Selling a home can be a process fraught with frustration. Some of that frustration can be caused by a lack of understanding of the qualification process. When sellers or buyers are unfamiliar with the entire process, tensions can rise more easily and create conflict. When both parties in the transaction are aware of the various steps involved in the qualification process, things usually go more smoothly. There are basically two qualification processes in a real estate transaction: one for the buyer and one for the home.
Hopefully, before a buyer makes an offer on a home, they have already spoken with a lender and can provide a pre-qualification letter. That letter puts the seller on notice that the buyer has done some due diligence and started the qualification process. The problem with most of these letters is that they are superficial in nature, meaning they represent only an initial review of the buyer’s finances.
The lender must dig deeper into the buyer’s finances, verifying their true financial status, including income reliability, previous payment history, and debt load. Sometimes issues arise that disqualify a buyer after a Purchase Agreement is signed, which can be extremely frustrating for both parties.
The second part is really a two-pronged qualification process, since the home must meet the buyer’s expectations while also satisfying the lender’s requirements for value and condition to serve as collateral for the loan.
The home inspection gives the buyer an opportunity to take a closer look at the home’s systems, structure, general condition, and appliances to identify potential defects or concerns before moving forward with the purchase. Any negotiations for repairs or replacements typically take place within a 10-day period. The seller may or may not agree to the buyer’s requests during this time, but the bottom line is that the buyer may be free to walk away from the transaction if they are not satisfied, depending on the terms of the Purchase Agreement. Sometimes sellers come away from this part of the process feeling beat up and worn out, even though the process of qualifying the home is not yet complete!
Once the inspection contingency is satisfied or waived, the lender gives the green light to the appraiser, who then evaluates the property to determine its value and identify any conditions that may need to be addressed before the underwriter approves the loan. Often, there are repair requirements (such as installing a railing on a deck or correcting peeling paint) that leave sellers feeling like they are stuck between a rock and a hard place.
A clear understanding of how this process works usually makes it more tolerable for both the buyer and the seller!