5 Ways to Get the Truth about a Homebuyer’s Budget

As glimmers of hope begin to shine through today’s economy, home prices are inching back up. In some high-demand real estate markets, home sales are even running close to 20% above last year’s pace. While this is great news, you may find some less than serious – or certainly less than qualified – buyers dipping their toes into the market.

Here are some conversation starters that help suss out true buyer readiness and help you quickly qualify your leads:

1. Have You Owned Before?

Getting an idea of a buyer’s real estate history is a great way to get a glimpse into their current finances.

First-time home buyers may need a little hand-holding as you try to ascertain their budget, since they aren’t accustomed to considering items like insurance and taxes. With first-timers there is a higher chance they’re just lookie-loos with no possibility of making a solid offer. But if a potential client has bought and sold before, you at least know they were once able to qualify and they’re familiar with the process.

When talking to past owners, steer the discussion toward what happened with their previous place: Are they selling it? Do they know what it’s worth? Are they upside down or, worse, in a foreclosure situation?

If a past owner is currently renting, see what they’re paying and ask if their tenant years have allowed them to sock away a good down payment.

2. How’s Your Credit?

There’s nothing wrong with just coming right out and asking this question – prospective buyers shouldn’t be surprised. There are two things you can glean from the answer. First, if buyers don’t know their own credit score or history, they’re probably not serious about purchasing and have no idea about their budget or if they’ll qualify for a loan. Suggest that every buyer pull their credit.

If they do know their score and it’s less than stellar, they may be seriously interested, but the road to loan approval could be long and hard – which for you means they’re more likely to walk. The dream answer is they’re in the top tier of credit worthiness and are ready to buy a new home. Then, it’s happily onward. 

3. How much do you spend on credit each month?

Once again, if buyers have no clue what they spend each month, there’s a good chance their debt-to-income ratio isn’t up to snuff. As a rule of thumb, a good debt-to-ratio should be no higher than 36%, and less is always better. Of course, to learn the true numbers here, you’ll also need to ask some sensitive questions about income – but again, serious clients won’t be taken aback.

4. What type of property are you looking for?

Here, you’re trying to get the condition of the home they’re looking to buy. The answer to this question holds a lot of information on how much money they can spend. Obviously, the more grandiose a property, the bigger the budget – provided they can afford it.

Also, find out: are they looking for a single-family residence, a townhouse, a condo? Or are they pushing you hard to find them a short sale or foreclosure?

Buyers who are focused on saving money and benefitting from someone else’s misfortune, usually have smaller budgets. In contrast, those seeking single-family homes generally have a bit more spend.

Sidenote: When you ask this question, do your own calculation. Depending on the value of the property, you need to decide if the commission you stand to earn will be worth the time you put in.

5. How Much Are You Prepared to Put Down?

Lasty, serious buyers know how much they want to shell out up front. It’s one of the first things they decide when people entertaining the idea of home ownership now that the days of 100% financing are largely behind us. If clients don’t have a figure handy when you ask the question, more than likely they’re just looking to kick some tires.

On the other hand, if they have a substantial amount set aside, you can be sure they’re ready to purchase. A down payment of 20% goes a long way toward getting potential lenders’ attention, and often lets them avoid private mortgage insurance. It helps if you can get them to talk specifics.

Final Thought: Be at your best when talking budget

Just as buyers know to keep their information as close to the vest as possible during price negotiations, many will be equally guarded with you at first. Some fear that by revealing their true budget, you may try to sell them more house than they need.

This is where your natural people skills come into play. Gently steer the conversation toward their very real finances while making them comfortable giving you the information that will help them close the deal. .

These are a few key questions to help you get the truth out of today’s buyers. How else can you determine a buyer’s true budget? Tell us what questions you’d add to the list below.