(Closed) Low pre-approval

posted 6 years ago in Home
Post # 16
Member
3680 posts
Sugar bee
  • Wedding: August 2013

Most lenders will want ~20% down, so that may play a part in what they’re pre-approving you for.

Post # 17
Member
5658 posts
Bee Keeper
  • Wedding: August 2012

I’d use some of that savings to get rid of the student loan debt. You don’t have to have 20% down, you can do as little as 3 on an FHA loan but it will require you to pay PMI which for us on a 315k loan is 300 bucks a month. And the rules have changed since we bought our house

Post # 18
Member
3212 posts
Sugar bee
  • Wedding: September 2016

View original reply
savealife:  also closing costs, commission, legal fees… Your $15k is not all going to be going to a down payment.

Post # 20
Member
3212 posts
Sugar bee
  • Wedding: September 2016

No PMI usually means that the lender is paying it at a higher rate than you, built in to your loan – so it is more money overall that you are spending over the life of your loan, rather than when you hVe only 80% of the principle left.

just remember to save back an emergency fund, and a couple thousand for closing, a couple thousand for moving costs… 🙂

Post # 21
Member
302 posts
Helper bee

Pre-approvals almost don’t mean anything. And if these lenders are only giving you a purchase price they think you can afford they are being lazy. 

 

A mortgage approval really comes down to your monthly payment, and debt to income ratios. Forget using how much you pay in rent as a frame of reference. 

Baisically, your mortgage payment should not exceed 31% of your gross income. (That may be slightly off, I’m not sure what the exact number is.) That 31% must include property taxes and any HOA fees. In addition to that, your total monthly commitments cannot exceed 41% of your income. (Again not positive that is the exact percentage.) So all of your student loan payments, credit cards, and any car payments combined with the total mortgage cannot exceed 41%. If you are not putting 20% down you will need to factor PMI into those payments as well, and you still cannot exceed the front and back end ratios. 

 

So baisically, let’s say you have a combined household income of $100,000 before taxes. That is approximately $8,300 per month. You could afford a $2,500 mortgage/tax/HOA/PMI payment. But let’s say you also have $1,000 student loan payment, a $500 car payment, and approx $150 in monthly credit card minimums. That puts your total monthly obligations at $4,200. But that would be a debt to income ratio of over 50%, and would probably get denied for a mortgage payment of $2,500.00

 

There’s a lot of math involved in mortgages. Please take the time to find both a mortgage broker and a realtor who will work together to educate you, and find the best solution for your financial situation. Don’t just try to shop for a home with the biggest pre-qual you can obtain. 

Post # 22
Member
185 posts
Blushing bee

Basically, you don’t have to qualify for a rent payment. So what you are paying in rent has NOTHING to do with what you qualify for in a mortgage. Usually pre-approvals qualify you for MORE than what you can actually reasonably afford, so if you qualify for 115…that’s probably where you should stick.

Post # 23
Member
1632 posts
Bumble bee
  • Wedding: September 2010

OP if you can afford more than the bank I willing to lend then mke up the difference by paying a higher down payment. 50% or more for a down pay is not unheard of.

Post # 24
Member
5940 posts
Bee Keeper
  • Wedding: May 2014

I’d pay that debt down. That’s what I did for my first house.

Post # 25
Member
3212 posts
Sugar bee
  • Wedding: September 2016

View original reply
LAX03:  wait, went those the steps that a mortgage lender goes through to see if they think you can afford it? So why is a pre approval not worth anything? are you saying that if OP went to get a house with that $115k mortgage, she may not be able to because the mortgage per approval process is bunk? I am confused.

Post # 26
Member
4027 posts
Honey bee

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savealife:  As others have said, if you put down 3% with no PMI, that means they are raising the interest rate on the loan. Right now, in US at least, good interest rates (with a 10-20% down payment) are around 4.25-4.75%. What are they going to offer you for interest?

Honestly, it doesn’t seem like you can afford a $350,000 house right now. For some perspective, my DH and I are building our first home. We make over a six figure salary combined, have about $25,000 in student loans combined, excellent credit scores (790’s), have no other debt and we are putting down 10%. We were pre-approved up to $395,000. We only spent $268,000 of that. Our mortgage (4.375% interest rate) including taxes, interest and homeowners insurance will be $1,500 a month. If we factor in utilities, that will be $1,650. 

I only list all this because I am not sure you could buy a home $350,000 with everything included with a $2,000 or less mortgage. Unless you had excellent credit scores and a huge down payment, it doesn’t seem feasible. If you stick to the $250,000 range, it might be feasible, but it will be tight if you are only putting down 3%. 

Post # 27
Member
7551 posts
Bumble Beekeeper
  • Wedding: October 2014

Rule of thumb is this your total monthly housing expense has to be 33% of your monthly income or less. So 300k purchase with 20% down which is 60k down,  gives you a mortgage for 240k at 5% 30 year fixed rate you get a payment about 1500. so add property tax lets say $400 per month plus utilities about $300 then you get a total of $2209 per month. So if that is 33% of the total income then multiply that by 3 and you you almost $7,500 per month you have to make in order to get that house. Hope it helps!

Post # 29
Member
8434 posts
Bumble Beekeeper
  • Wedding: April 2013

View original reply
savealife:  Well at least this will give you plenty of time to browse homes and see what you like/don’t like.  That way when you are financially ready to buy, it’ll be easy to focus on what you’re really looking for in a home 🙂

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