FundRobot » Equity Funds » How does a mortgage pre aproval work?

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Old   #1 (permalink)
 
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Default es a mortgage pre aproval work

If I'm pre aproved for 150000 with 20 percent down is my budget 150000 or 180000. Is the 150000 what they will lend me and 30000 of my own or will they only lend 120000 with 20 percent of the total.

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Old   #2 (permalink)
 
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Default es a mortgage pre aproval work

If you are pre-approved for 150,000 and you have a 20 percent down payment. Then they are telling you that they will loan you up to 150,000 based upon the condition that you can put up a down payment of take the 150000 divide it by .8 to give you a total amount of 187,500 meaning that your total budget will be 187,500 if you have the 30,000 in cash. But also be forewarned this amount does not include closing cost which can vary anywhere from 3 to 5 percent. You will need this amount in cash unless you ask for assistance from the seller.
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Default es a mortgage pre aproval work

It means that your personal FINANCES have been found to support a loan at that level (up to 150,000 if you put in 30,000 of your own money), to purchase a home, and use that home as collateral on the loan, secured by a mortgage. Of course, there is still the question of whether the particular home you find will be acceptable to the lender as collateral, depending upon an appraisal if not also an inspection, not to mention title examination and insurance (all adding to the transaction costs).

One reason they want you to chip in 20 percent equity is so you're less likely to default. Another reason is so they are more likely to recoup the entire loan amount if their foreclosure expenses are covered by the 20 percent you put in. For instance you buy $180,000, put down $30,000 and never make a loan payment on the $150,000 they loan you. They foreclose and end up owning a house worth $180,000, for which they only loaned you $150,000.
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Default es a mortgage pre aproval work

In general a pre-approval is the amount of the loan that the lender approves.

If you were pre-approved for a $150,000 loan with a LTV (loan to value ratio) of 80% - and a down payment of 20% - then you could purchase a home for $187,500. That means you would have to have $37,500 in equity for the down payment.

(That does not include other funds needed to close the home, pay the loan fees and required cash reserves).

However, if you only have $30,000 available for a down payment, then the maximum house you could buy, with a 80% LTV, is $150,000. Your loan would then be for $120,000.

The lender should provide you with a written offer that includes all the terms and conditions of the loan.
After getting a pre-approval make sure that you don't make any changes that would negatively affect your credit or income situation and jeopardize your approval.
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Default es a mortgage pre aproval work

Your pre-approval is for $150,000. this is the maximum the mortgage lender would lend you to purchase a house.

In order to purchase a house the sale price must not exceed this amount. You would be required to pay the 20% down which in your case would be $30,000, subtracted from the amount you have been pre-approved for would make your loan amount would be $120,000.

In addition to your down payment there are closing cost you would be required to pay prior to closing your sale transaction.

You might consider applying for a FHA mortgage loan. Normally the down payment for a FHA mortgage loan program is around 3.5%

Had you been pre-approved for $180,000, your pre approval would have indicated this amount. Your down payment would have remained 20% which would be $36,000 and a loan amount of $144,000.

I hope this has been of some benefit to you, good luck.

"FIGHT ON"
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Old   #6 (permalink)
 
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Default es a mortgage pre aproval work

After reviewing your income and liabilities the $150k is the MAX loan amt they will lend. That is subject to you putting down 20% of the contract [agreed upon] price. The max contract price with the minimum of 20% down comes to $187,500. If you purchase a house above that price you must put down a greater amount such that the amount ultimately financed does not exceed $150k. If you have more money to put down, for example, you have $50k you can purchase a $200k house and the loan will be $150k. You don't need to have a $150k loan, you could purchase a more modest house. ALL THIS is predicated on [subject to] an appraisal of the property so the lender knows the value of the property which is security for their loan, meets or exceeds their ratio, in this case 80% or less loan to value ratio.

Don't forget to include closing costs in your plans. There will be prepaid interest and possibly impounds for the property tax, both item are a CREDIT to you [prepaid items] but you still must have the money to pay for them as well as the down pymt. Federal law requires they issue an estimate statement of closing cost which generally are overstated, meaning they are on the safe side.
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