What if your preapproval letter states that you qualify for an approximate amount and that amount is a little?

Asked by Lindsay, McKinney, TX Thu May 15, 2008

less than listing price of the home you are interested in purchasing?

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14
Alan May, Agent, Evanston, IL
Thu May 15, 2008
The preapproval letter doesn't have to match the listing price exactly. In fact, it's better if the pre-approval falls a touch short, while you're negotiating.

Hopefully, you can make up the difference between the preapproval (what your loan would be) and the purchase price with your "downpayment".
2 votes
Mark Chovan, , Frisco, TX
Fri May 16, 2008
I would look for any possible solutions such as; Are there any dings on your credit that may be affecting your credit score? You can check your credit once yearly for FREE.
Web Reference:  http://www.bigdrelo.com
1 vote
Margaret T.…, Agent, Conroe, TX
Thu May 15, 2008
Lindsay,

If this is the higest amount you preapproved for - stop looking at homes over your preapproval.
Offer less on this home , even less than your preapproval letter, You may need a cushion.

As for as the interest rate in the preapproval, the Third Party Financing Addenda does mention interest rate
the seller wants to know you are at least preapproved at that rate.
Just try for this one and if it does not go thru drop your search by 5 to 6 % below your approval.


good lUck with this offer
1 vote
Karen Shrock…, Agent, Dallas, TX
Thu May 15, 2008
The lenders with whom I've worked will prepare an approval letter in the amount of the offer and provide additional letters with different amounts as needed up to the actual pre-approval amount.

If the amount on your letter is the real amount for which you qualify and you are looking at a house in the top of your price range, you may want to consider your purchase choice carefully. Can you really afford that much in light of your projected future plans? Are you planning to have children, purchase a new car or boat or RV, fill the house with new furniture, etc.? You don't want to over-extend yourself with your housing expenses or you may have an uphill battle for a number of years.

When we moved to Texas, we bought well under our pre-approval amount having gotten ourselves in a quandry with our first house. It's a good thing we did because right after we moved here our car quit on us (after we'd practically rebuilt the vehicle the year before) and we found ourselves with an unexpected car payment and increased auto insurance premiums. We also had very high utility bills in large part because of our swimming pool. Having moved from another area/state entirely, there were cost of living adjustments.

Don't be overly pessimistic, but don't be too optimistic either.
1 vote
Don Tepper, Agent, Burke, VA
Thu May 15, 2008
What many investors do--and you should consider doing, if your lender permits it--is have multiple preapproval letters at different amounts. For instance, Joe Smith might actually be approved up to $700,000. But he will also have letters stating that he's approved at $650,000, $600,000, and $550,000. So if a property is listed at $595,000 and he makes an offer at $550,000, he doesn't have to send over the one revealing that he's qualified all the way up to $700,000.

In fact, Elvis is on target--no problem if the pre-approval falls a bit short. That'll really help in negotiations. And, of course, Larry's right, too: the listing price doesn't matter; what matters is your offer and how the prequalification letter lines up with your offer.

I hadn't heard of Chris' suggestion to block out the actual amount. I'm sure she knows what works where she is, but in other areas of the country, such a letter would be met with skepticism. To use the example above, if you're offering $550,000, the seller might be dubious; after all, the preapproval letter might only say you're qualified up to $450,000. I don't see that as strengthening your offer...which, after all, is the whole point of the prequal letter. Still, ask your Realtor what the custom is in your area. If that's accepted there, then that might be the best solution.

Hope that helps.
1 vote
Trey Bowden, , Edmond, OK
Fri May 16, 2008
Lindsay,

I guess I'm a bit confused as to why the preapproval letter states an approximate amount. The preapproval letters I send out for my customers are exact stated amounts. When I have a customer who wants to qualify for the maximum amount possible, I actually run their scenario through automated underwriting. This service costs about $20 plus the cost of the credit bureau.

Yes this can get expensive, but the realtors and customers I work with know that when I give them a preapproval letter, it's money in the bank.

It could be that the preapproval amount is less because of your debt to income. You might make certain your lender is completely aware of all verifiable income you have and any debts that you might have paid off but are stil showing up on your credit report. This could make the difference you need.

Good Luck!

Trey Bowden
Mortgage Lender
Oklahoma
(405) 340-3277
0 votes
Terri Hayley, Other Pro, Dallas, TX
Thu May 15, 2008
Lindsay,

There have been some good answers here. Do you have a home to sell? Will you make anything off the sale of your home? What do you have to work with as far as down payment goes? Have you talked to a good loan officer? Are you qualified for any bond or grant programs?

If this is your pre-approval letter, have you submitted your financial documentation so that you have a pre-qualification letter? Those are different and you may qualify for more once they see your financials.

Are you looking at the top of your range? Are you a first time homeowner? Are you working with a Realtor? Do you have someone looking out for your best interests and guiding you in this process? It sounds like you also may need someone who can negotiate on your behalf. If that's the case, we're here to help. We know McKinney very well and have helped about 125 families happily get into their new home in McKinney.

Thanks,
Terri Hayley
0 votes
Brent Bester, , Columbus, OH
Thu May 15, 2008
Lindsay,

If your preapproval letter states that you qualify for an amount less than the purchase price you should look for other properties. Unless the price drops dramatically, I am assuming your loan officer, I as would qualified you for the maximum dollar amount possible. If you dont qualify for that you should look around more. Being a loan officer myself, most of the reasoning behind the subprime mortgage meltdown was caused by lenient loans and loan officers putting buyers into houses they could not afford. The last thing that you want in your life is to be overbudgeted and facing forclousure on a house you care for so much. If it was trurely the max you were approved for you should look elsewhere. There are alot of Americans that are in dire straights as we speak for biting off more than they could chew purchasing a house on a 100% stated loan. I would talk to your loan officer specifically and ask him what the max amount is and go off that. Good luck and happy hunting!

Brent Bester
Mortgage Professional
614-622-8916
bbester@usavingsbank.com
0 votes
David Foote, , 60540
Thu May 15, 2008
There are 3 levels of "pre-approval". Years ago we had a pre-qualification letters as the 1st level. Here the approval is based on your word with the loan officer about your ability to qualify for a loan. This is the weakest "approval". The 2nd level for a pre-approval is where the loan officer has taken your verbal information and has at a minimum, checked your credit scores. This level of pre-approval has a little more weight to it in which to negotiate your seller down in price because you are a "qualified" buyer. The 3rd level of pre-approval is sometimes called a "commitment Letter". Here, your employment status has been checked and verified, bank accounts and liabilities have also been verified, and a a commitment letter is issued subject only to a signed sales contract, revirification of employment and credit status, the home to buy has a good appraisal price and perhaps some other miscellaneous criteria. With the 3rd level of pre-approval you have the most negotiating power to talk the price down with the seller.
Make sure that you get a "Good Faith Estimate" for the loan you intend to take out so that you know how much cash you will need to close or perhaps negotiate the Seller to pay those costs. Once you are armed with accurrate information about your financial wherewithall, and how much you can put as down payment, then you can decide how much you can afford to pay for a home. You then negotiate to that number. As some of the other agents have suggested, you want a life after your mortgage. Just because a bank says they will lend the amount, take a good look at the monthly cost for the loan, taxes, insurance and association dues....then look at your grocery costs, utility costs and you recretion/social calendar costs. If you have money left over, sock it away for that rainy day emergency fund. If your figures come up short, then perhaps you should consider a home of lesser price. Work with you realtor to advise you along those lines and good luck.
0 votes
Jeffrey Schn…, Agent, Austin, TX
Thu May 15, 2008
Lindsay,

Every lender I've ever worked with for a client will provide you with any number of pre-approvals at various amounts. Since a pre-approval is suppose to prove that you can afford the home you're making an offer on, I can't see the value in blocking out the pre-approval amount, that makes the pre-approval meaningless.

What I do recommend is that you tell the lender what you want in the pre-approval. That is to say, you only want the pre-approval to say how much home you can afford, and nothing else. Many lenders include the terms and conditions of the loan, including the interest rate. You do not want the seller to know what interest rate you were approved for, that's none of their business.

Good luck,

Jeffrey
0 votes
Dallas Texas, Agent, Dallas, TN
Thu May 15, 2008
That is fine in many instances as referenced you have multi pre-approval letters, never want to disclose what you can actually afford to buy. HOWEVER as a listing agent I look at that I may not except the offer or the seller, it depends on how much difference.
Web Reference:  http://www.lynn911.com
0 votes
Bruce Lynn, Agent, Coppell, TX
Thu May 15, 2008
1. Negotiate down, based on the letter.
2. Go back to the lender to see if you can get more.
3. Pay the difference between the loan amount and the purchase price.
0 votes
Chris Tesch, Agent, College Station, TX
Thu May 15, 2008
Lindsay,IMHO you don't want to give a preapproval with the amount added in to the sellers agent. I always block out the amount or ask for a letter just stating that you are preapproved (though some lenders won't do that without an amount). Whether it is for the amount of, or more than the list price it gives the other agentds something to come back with. This is information they don't need to know.
Web Reference:  http://www.ChrisTesch.com
0 votes
Larry Story, Agent, Greensboro, NC
Thu May 15, 2008
Lindsay,
For one thing are you working with an agent? If so you are not going to start off offering list price are you? How much is the difference. This could be handled any number of ways. So discuss it with your agent and if you do not have a buyers agent you might want to consider getting one. They need to run a CMA for you on the home and the area. Then after gathering more information you can make an informed decision on home much to offfer.

Hope this helps,

Larry Story
Coldwell Banker Triad Realtor's
0 votes
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