Post # 1
We’re heavy into house hunting right now, and a few weeks ago, we were officially pre-approved for a mortgage. But, I have heard so many stories of buyer’s financing “falling through” or an offer being reniged last minute. My question is: How secure are we once we are pre-approved?
I know the old stand by rule is not to do ANYTHING to alter your finances after being pre-approved, as in: don’t charge up a credit card with new furniture, don’t book a vacation, don’t quit your job, etc., etc., etc. But, assuming we dont do that, are we in the clear? Or do we still have some massive hurdles to overcome?
Post # 3
@QueenOfSerendip: It’s basically nothing more than than a dollar amount of what you can afford. Also, just because you are approved for X amount, doesn’t mean you can actually afford it given your expenses, so it’s smart to not buy to the max of your pre-approval amount. There is no guarantee that you will get apporved for the amount of your pre-approval.
Post # 4
I would be less concerned with the pre-approval amount than your reality budget. Being pre-approved is definitely a good start, it basically means the bank will lend you X amount of money, make sure you know how much you are required to put down to get this loan and the interest rate. A lot of times it can fall through it one buys more than they can afford even though they are pre approved. After making an offer things can fall through such as inspections, seller’s purchasing falls through, not enough for closing etc. So for now, you’re off to a good start but evalute your reality budget and factor in emergency expenses and have enough saved up for 1 year of living expenses.
Post # 5
- Wedding: March 2014 - A castle!
Preapproval also let’s realtors know you are serious about buying and have had a bank or mortgage lender do a credit check. Also, as PP have stated the amount you are approved for is usually the max you can afford.. not including you know, being able to put away for savings, etc. Example: Preapproved for $200k, buy something around $150-$180k
Post # 6
It depends on a lot of things. The pre-approval means that the bank will loan you up to X dollars if you maintain your current assets and income, and if they consent to the purchase of the house. Things can get tricky when dealing with the offer and negotiations, though. I have friends who got in trouble because the house they wanted was appraised for way less than what they offered on it, and the bank would not agree to loan the amount in the original offer, even though the original amount was well below the amount they were pre-approved for. They ended up losing the house because the seller would not lower the price.
Post # 7
Pre-approval is typically required to make an offer, but you are not safe. We were pre-approved by two companies, and had a hard time finding a reasonable mortgage. You still have massive hurdles to overcome. Everyday I had the mortgage company asking me for more paychecks, more letters, more statements. It takes at least a month to get your mortgage committment, and in that time they put you thru hell. Just make sure you lock your interest rate as soon as you apply.
Post # 8
It depends on how thorough your preapproval process was. Some people just say their income, have their credit run, and are told they are pre-approved. My pre-approval included giving W2s for 2 years, all tax forms for 2 years, 60 days of paystubs, 60 days of bank statements, copies of driver’s licenses and social security cards, etc… It took me weeks to get the pre-approval done. But when it was, we were 100% sure that there would be no surprises or issues with financing falling through.
They typically approve you for more money than you would comfortably want to take. We were pre-approved for almost double what we paid for our house. Take caution when do look at the numbers – your mortgage payment may be doable, but there’s interest, taxes, and insurance (property and mortgage insurance if you pay less than 20% down) to contend with, so it adds quite a bit to the mortgage amount!
Post # 9
- Wedding: October 2011 - Bed & Breakfast
Financing can fall through for a whole host of reasons. Sometimes it’s because the lender did not do a thorough pre-approval (looking at several months worth of bank statements, several months of pay stubs, several years of tax returns, verifying employment, etc.). Sometimes it’s because the buyers change something (e.g. take out a new line of credit, give 2 weeks notice at a job, deposit an unexplained amount in a bank account, etc.). Sometimes it’s the deal itself that is bad and financing falls through because the house does not appraise for the value of the loan or there is something specific about the property that the lender determines is a bad risk (makes the loan unsellable).
The best thing you can do for yourself is remain completely emotionally detached from the process. Buying a house is a pricey business deal, and pricey business deals fall through all of the time. It’s the nature of the beast.
Post # 10
- Wedding: March 2014 - A castle!
@abbie017: Yes, this is the same tedious process we went through!
Also OP, what she is talking about, are tons of extra fees that don’t go towards the actual principal on the house. Since we are first time home buyers we have to pay PMI – insurance on our mortgage that gives good faith to the bank if we default (someone correct me if I’m wrong about what this really is). But basically, Mortgage = PMI + 1/12 to our yearly property tax with some other payments to escrow (make sure you consider how much property taxes in the area are! they can be REALLY expensive) + some communities have fees that can be pretty pricey + home owners insurance + interest + principal. A lot factors into your monthly payments. If you don’t pay at least $50 extra a month just to your principal, for the first 5 years in your house you typically only cover everything listed above (without principal) and on paper it technically looks like your loan is still for the amount that you purchased your house for (this does not factor in your downpayment, which may be significant enough to avoid this also).
Post # 11
It depends. When we were pre-approved the lender actually had that money set aside for us. That is supposed to be done for a full pre-approval, but usually it isn
t. We didnt have an employer letter, etc. at that time, but the pre-approval listed the conditions needed for a full approval. As long as we weren
t lying or changing anything based on our financial information it wouldnt change. The lender might choose to not approve based on the house though (appraisal, many won`t provide a mortgage if it was a former grow-op etc). The pre-approvals also usually have a rate hold. We were guaranteed our rate for 120 days.
Post # 12