When applying for a home loan it can be quite astonishing that someone would loan you this astronomical amount of money but when you’re buying a home, $200,000-$500,000 is the amount of money most people will need to borrow in order to obtain the home. However, once you’ve been preapproved there are mistakes that people make that can lose them the loan. Make sure that once you are preapproved for you sat down and spoken with a lender you don’t make these severe mistakes that could cost you the chance to own a home.
#1. Overpaying for the house.
So, you are preapproved for $300,000. You find a home that’s priced at $260,000. However, because it’s a hot market you tend to pay a little bit higher in order to get the home. Your real estate agent might suggest an escalation clause, which will increase your offer price to a certain amount in specific increments up to a. This is only used if the seller receives other offers higher than your own. The problem comes when you offer is accepted and yet the appraisal does not match the price. If your offer gets accepted at $290,000 but the home is only appraised at $260,000, there’s $30,000 that, that although you have been approved for, the lender will not support loaning you that much money on a home that is not worth the value. You will need to make up the difference if you’re prepared to finalize the purchase on the house. If not, you may lose the home. Talk to your real estate agent about the best way to negotiate to verify that the home stays within the appraisal. Read more: Is it Ever OK to Overpay for Real Estate?
[Read more: Questions to Ask When Buying Waterfront Property]
#2. Not understanding your loan commitment.
Prequalification and preapprovals are two different things. Lenders will immediately check your credit history but this does not require any documentation. Prequalification is not necessarily a thing. It is the estimated amount that you might be approved. In order to actually be approved lenders will ask for a variety of legal documentation including pay status, W-2s, bank statements and perhaps tax returns. This will be a more accurate verification process that will almost guarantee you the loan should nothing change between the time you apply for the loan and when the loan closes.
The problem with this is is that many borrowers misunderstand prequalification and pre-approval. Simply estimating how much you can afford is not the actual loan commitment. You want to make sure you understand how much you can afford by a preapproval letter. If you have more questions on the preapproval letter or need to speak to a lender in order to obtain one of these letters contact us today.
[Read more: Why You’re Losing Out on Every Home You Bid On]
#3. Spending too much money before your loan closes.
If you like many people, you’ve saved for some time to make a down payment and you’ve done your due diligence in paying off credit cards and increasing your credit score, however, once you’ve been approved for the loan and get that preapproval letter one of the worst things to do is to put more on credit. This is not the time to rack up your credit cards, apply for a different loan, or spend large amounts of money. Lenders can run a last-minute credit check the night before closing and if the debt to income ratio is over the required amount, you could be denied your loan.
These are three simple things to be aware of when applying for a mortgage and buying a home. For more tips, browse our website and our blog or contact our office today to get started on the preapproval process or to view any current active listings for sale in Sunset Beach and surrounding areas.
Adapted from Our Home Loan Affiliate Brent Palmer with Palmer Mortgage