualify a borrower for a loan, there are two steps that we
initially take.
- 1. Pre-Qualification
- 2. Pre-Approval
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- To pre-qualify the buyer you will need to know what their gross income
is. This is normally their
monthly gross income.
- If there are two people, husband and wife, or significant others, you
will normally need both incomes.
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- “We will need to estimate how much of a loan you will be able to get for
your purchase. I have several
questions that it will be necessary to ask you. Will that be O.K.?”
- You ask the husband “how much to you make on a monthly basis?”
- He answers “$4,800 a month.”
- You ask the wife, “do you work as well?”
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- “She answers “yes.”
- You ask, “and what is your monthly income?”
- She replies “$3,750” a month.
- You will add these two together to get their gross monthly income.
- Husbands’ Income $4,800
- Wife’s Monthly Income $3,750
- Total Monthly Income $8,550
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- Loans are pre-qualified, then pre-approved in steps, this is the first
step.
- Mortgage Brokers, loan people, speak in terms of front end and back end
ratios.
- The front end ratio is the maximum amount of the gross income that is
allowed for a monthly housing payment on a principal residence.
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- In this case we will determine that the front end ratio is 33% of this
couples gross monthly income.
- We then multiply their gross monthly income by 33% or;
- $8,550 X 33% = $2,821.50
- This means that their total monthly housing expense can be no more
than $2,821.50. That includes
Principle, Interest, Taxes and Insurance.
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- In this case we will determine that the front end ratio is 33% of this
couples gross monthly income.
- We then multiply their gross monthly income by 33% or;
- $8,550 X 33% = $2,821.50
- This means that their total monthly housing expense can be no more
than $2,821.50. That includes
Principle, Interest, Taxes and Insurance.
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- At this point you have to estimated the amount of down payment that they
have. You ask, “how much have you
allocated for your down payment?”
- They reply, we have saved $40,000.
You know that they really have about $30,000 down, and they will
need at least $10,000 for acquisition costs.
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- At this point you have to estimated the amount of down payment that they
have. You ask, “how much have you
allocated for your down payment?”
- They reply, we have saved $40,000.
You know that they really have about $30,000 down, and they will
need at least $10,000 for acquisition costs.
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- Your experience with this amount of a monthly payment tells you that 85%
of what the couple has for a monthly payment can be used to amortize a
30 year loan. 15% of the total
allowable monthly payment will be used for Property Taxes and Insurance.
- Estimated Monthly Principal and Interest
- $2,821.50 X 85% = $2,398.28
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- Your calculations tell you that your buyers will be able to pay
$2,398.28 for principal and interest.
- our experience with this amount of a monthly payment tells you that 85%
of what the couple has for a monthly payment can be used to amortize a
30 year loan. 15% of the total
allowable monthly payment will be used for Property Taxes and Insurance.
- Estimated Monthly Principal and Interest
- $2,821.50 X 85% = $2,398.28
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- There payment for Principal and Interest can be $2,398.28 per month.
- $2,398.28 at 6.5% interest, amortized for 30 years will allow them to
borrow $379,434 – you round upward to $380,000.
- They have an estimated $30,000 for the cash down payment. Add the cash down payment to the
$380,000 loan.
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- Estimated Loan Amount $380,000
- Estimated Cash Down $ 30,000
- Estimated Purchase Price $410,000
- Check your work
- Est. Taxes = $410,000 X 1% = $4,100
- Est. Insurance = $410,000 X 0.0035 = $1,435
- Total Estimated Annual Taxes and Insurance $5,535
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- $5,535 ÷ 12 Months = $461.25 Per Month
- Estimated Allowable Payment = $2,821.50
- Less Estimated P&I* = ($2,398.28)
- Less Estimated T&I** = ($
461.25)
- Difference if any = ($
38.03)
- * Principal and Interest
- ** Taxes and Insurance
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- You estimated quite accurately what this couple
- can purchase. It looks like they
can purchase a
- $410,000 home.
- You’ve done a pretty good job.
You need to find out what their backend ratio is.
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- The backend ratio is going to be all of their bills, and their total
housing cost. You know their
monthly housing cost, because you have just figured it out.
- Their total monthly income is $8,550.00
- Your Backend Ratio is 44%
- Their total bills, including housing cannot exceed $8,550 X 44% =
$3,762 a month
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- Total permitted bills = $3,762.00
- Less housing expense = ($2,821.50)
- Remainder for other bills $
940.50
- If he has a $350 a month car payment and she has a $275 a month car
payment, and credit card debts of $175 a month, they will have a total
of other debts of;
- $350 + $275 + $175 = $800
- They will just make it, with $140.50 left over.
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- The pre-qualification is just an estimate of what a buyer can do. The pre-qualification is merely an
estimate, and if everything is as the buyer told you it can be very
accurate.
- You want to go immediately to a Pre-Approval. In the Pre-Approval a
lender will open an in-depth credit search with at least 3 credit
reporting agencies. They will
order verification of employment, funds, and income. When this Pre-Approval is done by a
reputable lender it is very accurate.
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- You can learn to do a Pre-Approval yourself, but it is not normally
advisable. What you want to do is
create the closable sales and let mortgage people worry about loans.
- Once the credit reports are opened on the buyer, they will remain opened
until the home they purchased has closed escrow.
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- Often when we get a couple approved for a loan, start the home search,
they will get excited and buy new cars and furniture.
- Make sure that they don’t do any of that. Don’t change credit card balances,
don’t change jobs, nothing.
- When the escrow closes, they can buy new cars and get furniture.
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- If the couple can’t qualify for a great enough loan, they can add
co-signors now, perhaps a mother or father, a sister or brother.
- You should make sure that they make some kind of an arrangement to get
the co-signor off of the note at some point in time.
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- Working with good Mortgage Brokers can really help. A good mortgage broker can get a
greater loan than you can, as a rule.
- That is to say you were able to get a $380,000 loan in this
example. It is not unusual that a
mortgage broker would know of a program where the buyer could get a
$400,000 loan and purchase a $430,000 home.
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- Once you have don the pre-qualification, as you start the Pre-Approval,
you can start to show the couple homes.
- Your work has just begun, usually they will be less than satisfied with
the homes that you find them, they want more. This is where you sales skills come
in. This is where you begin
developing your skills.
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- Getting the buyers realistic is sometimes a very challenging job.
- You can do it, you must do it.
For your sake and for their sake.
- Don’t give up.
- The Living Room Close – The Home of the Future Close – keep going until
you get them into a home. You’ll
be happy and they will be ecstatic finally.
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Notes