MortgagesUndressed

It is my experience that home shoppers need to research financing at the same time they research homes. People are spending months researching homes before they purchase. Is that you? Are you looking at homes you qualify for, working to qualify for, or dreaming to have someday? There is no wrong answer to this question.

The wrong answer is to be researching homes without researching financing. You should know what you qualify for, what you almost qualify for, and what you can qualify for with some changes. (Example: Lower monthly debt payments.) The more you know the more you are likely to choose a good lender, buy the home you want, and have a good purchasing experience. The fact is the less you know the more likely it is to hurt you. Too often people get tied up with a low skilled lender, with a lender that is too busy, or inexperienced.

Returning often to this site, subscribing to our RSS feeds will assist you greatly. You can ask questions, we will lead you to the right information. Start researching now.

Today I center on one common practice, a disservice to many home buyers. It is usually found in a pre-approval letter or certificate. It has language such as Mr. and Mrs. Jones are approved to purchase a home priced at $400,000.00 with 5% down, etc. etc. etc. Why is this a disservice? You qualify today, what about tomorrow? If the rates changes upward will it be $390,000.00? If so, now what do we do, get a new letter? What if I don’t find what I want at $400,000.00, but do find one I want at $450,000.00? Now what do I do?

A listing agent wants to see acknowledgement the buyer is qualified. For this reason your letter or certificate should match the offer price. But too often this becomes the lenders way to tell you what you can buy. This is the disservice. The first solution is to have the lender tell you what payment you qualify for and under what scenario he came to that conclusion.

You should be told at approval how much home that might be. However the payment includes taxes and insurance, perhaps mortgage insurance. You need to have a way to consider the difference different homes have in taxes for example. A good agent and an attentive loan office can do this for you.An actual approval will have an underwriter approval. Almost as good is automated underwriting. This takes the facts you provide, reviews your credit, and makes a decision. When I had a client tell me they wanted to qualify for $400,000.00 I would go for that approval first, then raise the request to see the maximum I could get them approved for. Usually they bought what they qualified for, not the lower amount.

If you have good credit, good cash reserves, certain job history, make a larger down payment or a combination of these; the system will often let you buy beyond the standard approval guidelines.

Why don’t some loan officers do it this way? It takes extra time and effort. It also pushes them to a level of less safety in completing the loan. After all if you qualify for $450,000.00 and you are getting approval for $400,000.00the risk of failing to deliver the loan is minimized.
The solutions for you then are the following:

1- Know the maximum payment you qualify for. As interest rates change and the payment stays fixed, the amount of home you can buy goes up or down. Stay on top of that.
2- Deal with a lender that will take the effort to have you approved for the maximum either by underwriter review, or by automated underwriting.
3- When you are getting ready to buy, be more attentive to what the payment translates to in home price.
4- Look to ways to qualify for more if the home you really want seems a little out of reach.

We will be adding tools to the site that will assist you in this. I will be willing to accept your questions on line where either myself or the public can help you. Come here often, subscribe, ask us for help. We can do this for you. That’s the bare bones facts. Larry Cragun.