When someone becomes “preapproved” for a mortgage, it boils down to they qualify for a certain mortgage payment based on their income and debts (DTI aka debt to income ratio). A home buyer qualifies for the loan amount of the new mortgage and their funds available for down payment and closing cost determine the sales price.
Because mortgage rates are not locked when the home buyer is not yet in contract, the preapproval is subject to change and is only valid if the the information relied on (the application and supporting documents) have not changed. For example, if a home buyer changes employment or buys a new car without consulting their mortgage professional, the preapproval letter may be void.
There are some things that may impact a loan preapproval that are not directly in the home buyer’s control such as the amount of property taxes, home owners insurance and/or home owners association dues. When I prepare a preapproval letter for my clients, I include the maximum total mortgage payment they are qualified for.
Another variable is, of course, mortgage interest rates. If a borrower is approved at today’s super low rates and makes an offer on a home a month from now and rates are higher, they may not qualify if their debt to income ratios are “pushed” to the limit.
It’s also possible to have loan programs and underwriting guidelines change. Private mortgage insurance fees may adjust as well as the mortgage insurance or funding fees for FHA, VA or USDA mortgages. I’ve seen FHA mortgage insurance premiums adjust high enough to disqualify or reduce the buying power of homebuyers a couple times over this last year!
I strongly encourage home buyers to check in with their mortgage professional before making an offer on a specific home so that everything can be reviewed and the preapproval letter can be updated. If rates have gone up from the time of the original preapproval, it’s possible you may need to request the seller pay for closing or discount points to bring your rate back down.
When I’m working with a home buyer, it’s not unusual for me to prepare several preapproval letters during their search for their next home.
I have been helping home buyers with their mortgage needs since 2000 at family owned and operated, Mortgage Master Service Corporation. If you’re buying a home in Seattle, Woodinville, Renton or anywhere in Washington, I’m happy to help you!