Home Buying - A Question on the Pre-Approval Process

[tessaesque]

My boyfriend and I got our pre-approval yesterday from a lending company, but they did not include a pre-approval amount. When pressed, we were told, "Well, it's possible you could go as high as 140k but it's really up to you what you want to spend." When we asked about an estimate on the rate we were told we'd be, at best, 1.5 points above the current highest FHA loan rate on 30/year note, but we're being given no explanation as to why. Our income-to-debate ratio is below 30% and the credit score used to qualify us is about 35-40 points higher than the lowest qualifying score....so I'm completely lost.

What was your pre-approval process like? Did you get explanations and answers or is my experience typical? Did you get a rate estimate that ended up being higher or lower than the current market rates?

 

[liblady]

My boyfriend and I got our pre-approval yesterday from a lending company, but they did not include a pre-approval amount. When pressed, we were told, "Well, it's possible you could go as high as 140k but it's really up to you what you want to spend." When we asked about an estimate on the rate we were told we'd be, at best, 1.5 points above the current highest FHA loan rate on 30/year note, but we're being given no explanation as to why. Our income-to-debate ratio is below 30% and the credit score used to qualify us is about 35-40 points higher than the lowest qualifying score....so I'm completely lost.

What was your pre-approval process like? Did you get explanations and answers or is my experience typical? Did you get a rate estimate that ended up being higher or lower than the current market rates?

rates are dependent upon your credit score....and can be quite tiered. we've always been approved for a up to a certain amount, which was always much more than we would want spend.

 

[roughdraft274]

My boyfriend and I got our pre-approval yesterday from a lending company, but they did not include a pre-approval amount. When pressed, we were told, "Well, it's possible you could go as high as 140k but it's really up to you what you want to spend." When we asked about an estimate on the rate we were told we'd be, at best, 1.5 points above the current highest FHA loan rate on 30/year note, but we're being given no explanation as to why. Our income-to-debate ratio is below 30% and the credit score used to qualify us is about 35-40 points higher than the lowest qualifying score....so I'm completely lost.

What was your pre-approval process like? Did you get explanations and answers or is my experience typical? Did you get a rate estimate that ended up being higher or lower than the current market rates?

As far as rates go, they change by the hour, so they can't give you an exact amount. Our lender just told us that we would get the rate at the time of agreeing to purchase the house.

He was able to tell us our max approval dollar amount during our first meeting, and he gave us an idea of what our monthly mortgage payment would be if we spent the amount we wanted to spend, of course assuming that the interest rates didn't move.

35-40 points above the minimum is still considered pretty low for buying a house, though it's common for new home buyers. 1.5 points above the current rate seems very high though. He should be able to tell you exactly how high you will be above the current rate, and how much that will add to your mortgage.

If he doesn't answer all of your questions, shop around. When we started looking around we were shocked that some lenders around here charge a 1% closing tax at close of the purchase and some charge 0%. That's an extra 2000 in closing for a 200,000 loan.

Bottom line, if the guy can't give you answers, he's not your guy.

 

[Cephus]

It all depends on a lot of things, including who you went to. There are lots of places that have bizarre policies. A friend just bought a house and at first, went to Wells Fargo for a loan. They were told that they need to put 3% of the purchase price, plus fees, in a bank account for 30 consecutive days and they qualify. Qualify for what? Anything! So long as they could come up with that 3% plus fees, they qualified for any house, whether they could afford to pay the monthly mortgage or not. It's idiotic. Wells Fargo wasn't even going to pull their credit. They went elsewhere.

 

[tessaesque]

It all depends on a lot of things, including who you went to. There are lots of places that have bizarre policies. A friend just bought a house and at first, went to Wells Fargo for a loan. They were told that they need to put 3% of the purchase price, plus fees, in a bank account for 30 consecutive days and they qualify. Qualify for what? Anything! So long as they could come up with that 3% plus fees, they qualified for any house, whether they could afford to pay the monthly mortgage or not. It's idiotic. Wells Fargo wasn't even going to pull their credit. They went elsewhere.

The company we're using is rather large, so I'm surprised we're getting so few answers to our questions. We're going to put them to task this afternoon and give them a chance to correct the issue or we're going elsewhere.

 

[Cephus]

The company we're using is rather large, so I'm surprised we're getting so few answers to our questions. We're going to put them to task this afternoon and give them a chance to correct the issue or we're going elsewhere.

Most of them think people are too stupid to ask questions so they don't provide answers. Unfortunately, most of the time they're right.

 

[tessaesque]

Most of them think people are too stupid to ask questions so they don't provide answers. Unfortunately, most of the time they're right.

They're making the wrong assumption with us. I've been doing a lot of research into this process. I know that most people are given a pre-approved amount, which we weren't given. I know that the rate he's estimating is significantly higher than any rates currently listed for the type of loan he knows we want.

 

[MaggieD]

The company we're using is rather large, so I'm surprised we're getting so few answers to our questions. We're going to put them to task this afternoon and give them a chance to correct the issue or we're going elsewhere.

First, you should be in a possession of a formal letter from the lender. This letter should contain the up-side amount you're pre-approved for, the terms of the mortgage they intend to provide, amount of down payment you'll be required to make and under what conditions they have preapproved you -- for instance, verification of funds for down payment, copy of latest pay stub, yada yada. Here's a link w/more information: What should a preapproval letter contain? | Mortgage Reference Library It probably won't contain the interest rate you'll be charged because that will depend upon rates current at the time of your purchase.

Just FYI -- a preapproval letter is not a guarantee that one will obtain a mortgage. That's why it is so critically important that all of the information you gave to the lender is correct. If someone misrepresents their income or amount of debt they owe, that makes the preapproval letter worthless.

If the lender is telling you that your rate is going to be 1-1/2% above the "best rate," then it may be because of your credit score...or maybe the amount of down payment you've indicated you have.

Some things to keep in mind: just because your lender preapproves you for (example) $150,000 doesn't mean that you're going to want to spend that much for your home. Don't make that mistake. Figure your mortgage payments out and be sure you're comfortable with them at whatever amount you choose.

A $150,000 mortgage at 5.5% (that would be about 1.5% over the 'best rate' right now) would make your payment $851.68 a month (unless you have to have Private Mortgage Insurance which will probably raise it by $50 or so a month). That payment represents a 30-year mortgage. On top of that you'll be responsible, of course, for real estate taxes and homeowners' insurance. So that means you need to pay attention to the amount of real estate taxes a particular home you like is going to have to pay. I don't know what state you live in, but here in Illinois, I'd estimate homeowner's insurance to run around $50 a month. Here's a mortgagte calculator: Mortgage Calculator - Bankrate.com

When you've found your home, be sure to shop the mortgage. Do not just settle for the company who did your preapproval. The mortgage business is highly competitive. Shop now for the best rate and terms or risk paying literally thousands of dollars in unnecessary costs.

Think of your Preapproval Letter as your authorization to go shopping. When it comes right down to what mortgage lender you're going to use, you should be shopping at least one other lender.

Tip: Your Realtor will be a good source for a competitive and honest lender. Go with a Realtor from a personal recommendation -- someone your family or friends has used in the past and has a good reputation. They won't steer you wrong.

Good luck!! Exciting, yes??!!!!!

 

[UtahBill]

if you put enough down, a credit rating means nothing....heck, they HOPE you fail so they can take your home...
Make sure you consider all your expenses, home ownership is a huge drain on income, but usually worth it long term...

 

[jimbo]

The company we're using is rather large, so I'm surprised we're getting so few answers to our questions. We're going to put them to task this afternoon and give them a chance to correct the issue or we're going elsewhere.

I think you need to go shopping. Mortgage criteria and standards vary widely. A large bank is not always the best place to purchase a mortgage. It may be, it may not. If your other banking needs are in a local bank, often they will be more willing to work with you.

If your credit score is a few points over the minimum, that is not a particularly high score. I think the present FHA minimum is around 620 or so. So from your information, you are around 650, not a particularly a good score. 750 + would be considered prime. If you have reason to believe that your score is in error, ask to see a copy and take steps to correct. Credit reporting agencies can be very inaccurate. You have the right to a yearly copy of your credit history for free. Your mortgage agent should be able to help you and should point out the places where there is room for improvement. If they can't, or won't, move on.

Lastly, there is an opportunity for the broker to increase their commission by selling you a mortgage at over the going rate for a person in your position. Simply, if you are paying say 5.5% and the broker is able to sell the mortgage for 4%, then they will get a portion of the overage as commission.

I haven't been in the business for a two years, but these were general guidelines when I retired. Much may be different today. It is up to you to do your homework.

 

[tessaesque]

We figured at the highest current market rate for FHA/203K, which is the loan type we want, we're looking at 90kish to be comfortable. We can get the most recent tax appraisals online and I base my insurance estimates off of the rates of family in the area with similar homes so we kind of know what to expect in terms of the total monthly obligation.

What bothers me is this lender's hesitation to take on a 203k loan process, their noncommittal answers, and the generally vague manner in which they handle the process. I feel like in this market it doesn't benefit a company to behave that way with a potential buyer.

 

[tessaesque]

I think you need to go shopping. Mortgage criteria and standards vary widely. A large bank is not always the best place to purchase a mortgage. It may be, it may not. If your other banking needs are in a local bank, often they will be more willing to work with you.

If your credit score is a few points over the minimum, that is not a particularly high score. I think the present FHA minimum is around 620 or so. So from your information, you are around 650, not a particularly a good score. 750 + would be considered prime. If you have reason to believe that your score is in error, ask to see a copy and take steps to correct. Credit reporting agencies can be very inaccurate. You have the right to a yearly copy of your credit history for free. Your mortgage agent should be able to help you and should point out the places where there is room for improvement. If they can't, or won't, move on.

Lastly, there is an opportunity for the broker to increase their commission by selling you a mortgage at over the going rate for a person in your position. Simply, if you are paying say 5.5% and the broker is able to sell the mortgage for 4%, then they will get a portion of the overage as commission.

I haven't been in the business for a two years, but these were general guidelines when I retired. Much may be different today. It is up to you to do your homework.

For the loan we want the minimum is 640. Our lowest score is 680. Our midline score, which they're basing our approval on, is 720.

 

[MaggieD]

We figured at the highest current market rate for FHA/203K, which is the loan type we want, we're looking at 90kish to be comfortable. We can get the most recent tax appraisals online and I base my insurance estimates off of the rates of family in the area with similar homes so we kind of know what to expect in terms of the total monthly obligation.

What bothers me is this lender's hesitation to take on a 203k loan process, their noncommittal answers, and the generally vague manner in which they handle the process. I feel like in this market it doesn't benefit a company to behave that way with a potential buyer.

Ah! A 203K! Well, it's highly likely he doesn't even want to do that for you. That particular mortgage is difficult to get. If that's what you're looking for, then you need to make sure you're qualifying for it - so that should be stated in the preapproval letter as well. If it isn't formally stated there, you're not preapproved for it. They are difficult to get and normally take excellent credit scores to make it happen.

 

[jimbo]

We figured at the highest current market rate for FHA/203K, which is the loan type we want, we're looking at 90kish to be comfortable. We can get the most recent tax appraisals online and I base my insurance estimates off of the rates of family in the area with similar homes so we kind of know what to expect in terms of the total monthly obligation.

What bothers me is this lender's hesitation to take on a 203k loan process, their noncommittal answers, and the generally vague manner in which they handle the process. I feel like in this market it doesn't benefit a company to behave that way with a potential buyer.

203K mortgages are renovation mortgages and have different parameters. Frankly, not all lenders are knowledgeable or comfortable with this program.

Once again, I would familiarize myself with the process, the mortgage, and the lender. If you are not getting answers now, I would doubt it is going to get any better in the future.

 

[Cephus]

They're making the wrong assumption with us. I've been doing a lot of research into this process. I know that most people are given a pre-approved amount, which we weren't given. I know that the rate he's estimating is significantly higher than any rates currently listed for the type of loan he knows we want.

I know the last time we bought a house, we got a specific amount that we were pre-approved for and it was nowhere near what we actually spent. We also got a rate-lock at the time of application so we knew our rates would not change during the loan process. Like I said, I think lenders think people are idiots so don't bother using big words. I'd go back, tell them you're not idiots, tell them you want all of the technical details and if you don't get them, you'll take your business to someone who will. I'm sure they're just catering to the lowest common denominator, ie. morons.

 

[joko104]

My boyfriend and I got our pre-approval yesterday from a lending company, but they did not include a pre-approval amount. When pressed, we were told, "Well, it's possible you could go as high as 140k but it's really up to you what you want to spend." When we asked about an estimate on the rate we were told we'd be, at best, 1.5 points above the current highest FHA loan rate on 30/year note, but we're being given no explanation as to why. Our income-to-debate ratio is below 30% and the credit score used to qualify us is about 35-40 points higher than the lowest qualifying score....so I'm completely lost.

What was your pre-approval process like? Did you get explanations and answers or is my experience typical? Did you get a rate estimate that ended up being higher or lower than the current market rates?

BEWARE - because it sounds like the typical bait-switch come-on. You find the house you want and then the routine begins. You are ALMOST approved - ALMOST - but some tiny glitches in your credit, some missing documentation is holding it up. As your closing date occurs, you get anxious. They ASSURE YOU that everything will be fine... but those "damn auditors, federal bank guys" etc are holding you up.
Then they come up with a GREAT interim idea. What not a temporary variable rate shorter term loan - maybe even interest only - so that over the next 6 months or year you can fix up your credit and show a 1 year pay record - THEN, they explain, you can get a GREATLY lowered interest rate. And that ultimately saves WAY more than the fees they've tacked on to your junk loan.

The second loan never happens. You now have a variable rate loan, your payments soar, and maybe even a ballon note charging down on you too.

What those companies do is broker loans, BAD rate and fees loans, for which they take their fees BOTH from you and from they can pull out of the middle of an absurdly bad (for you) variable rate loan.

That S C A M! is one of the core reasons for the mortgage crisis and those ARE done by so-called BIG reputable mortgage loan companies - that don't actually make the loans themselves. They are just loan sales people for high rate crappy loans - using the "you can get a GREAT RATE WITHIN A YEAR" pitch to get you to sign the so-called initial loan so that you get the house.

It is ALWAYS a bad deal and your odds of ever getting refinancing are next to zero.

 

[jimbo]

Here is my take on your situation as it stands. As I stated, I have not been active in the mortgage business for 2 years, but at one time I was the only 203K appraiser in the Richmond area. So take my advice in the spirit in which it is given.

You have a preapproval letter. By its definition, it is not a commitment to anything and is intended to act only as a general guideline. It is most probably based on what you have told the broker and an in file credit report. Neither of these is necessarily accurate, and things can change.

From what I gather, you do not as yet have a house in mind, or maybe you do with no contract. If you are contemplating the purchase or an REO, either a HUD or private bank, once you commit to the prospective purchase, then the process will begin in more detail. You will be asked for explanations of bad or marginal credit items, verification of employment and income, cash on hand to complete the purchase, and probably other items. At this time, you will then most probably be given a lock in rate, good for a number of days to complete the purchase. If your choice of property is an REO, the bank in question may have favorable rates and/or qualifying terms since they want to get rid of the property, and can move the property from a liability to a loan asset.

The up front requirement that you place closing costs and another amount in the bank prior to any action is a red flag for me. You will be asked for verification of funds sooner or later, and possibly you have no account at present with the potential required closing amount. Some banks require the funds to have been on deposit for a set period prior to closing, or an explanation is needed. Perhaps the bank you are dealing with only does business with present customers, or the broker gets a fee for directing customers to the bank. Notice I said perhaps. I don't know. It seems unusual for that to be a requirement in order to proceed.

A renovation project may seem like a good idea, and might be, but be sure you are capable and willing to handle it, and get professional advice in the form of an engineer or good home inspector as to the potential pitfalls and cost of the renovation. I have seen a few of these projects never completed.

Finally, if you do not feel you are getting answers, move on. You should be able to get answers from the originator in a manner you can understand. Ask questions, and verify the answers. joko is right. The originator is a salesman. Very few banks keep their mortgages these days.

One last thing. If you are dealing with a real estate agent, they should be able to answer your questions honestly and should be far more informed of the local laws, customs, home inventory, and mortgage rates than I could be. If they can't, or won't, think about a new agent.

 

[Harry Guerrilla]

My boyfriend and I got our pre-approval yesterday from a lending company, but they did not include a pre-approval amount. When pressed, we were told, "Well, it's possible you could go as high as 140k but it's really up to you what you want to spend." When we asked about an estimate on the rate we were told we'd be, at best, 1.5 points above the current highest FHA loan rate on 30/year note, but we're being given no explanation as to why. Our income-to-debate ratio is below 30% and the credit score used to qualify us is about 35-40 points higher than the lowest qualifying score....so I'm completely lost.

What was your pre-approval process like? Did you get explanations and answers or is my experience typical? Did you get a rate estimate that ended up being higher or lower than the current market rates?

I was preapproved for a specific amount at a specific interest rate.
Before we closed, our rate was lowered because our lender rescored it, after the interest rates dropped.
That actually delayed our closing by a couple of days, but it was worth it.

I used a small local bank to do it though, the lady who did it was super awesome and always available to us.
Did it all online too.

 

[Harry Guerrilla]

We figured at the highest current market rate for FHA/203K, which is the loan type we want, we're looking at 90kish to be comfortable. We can get the most recent tax appraisals online and I base my insurance estimates off of the rates of family in the area with similar homes so we kind of know what to expect in terms of the total monthly obligation.

What bothers me is this lender's hesitation to take on a 203k loan process, their noncommittal answers, and the generally vague manner in which they handle the process. I feel like in this market it doesn't benefit a company to behave that way with a potential buyer.

You need a lender who has done these before and will give you upfront answers.
Just my two cents, but I'd shop around for a better lender.

Edit add:
Also, I believe that all hard credit inquiries for mortgage loan applications, within 30 days are counted as 1 inquiry.
So it shouldn't hurt your score to shop lenders.

 

[tessaesque]

You need a lender who has done these before and will give you upfront answers.
Just my two cents, but I'd shop around for a better lender.

Edit add:
Also, I believe that all hard credit inquiries for mortgage loan applications, within 30 days are counted as 1 inquiry.
So it shouldn't hurt your score to shop lenders.

After talking with Brandon and a friend who used to work for a mortgage company we've submitted an RFI to a company that specializes in 203k/homepath loans. Hopefully we'll hear back soon and can begin working with them. The more we learn the more I think that our original company is dragging ass because they don't want to deal with the hassle of FHA programs. If I'm told one more time that this isn't the loan I want I'm going to scream. I know exactly what I want and why.

 

[Harry Guerrilla]

After talking with Brandon and a friend who used to work for a mortgage company we've submitted an RFI to a company that specializes in 203k/homepath loans. Hopefully we'll hear back soon and can begin working with them. The more we learn the more I think that our original company is dragging ass because they don't want to deal with the hassle of FHA programs. If I'm told one more time that this isn't the loan I want I'm going to scream. I know exactly what I want and why.

It always pays to shop around.
A lot of the small banks who do mortgages are pretty good on the customer service end of things and even if they aren't experienced with your type of mortgage, they'll try.

Like you, I spent a great deal of time preparing myself for the mortgage process, I knew what I wanted and didn't mince words about it.

 

[tessaesque]

It always pays to shop around.
A lot of the small banks who do mortgages are pretty good on the customer service end of things and even if they aren't experienced with your type of mortgage, they'll try.

Like you, I spent a great deal of time preparing myself for the mortgage process, I knew what I wanted and didn't mince words about it.

I've read the books, done the online research, looked at the houses, etc. I'm well prepared for all of the hoops we have to jump through. I just need a mortgage company that's going to be supportive and work with me and I'm not getting that impression from this company.

 

[Harry Guerrilla]

I've read the books, done the online research, looked at the houses, etc. I'm well prepared for all of the hoops we have to jump through. I just need a mortgage company that's going to be supportive and work with me and I'm not getting that impression from this company.

Is it a broker or bank?

 

[tessaesque]

Is it a broker or bank?

It's a broker. I'm with Chase and it's like pulling teeth to get approved through them and Brandon is with BoA and...well...screw BoA. He has a car note through DATCU (local credit union) so we might talk with them, but our biggest issue is that whoever we work with understand 203K.

 

[Harry Guerrilla]

It's a broker. I'm with Chase and it's like pulling teeth to get approved through them and Brandon is with BoA and...well...screw BoA. He has a car note through DATCU (local credit union) so we might talk with them, but our biggest issue is that whoever we work with understand 203K.

From what I've read, I think small banks, not credit unions, tend to do the best.
As always though, ymmv.

Shop around, get multiple quotes, not just vague commitment responses.