Understanding Your Preapproval

Preapprovals are more complicated than you might think!  If you have gotten past the preapproval process, congratulations!  Your lender may have told you that you are qualified to purchase up to a certain value.  For example, your lender may say that you are preapproved for $120,000.  What most buyers don’t know is that this preapproval doesn’t mean you are qualified to purchase every home up to $120,000!

When loan officers calculate a preapproval, they go off of percentages that factor your income, debt to income ratios, and the ratios required by the lender.  Instead of giving a maximum mortgage payment, they often estimate reasonable taxes and insurance to figure the approx. value of such.  The buyer then goes online to browse for homes that fall within their preapproval limits.  Several factors play into whether or not you are actually approved such as property taxes and interest rates.  For example, if your loan officer has allotted for a $120,000 purchase up to $1200 in property taxes for your max payment, a home for $120,000 with an $1800 property tax bill may exceed your monthly maximum payment by $50/mo.  Also, mortgage interest rates have been on the rise recently!  If your loan officer quoted you $120,000 when interest rates were 3.5%, you may not qualify for $120,000 when interest rates are 4%.

Great communication between your loan officer and REALTOR are key in successfully closing your home purchase.  As your REALTOR, I will communicate with your loan officer to help calculate estimated payments and verify affordability as interest rates go up or unique situations with higher property tax bills. 


Southern Indiana Top Producing REALTOR and lucky mother of Chloe, 5, and Tommy, 8.

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July 2013

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