topic Re: Help please- Preapproval letter clarification in Mortgage Loans

Help please- Preapproval letter clarification

MoreInfo1 — Thu, 06 Mar 2014 02:14:08 GMT

Hello all. Although I hadn't reached my goals credit-wise regarding applying for a loan, there was a home I fell in love with so I applied for a pre-approval. I got pre-approved but am a little confused with how it was worded. Could someone please help clarify? I tried contacting the loan officer but haven't heard a response yet. Here is the part I'm confused about:

This approval is for a loan amount of $166,920 on a home value of $195,000 at an interest rate no greater than 4.25%. This includes a Base Loan AMount of $164050 plus the financed upfront Mortgage Insurance Premium.

Does this mean I'm pre-approved for $166,920 only on home valued at $195k meaning if I offered $195k on a home appraised at that value, I would have to down the difference? Would the loan amount be lower if the home value was lower? I'm confused. Please help! Thanks!

Also, this is FHA, if that makes any difference.

Re: Help please- Preapproval letter clarification

JustJen — Thu, 06 Mar 2014 02:21:31 GMT

I'm just going through this process myself for the first time...so I'm no expert by any means, but that sounds like the max amount you were approved for.

Did you provide them with the price of the home you were looking at? I ask because when I initially got pre-approved I was looking at something cheaper, so that's the amount they placed on the letter. When I started looking at homes outside that initial price range I checked with my LO to see if that would be a problem, at that point he told me that although my letter listed the price for the home I was originally looking at I was pre-approved for more than that (he let me know the max.). When I found something I was ready to make an offer on, he updated my letter to reflect the correct price.

So I would ask your LO!

Re: Help please- Preapproval letter clarification

edcampbell613 — Thu, 06 Mar 2014 02:37:15 GMT

@ Moreinfo

It looks as if your LO ran numbers for a 195,000 sales price with 15% down,

Is this what you told him you wanted in your initial interview?

your base price can vary depending on what you offer.

Your down payment can also vary depending on what you qualify for.

Re: Help please- Preapproval letter clarification

ezdriver — Thu, 06 Mar 2014 02:38:25 GMT

@MoreInfo1 wrote:
Hello all. Although I hadn't reached my goals credit-wise regarding applying for a loan, there was a home I fell in love with so I applied for a pre-approval. I got pre-approved but am a little confused with how it was worded. Could someone please help clarify? I tried contacting the loan officer but haven't heard a response yet. Here is the part I'm confused about:

This approval is for a loan amount of $166,920 on a home value of $195,000 at an interest rate no greater than 4.25%. This includes a Base Loan AMount of $164050 plus the financed upfront Mortgage Insurance Premium.

Does this mean I'm pre-approved for $166,920 only on home valued at $195k meaning if I offered $195k on a home appraised at that value, I would have to down the difference? Would the loan amount be lower if the home value was lower? I'm confused. Please help! Thanks!

Also, this is FHA, if that makes any difference.

You have been preapproved for a $164,050 mortgage on a purchase price of $195,000. The home would have to be appraised for at least the purchase price. If it appraisers for more, the purchase price is used. If it appraises for less, then the appraised value is used and you have to come up with cash for the difference if you still want the house.

Re: Help please- Preapproval letter clarification

MoreInfo1 — Thu, 06 Mar 2014 02:51:21 GMT

@ Jen- Thanks for the quick reply. I provided him with a price range for the home.

@ Ed- No, he had asked how much the property I was interested in was and how much I was going to down and I told him it would be 5%, not 15% though...he had said he didn't foresee any issues after I provided all the documents he asked for, which included last 2 years W2 and taxes, last two months of paystubs, 2 months of bank statements and reserves. BTW, what is the base price?

Re: Help please- Preapproval letter clarification

MoreInfo1 — Thu, 06 Mar 2014 02:58:28 GMT

EZdriver, if it appraises for less, when you say I would have to pay the difference, wouldn't it be less that I have to pay? Or do you mean I would have to pay the $195-166= $29k + (property value $195k- appraised value $190k= $5k) = $34k?

Re: Help please- Preapproval letter clarification

ezdriver — Thu, 06 Mar 2014 04:00:22 GMT

@MoreInfo1 wrote:
EZdriver, if it appraises for less, when you say I would have to pay the difference, wouldn't it be less that I have to pay? Or do you mean I would have to pay the $195-166= $29k + (property value $195k- appraised value $190k= $5k) = $34k?

Don't use the 166k number as that include your upfront mortgage insurance premium. The lender will always use the lower of the purchase price or appraised value for mortgage financing purposes. If a property appraises for less than you have agreed to pay for it, you have to provide the cash to cover the difference for that transaction to close.

Example: If Purchase price is $195,000 and mortgage is $164,050, you must have cash of $30,950 assuming that appraised vale equals or exceeds the purchase price. However, if the appraised value is $192,000, your cash needed would be $30,950 + $3,000 or $33, 950.

Re: Help please- Preapproval letter clarification

MoreInfo1 — Thu, 06 Mar 2014 07:09:51 GMT

Okay, I see what you mean. Are terms in a pre-approval set? Or is it still flexible? Does the preapproval just mean that I would be eligible to look at properties between the 160-195k price range?

Re: Help please- Preapproval letter clarification

ezdriver — Thu, 06 Mar 2014 15:18:29 GMT

Preapprovals simply indicate to sellers that you have had a preliminary credit evaluation done by a lender. The purchase contract will have a contingency for securing a mortgage within a reasonable timeframe. Not to worry. Happy home shopping.

Re: Help please- Preapproval letter clarification

Anonymous — Fri, 07 Mar 2014 15:31:31 GMT

ezdriver, wouldn't OP have the opportunity to return to the seller with the appraisal and renegotiate the sale price to fall in line with that? We are in the process of buying our first home and our agent advised the contract should be contingent upon the home appraising at or above our purchase price, otherwise we need to go back to the table. That is, rather than have to come up with an additional $3K, which amounts to a penalty for buying a home not worth the price paid.

Re: Help please- Preapproval letter clarification

StartingOver10 — Fri, 07 Mar 2014 16:00:53 GMT

If the property does not appraise than the price can be re-negotiated or the contract cancelled by the buyer. In the financing section of most P&S contracts it is subject to the buyer obtaining financing for $X and if it doesn't appriase that is when it can be negotiated. In most builder contracts there is no such provision.

However, if you have a strong sellers market then the seller may, or may not, renegotiate the purchase price to meet the appraised value.

Re: Help please- Preapproval letter clarification

ezdriver — Sun, 09 Mar 2014 18:56:30 GMT

@Anonymous wrote:
ezdriver, wouldn't OP have the opportunity to return to the seller with the appraisal and renegotiate the sale price to fall in line with that? We are in the process of buying our first home and our agent advised the contract should be contingent upon the home appraising at or above our purchase price, otherwise we need to go back to the table. That is, rather than have to come up with an additional $3K, which amounts to a penalty for buying a home not worth the price paid.

Once the appraisal falls short of the purchase price, there are several options that are available to the buyer [eg: cancel contract, renegotiate contract, accept and pay the difference, etc]. I responded only to the specific questions asked by the OP.

Re: Help please- Preapproval letter clarification

MoreInfo1 — Sun, 09 Mar 2014 15:55:47 GMT

Thanks for the responses everyone! I really, really appreciate it!