Pre approval Amount

[hoppermech]

We are getting close to being able to buy our dream home but a question has come up, the asking price for the house we like is $139,800. Obviously I'm going to negotiate and get it for less. My question is if I am get pre qualified for the full price and negotiaye the house down, lets just say to $120.000. can i borrow the the whole $139,800 and put the rest in the bank as a emergency fund or will the bank only give me what I actually paid for the house. and is it a smart idea to do this,  putting the remaining $19,800 in the bank or even borrowing it

[wwinter]

I'm not an expert on the subject but as one who closed on his first home 4 months ago I can say with a fair amount of certainty that there is no earthly way a bank will give you a mortgage for what is basically 115% (give or take a smidge) of the value of the home.  Very few banks will give you a loan with no down payment anymore.  Even fewer (none I believe) with a credit score below 640.

Even if you could borrow 115% of the home's value IMO you'd be out of your mind to do it.  Basically, you'd be stepping into a home whereupon before you even cross the threshold you are underwater on your loan.  And what if home values in your area fall another 5 or 10%?  If they fall another 5% in one year you'd be another $6000 underwater (minus whatever principal was paid down during that first year).

[ji9]

No, I don't think you would be able to do that.  Good luck with the purchase, I hope you are able to get them down as much as possible. 

[hoppermech]

Guess I should have added that I am using a VA loan and the three different mortgage compay's have told me there are no down payments on a Va loan and all three have said I need to be at 620 credit score. We are planning on waiting though till our middle is a min. Of 640. Not really sure of how concerned we are about being upside down on the home as this is where plan on remaining since it is my retirement home.

[pizzadude]

The appraisal will also factor into how much you can borrow, if your loan really is allowing 100% LTV, they won't loan you more than the appraisal value.

[Scope27]

Whatever is in your contract for a purchase price then that's what the lender will typically give. But some loans will allow you to add closing costs and repairs into the loan as long as the amount doesn't exceed the appraised value. I never heard of a mortgage loan lending money to pocket on a new purchase.

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@hoppermech wrote:

We are getting close to being able to buy our dream home but a question has come up, the asking price for the house we like is $139,800. Obviously I'm going to negotiate and get it for less. My question is if I am get pre qualified for the full price and negotiaye the house down, lets just say to $120.000. can i borrow the the whole $139,800 and put the rest in the bank as a emergency fund or will the bank only give me what I actually paid for the house. and is it a smart idea to do this,  putting the remaining $19,800 in the bank or even borrowing it

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[IOBA]

First we called lenders and gave them basic information and asked what we should qualify for on a home.   We also used online mortgage calculators.  Took all the numbers (they varied by more than 125k) and figured out what we were comfortable with.

Found a home in our price range.   Called the lender, applied for the mortgage, and asked for a pre-approval letter for the exact amount of the house offer.    Included the pre-approval letter with the offer.    That deal fell through.

Found another home in our price range.  Called the  lender, explained the deal, and asked for a pre-approval letter for the exact amount of the house offer.  Included the pre-approval letter with the offer.   Still in the holding pattern for this house.

I would never tell the sellers how much home I could buy...   then what is their incentive to work with me on a lower price?

[StartingOver10]

I am a Realtor and have been in the business many, many years and closed hundreds of homes.

The reason you want a pre-approval letter to accurately reflect the amount you can afford (note, not the maximum amount, just an accurate amount) is that the seller will then do business with you in the case of multiple offers.

If you use the example above, if the list price is just under $140k and the buyer puts in his offer at $120k and his pre-approval states $120k - why would the seller even counter back?  Lets say the comparable sales in the neighborhood within the last 90 days support a valuation of $130k and the buyer shows he can only pay $120k based on his pre-approval, even though the buyer can afford the actual value, the seller is very likely to reject the offer without a counter offer. If however the buyer has a pre-approval for $132k, for example, and he makes an offer at $120k the seller will at least pay attention to the offer rather than reject it.

The buyer is the one with the money. The buyer is the one that makes the initial offer. They buyer can reject any counter offer or walk away from any price that they are not willing to pay. So, why would you want a pre-approval to accurately reflect your ability? So your offer will be accepted.

One more reason to not play the game of putting in a pre-approval too low is that if you come back with a revised pre-approval from the same lender the seller gets a really bad taste in their mouth about your honesty. It looks like what it is: playing the seller for a fool. I've seen agents not work with the buyer in such a situation as the buyer is clearly not honest and therefore none of the information provided can be trusted.

As a buyer, you don't have to pay list price. You are the one with the money and the power to say no or yes to any counteroffer. The low pre-approval (one that is equal to the low ball offer price) is one way to make a deal go sour quickly.

BTW, the seller's incentive to accept your offer is to sell the house! They don't get the money without selling the house and then they can't move on.  A seller is much more receptive to selling at a lower price to a strong buyer than a weak buyer. Usually a house is on the market because the seller wants to move to another house or another location.

[IOBA]

StartingOver10 -- thank you for the information.

Some more information on how I did my two deals -- I did market research to find out what was selling or not selling in the area, market value of the house, how long it had been on the market, etc.   I asked my realtor for advice on the offering price.   I wanted to offer what was fair.  My pre-approval letter accompanied the fair market offer on the house, along with a letter that it was my best offer.   I also ask my realtor to verbally pass along the message it's my best offer.   I don't want to waste anyone's time.  

Of course, I would LOVE to get a great deal, but I believe in being fair.    

(The first deal fell through due to the actions of the listing agent NOT forwarding the complete first offer, and then not forwarding the contract, at the request of the seller, to me.  It's a long story.   I walked away since legally I am not suppose to go around the listing agent and deal with the sellers directly.   The seller became aware of it the games the agent was playing, but was unwilling to do anything about it.)

[hoppermech]

lots of great advice, as I go down he path of ownership it all helps