Buyer's lender

[emm74]

Originally Posted by cvap

All I have from the buyer is a prequalification letter from a bank for the amount he wants to borrow. Is the next step the seller drafting a P&S agreement?

Originally Posted by cvap

Thanks everyone. I did talk to a lawyer quite a while ago and he is the one who told me to get the pre-approval letter before I spent a dime. I will call him to find out whats next.

Prequalification and preapproval are not the same thing - which one do you have?

[cvap]

He is pre-qualified for a 30 yr mortgage. It says valid till 10/8

[emm74]

Originally Posted by cvap

He is pre-qualified for a 30 yr mortgage. It says valid till 10/8

A pre-qual is meaningless. It means he talked to a lender, verbally gave them information about his finances and was told "this is an estimate of what you should be able to borrow." A pre-approval is a more detailed process where the borrower provides documentation and their credit is pulled. It's not a 100% guarantee they will qualify for a loan, and it doesn't include any information about a specific property so there's that aspect as well. But it least it means that they've been somewhat vetted as an eligible borrower. I would not spend money up front without it.

But I doubt you'll be able to write the contract so that you can pay the expenses after closing. The lender isn't going to front the money until it knows there is going to be clear title to the property, not something subject to inspection and the parcel being split and all that. If these are seller paid costs, I suspect you are going to need to figure out a way to pay them up front. This is where an agent can be helpful although some of this is complex enough to go beyond the expertise of an agent.

[cvap]

Thank you emm74. I did not know this. Hopefully the lawyer that told me to get one knows the difference.

[dblackga]

cvap, a few considerations:

You didn't have plans to sell the property, and seem to be only selling it because the buyer is somewhat known and it seems convenient. In that view:

1. Have you had a comparative market analysis done for the property you are selling? In other words, are you confident that you are selling at a fair market price, or at least close enough that you are comfortable with?

2. If this buyer wants to buy it, part of the contract negotiation could certainly be that the buyer pay all or part of the survey. Custom varies from area to area, but for example, around here, almost 95% of the time, the buyer must foot the bill if they want a survey.

3. If the primary value of the property is in the land, your buyer may not be able to get a mortgage loan. Underwriters will look carefully at land-to-value ratios. For example, if the price of the land is $25,000, and the total price with house is $100,000, you have a 25% land-to-value ratio, which most lenders would find acceptable. On the other hand, if your sale is $80,000 for the land, and $20,000 for the house, you have an 80% land-to-value ratio, which many lenders will not loan on (depends also on the norms for the area -- in places where high LTV's are the norm, they are more lenient.) But basically a lender wants to lend on a house, not land. Land is generally considered much harder to sell.

4. Surveyors generally do NOT work on a "pay at close" basis, especially for a complex issue such as this. They have no guarantee that it will close, after all.

[cvap]

Originally Posted by dblackga

cvap, a few considerations:

You didn't have plans to sell the property, and seem to be only selling it because the buyer is somewhat known and it seems convenient. In that view:

1. Have you had a comparative market analysis done for the property you are selling? In other words, are you confident that you are selling at a fair market price, or at least close enough that you are comfortable with?

2. If this buyer wants to buy it, part of the contract negotiation could certainly be that the buyer pay all or part of the survey. Custom varies from area to area, but for example, around here, almost 95% of the time, the buyer must foot the bill if they want a survey.

3. If the primary value of the property is in the land, your buyer may not be able to get a mortgage loan. Underwriters will look carefully at land-to-value ratios. For example, if the price of the land is $25,000, and the total price with house is $100,000, you have a 25% land-to-value ratio, which most lenders would find acceptable. On the other hand, if your sale is $80,000 for the land, and $20,000 for the house, you have an 80% land-to-value ratio, which many lenders will not loan on (depends also on the norms for the area -- in places where high LTV's are the norm, they are more lenient.) But basically a lender wants to lend on a house, not land. Land is generally considered much harder to sell.

4. Surveyors generally do NOT work on a "pay at close" basis, especially for a complex issue such as this. They have no guarantee that it will close, after all.

Correct. Though I am getting what I consider good money for the property, I look at it as doing him a favor so he can live next to his family and be where he wants to be. It will be very hard to find another buyer.
I have not had a market analysis done but that is almost laughable since there have only been about 5 sales in this town of 63 homes in the last 6 years. It is an extremely remote area with any house not built in the 1800's a modular on just a couple of acres.
We agreed to split the survey and I was quoted 10k
The land to value ratio is the reason I started this thread. I just did not know it was called that. The buyer did tell me that the bank told him that they only value the property considering the home and the average size lot for the town's 63 houses. Which I don't think is anywhere near the 140 acres in question.
I did not want to split the land, unless I was sure that he would get the loan because of the survey cost and probably higher taxes after the land is divided.