Sanjeev Ahuja NMLS # 148731
Home Funding LLC
110 Jericho Turnpike Ste 214
Floral Park, NY 11001
Direct Ph 917-517-2552
NYS Registered Broker, Department of Financial Services, Loans Arranged through third parties NMLS # 885573
that the bank has already vetted this borrower and unless something extraordinary happens the bank will loan the amount pre-approved.
You, as the seller, don't need to concern yourself with how to gauge the buyer's qualifications. That is what you have an agent for. And the appraisal by the bank is what should worry you the most. If the property doesn't appraise for $87k then you won't have a deal anyway.
Assuming the buyers would be doing a Jumbo Conforming Loan as opposed to some specialty product, that should be enough to get the deal done without you having to lower the price.
Their lender won't care since the loan-to-value they use will still be under 80%. It might cost the buyer 1/8% more in rate, but you could certainly offer to throw some money their way to make up for this. Maybe $1500-$2000 towards their closing costs or something, This would surely be better than dropping the purchase price to $775,000. The buyer is still coming up with the same amount of money out of their pocket and still owes the same, so they shouldn't care.
As far as guaging their qualification, read the pre-approval letter or pre-qualification letter they provided you. See who wrote the letter. Is it from a legitimate bank or broker that is well known? That's a good sign, although not necessarily a deal breaker. There are plenty of reputable smaller lenders out there. Most importantly, what does the letter say? The more detail the better, and you'll want to see wording that they have already pulled a credit report and reviewed their income and assets. If they have not, then that letter is not worth the paper it's printed on.
Better yet, use your Realtor to help you with evaluating things. Ask if the know of this lender and if it's a reputable company or they have had good or bad experiences. You could have your Realtor call the loan officer and try and find out how far the buyers have gone through in the approval process. They are not obligated to divulge this info, but many good loan officers will.
Finally, you might want to express your concerns to the buyer's side. It may be that if the home doesn't appraise they would walk away if you don't lower the price. Or, they might love the home so much that so long as it doesnt affect their mortgage they will do whatever it takes. Tell them up front that you understand the appraisal is a crapshoot, but you don't plan on lowering the price if it comes in lower. See how they react and you may get a feel as to the mindset of those buyers and whether you feel comfortable accepting the offer.
Above all, express these concerns to your Realtor. He or she should be providing you with good advice and setting your backup plan for the "what if's" that could happen.
However, I think you're confusing a couple of different things.
The buyer's qualifications depend on those ratios I mentioned, as well as credit scores, etc. The question to be answered is: Can your buyer afford the payments he'd be making?
However, you've got another problem: The house might not appraise for $870,000. Your buyer could be pre-approved for a $870,000 but that really wouldn't be the salient factor. The bank is only going to lend based on the appraised value of the property. So let's say the bank appraisal comes in at $775,000. If they're prepared to lend 80% of that, or $620,000, then your buyer has to come up with the difference: $250,000 (plus his share of the closing costs).
Now, you said he's prepared to put 30% down. That's $261,000. That looks like it could work. From the bank's perspective, your buyer might be overpaying by $95,000...but the bank won't care so long as there's 20% equity in the property, based on the appraised value...and so long as your buyer is capable of making payments on that $620,000 mortgage.
Check with your Realtor for more information.
Hope that helps.