How much are you really approved for with your mortgage approval?
So you received your mortgage approval, so what does that mean? How much can you really buy? What if the amount you need is different than the approval amount? The Richard Woodward Mortgage Team is here to help explain in more detail what the mortgage approval means.
I often get asked these questions after the loan approval letter or pre-qualification letter is provided.
The approval letter says that I am approved for $350,000 with 3% down. What if the home I want to purchase is only $300,000. Do I have to take a $350,000 loan out?
The answer is no. The lender will make the loan amount contingent upon the purchase price rather than the approval letter.
Can I use the difference in my approval amount and my purchase price to get cash back at closing?
Again no, the loan is based upon the purchase price of the home, not what you are approved for. Lenders will not allow any cash back on the purchase of a home other than any excess down payment or earnest money.
If I am approved for $350,000 with 3% down and I find a home for $400,000 can I just pay 3% down plus the $50,000 difference and buy the home?
Again, no, when you are pre-approved, the lender calculated your debt-to-income level to determine your maximum purchase price. You have to remember; a $400,000 home has higher taxes and insurance costs than does a $350,000 home. These higher taxes and insurance payments will likely make your debt-to-income level too high to qualify even though the principal and interest payment is the same.
Here are a few other things to watch out for when you make your offer.
Ask your Realtor to check for a home owners association. If there is a homeowners association, what is the cost If the lender did not take that cost into consideration, it could possibly cause your debt to income ratios to exceed loan limits and cause your loan to be denied.
Tell your lender that you want to buy a Condo as this could cause problems. Condominiums are great homes if you don’t want exterior maintenance, but they do come with extra cost. First, the interest rate is likely to be higher for a condo than that of a detached home or townhouse due to additional risk to the mortgage investor. Additional risk includes things like large assessments by the HOA for maintenance or remodeling. A high number of unit owners not paying their HOA dues. One owner becoming distressed and having to liquidate many units at a discount thereby reducing the entire complexes value.
HOA fees can be higher for condos than for detached home, thus causing a debt-to-income problem.
For FHA home loans, the Condo Association must meet strict HUD approval guidelines or the property may not be eligible for FHA financing. You can check the approval status HUD Approved Condo list here. Conventional loans do require the complex to be approved but they are a little easier to deal with. With 10% down, only a limited review is required.
As always, The Richard Woodward Mortgage Team wants you to have a happy and stress-free home buying process. That is why we will do everything we can to make it so. You should start with our Certified Approved Homebuyer program. This gives the peace of mind to know that your loan file is fully credit approved and can close on any acceptable property quickly without a financing contingency. That makes your offer as good as cash.
Richard Woodward
NMLS 217454
Your Local, Direct, 5 Star Rated Mortgage Lender
Voice/Text: (214) 945-1066
Nexa Mortgage NMLS 1660690
7820 Hague Court Plano, TX 75025
Licensed by the Texas Department of Savings and Mortgage Lending (SML) Mortgage Banker Registration. Nexa Mortgage is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to buyer and property qualification. Rates and fees are subject to change without notice.
