Downpayments and PreApproval Letters

posted 3 years ago in Home
Post # 3
Member
3280 posts
Sugar bee
  • Wedding: June 2014

They will pre-approve you for whatever they feel is good based on incomes, jobs, credit, etc. They may only approve you for say 200k, but if you want a house for 250k you would have to save up the other 50k. Sometimes the bank will require you put down 20% or 10% (we had to put down 20% to get a loan). Putting more down lowers your monthly payment and sometimes interest rate. I would say make sure you have at least 15-20% saved up specifically for the house aside for all other savings and at least enough saved up to live off of for 1 year if something happened.

Post # 4
Member
7281 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

You determine what pre-approval amount to ask for by looking at your monthly budget to figure out the amount you can comfortable afford to pay for principal & interest, home owner’s insurance, mortgage insurance (since you have a small dp), and HOA fees (if any). Then you figure out how much that monthly payment will buy you. And then you make sure that you have at least 3.5% of that total sum as a down payment, and at least another 3% of that sum for your closing costs, and at least 3-6 months of your mortgage payment left over in your bank account after paying the down payment and closing costs.

So if you have $1100/month for your mortgage payment figure $125 of that is mortgage insurance, another $70 is home owners insurance, another $160 is property taxes, and the remaining is $755ish for the actual principal and interest (the amount you are paying for the loan itself). That amount will buy you a $160k house at today’s mortgage rate (4.275). Now you know what amount you want to request pre-approval for based on your individual budget needs and preferences. And you would need a 4% down payment to get these numbers, equal to $6k, with another $6k for closing costs, and another $3300-6600 in reserves.

Just to note, that 3-6 months worth of mortgage payments in reserve is extremely low, and you should not actually go to close with anything less than 3 months worth of your entire monthly expenses sitting in the bank after close, preferebly 6 months worth.

Post # 5
Member
2657 posts
Sugar bee

When you get preapproved, they’re going to ask about all of your assets – cash, incomes, savings, investments, etc., and they will base the figure off of all of those.  Income and credit score tend to have the most effect on preapproval, but all assets will be factored in.  Depending on what the bank comes back with for the preapproval amount, and depending on the price of the house you end up buying, you can then figure out a good down payment.  

Post # 6
Member
2243 posts
Buzzing bee

Just as the PP said, your downpayment can be added the the preapproval amount to find out your absolute max budget.

The preapproval only deals with how much they will loan you, not how much total you can spend (which depends on downpayment).

Post # 7
Member
47 posts
Newbee
  • Wedding: June 2012

We went in knowing the maximum we wanted to spend. This maximum amount is the most we could afford on our budget. We also knew that we were going to do 20% down. They wrote our letter for the amount we wanted even though we were preapproved for so much more.

I would also recommend getting a preapproval letter that does not have the amount on it that you were preapproved for. Certain sellers require the preapproval letter to be submitted when you make the offer. You do not want them to know that preapproval amount.

Post # 9
Member
47 posts
Newbee
  • Wedding: June 2012

@irishphoenix:  Property taxes are a pain. I though ours was high here at 2500 a year.

Hope you have a fun house shopping experience.

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