Posted by SteveS(CPA) on May 06, 2002 at 18:29:51:
Hau,
The credit check on your investors depends on the type of investor(s) you’re looking for. If they will be co-signing for a loan or needing a loan for any part of the deal, then yes, a credit check is a must. Not only for your protection but for theirs also. You don’t want to ever put an investor in a situation where they can not complete the deal for some reason, especially after they have already put money into it also.
So, just to keep out any surprises, get everything done before hand. That way, everything goes smooth right through closing.
But if they are paying with cash and cash only. Just verify the cash is there, make sure they’ll have it when you need it and go from there.
Hope this helps.
How Do I Qualify Prospective Buyers - Posted by Hau: San Jose, CA
Posted by Hau: San Jose, CA on May 06, 2002 at 14:31:18:
Hi All,
I apologize if this is a newbie question, but how should I go about qualifying a prospective buyer? Let’s assuming that I have a bargain property to flip and the buyer/investor and I have settled on a price.
What are the steps in obtaining the proof of their funds or their ability to borrow the money from a lender?
Thanks a bunch!
Hau
Re: How Do I Qualify Prospective Buyers - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on May 06, 2002 at 20:36:16:
I like to send my prospects to a mortgage broker and get them pre qualified. I tell the mortgage broker that I am considering selling a house to these people and could he qualify them for me.
At that time he will fax me a form. I have the prospect fill out the form, with name and social security number on it. I fax this form back to the mortgage broker. He then runs an “in file” credit check over the phone. At that point he calls me back and tells me if there is anything that would cause the prospect not to qualify. He is not permitted to discuss the exact content of the credit report with me, but if there is some glaring problem he can tell me that there is no need to continue. This part takes one hour or less, often just a few minutes.
Up to this point my cost is zero. I can then have the prospect go into the office of the mortgage broker and he will qualify them, for me. He will tell me how much of a loan that they qualify for. Usually this service is also done at no cost, but if there is a fee I tell the prospect that they will have to pay this.
If there is any resistance to checking credit, I usually see that as a big “red flag”. If the credit is clean there should be no objection to having it checked.
Re: How Do I Qualify Prospective Buyers - Posted by SteveS(CPA)
Posted by SteveS(CPA) on May 06, 2002 at 16:57:54:
If it’s just one property I would ask them to provide you with their credit report and also have them fill out a credit application and get their bank references.
If you are still not satified or if something seems kinda shady, go online and pull they’re credit report. and double check the information and call they’re employer and get tax returns if you’re still nervous.
You can ask for as much as you need, but at some point they may throw up their hands and say its not worth it.
But it’s up to you. But start with the basics, a credit report, employer information and bank references. That’s if this is an investor. If it’s a tenant then also get previous landlord information. Don’t call and ask for references, but call first and ask if they rent property or have any. If they say no, then ask them do they have any rentals? If they say, no then be catuious. I’ve been burned twice by tenants giving me a relative or friend as a landlord reference. Also for there employer, if you get a voice mail. Hang up and call 411 and get the business name’s phone number. If the business is not listed, another red flag.
Re: How Do I Qualify Prospective Buyers - Posted by Thanks!
Posted by Thanks! on May 06, 2002 at 18:16:09:
Hi Steve,
Thanks for the advice! I suppose that the credit checks on the investors are just to ensure that they are credit worthy, correct?
As for qualifying tenants, an investor told me a similiar situation. Her tenant submitted false identification and because that tenant had a child, a court ordered that the tenant and the child could remain the her property rent free for 6 months. I’ve always wonderered how I would safe-guard myself against this scenario, but I think I now have an option. Thanks again for the advice!
Hau