If you own a home, then you probably have been through this process, but what does a prequalified buyer actually mean for a seller? A prequalification is a basic screening for a potential borrower. It is not a formal mortgage application. However, it can help rule out some would be buyers who cannot purchase your home due to their credit, income, or debt.
A prequalified buyer means a licensed mortgage officer has reviewed the borrower’s credit for red flags and verified the borrower has met minimum score requirements. They also use the debt listed on the borrower’s credit report and annual income to determine if they meet the established debt ratios for a specific mortgage program, rate, and terms. These are what determine how much they can potentially borrow.
A prequalification is great first step, but it is no guarantee. Sometimes a borrower might initially include overtime or other income that a lender will not count. Sometimes they do not provide a full disclosure because they do not understand why a certain detail is relevant. The mortgage officer or underwriter might uncover a concern during the more formal mortgage application that did not come up at prequalification.
As a seller, things can happen that are out of you or your agent’s control. That said, requiring a prequalification letter from a reputable lender is a good way to gauge a borrower’s ability to close the loan. If you are considering a cash deal, you should obtain a verification of funds.
If you have a question regarding a prospective buyer’s ability to close or other questions about selling your home, please contact us.