Is My Preapproval Still Valid with all the Rate Changes?

My clients and readers ask such great questions…I just received this one from one of my clients that I’ve been working with since June of this year:

“…with all the rate changes how is our pre-approval looking? It the original amount still applicable?”

This couple are still in the process of finding their next home to purchase.  They were very savvy meeting with me early in the process so we could work on one of spouse’s credit scores.  While spending a few months to improve the credit scenario has paid off, rates have recently gone up.  In fact, as of right now rates are 0.625% higher than what I quoted them exactly one week ago.

When you are preapproved for a mortgage, it really has little to do with the sales price or loan amount.  It’s all about the payment and debt to income ratios.  There’s actually a limit to rate/payment that you’re qualified for.  This couple’s interest rate limit is 6.625% with a maximum qualifying total debt to income ratio (per the automated underwriting system) of 46.21%.

This means that if once they find their home, if rates are near 6.625% for their program, that property taxes or their home owners insurance could bump them beyond the allowed debt ratio figure.  Preapprovals are generally based on estimated taxes and insurance.

Before you make an offer on a home, I strongly encourage you to provide your Mortgage Professional with the property address and/or the annual tax information so they can re-evaluate your debt to income ratios.

Here are some options when the interest rate or payment exceeds your preapproval:

• Negotiate the seller paying points to buy down the rate back to the lower approved amount (this is why you need to contact your Mortgage Professional BEFORE you make an offer).
• Put more money down on the home to lower the loan amount/payment.
• Buy less home.
• Pay off a debt to lower your debt to income ratio.
• Re-run your scenario at the higher rate with actual taxes and insurance to see if you’re still approved.

Of course, if someone adds new debt or if the information has changed (maybe their down payment that was in the stock market and took a huge hit); the preapproval may no longer be valid either.

If you’re currently preapproved to buy a home, I suggest you contact your Mortgage Professional to find out what your current “maximum rate/payment”.  We’ve had constant program changes and you may want to verify your scenario has not been impacted.

Related post: How long is a preapproval letter good for?