Am I preapproved for a purchase price or a payment? When purchasing a home, you should get preapproved for your loan with a qualified loan originator. This loan originator will look at your documentable income and preapprove you for a PAYMENT based on underwriting guidelines.
So why does the preapproval letter always state a purchase price? The lender ESTIMATES roughly what purchase price amount you might qualify for based on your allowable monthly mortgage payment. They have to estimate this purchase price amount because property taxes and homeowners insurance premiums which both go into your monthly payment will vary on different properties. Interest rates also fluctuate on a daily basis and the lender can’t lock in your rate until you’re under contract.
So if I’m approved for a payment, how does my Realtor know how much I can afford? Your Realtor should be in close contact with your loan originator. Before they write up an offer for you, they should give your loan originator the property taxes for the specific home you’re interested in so the loan originator can calculate a payment for you.
What happens if my Realtor doesn’t check with the lender before writing the offer? You will most likely be able to retrieve your earnest money, however you will probably be out a lot of money for your inspection fee and appraisal fee. It’s much better to make sure you’re using a Realtor and loan originator that are comfortable communicating with one another, and understand the importance of payment amount over purchase price.
Don’t make the biggest financial decision of your life without getting educated! If you’d like to know more about the preapproval process or the home buying process in general, please go to our Calendar/Reservations page and register for one of our FREE First Time Home Buyer/Down Payment Assistance workshops.
