Why Does My Preapproval Change?

In case you haven’t noticed, the real estate market is pretty volatile right now. Be that as it may, one of the things that this effects is a buyer’s preapproval.

So, what changes a preapproval? On a buyer side, any changes to a buyer’s financial picture: their income, their jobs, their credit, whether or not they have paid their bills on time, any new credit applications (loans or credit cards), any changes (whether new charges or paying off) to current loans or credit cards, any unknown judgments (they don’t always pull up on a credit report, but they will pull up on an escrow search), money deposited to and from into banking accounts, job changes, and even how they get paid from jobs can all change a buyers preapproval depending on the type of loan.

What property tax amount, or rate, did the lender use for their preapproval? This is is a super important question because our property tax rates in SW Washington are all over the place. If the tax amount/rate of a home is higher than the one used by the lender then the buyers’ preapproval amount is LESS than what they think it is. If the tax amount/rate is less than the one used by the lender, then the buyers’ preapproval amount may be a bit HIGHER than what they think it is. This is why a buyer can buy more home in one area of town, or school district, and less of a home in another area, or school district.

What interest rate was used on their preapproval? Again, this market is very fluid right now. Rates fluctuate weekly, and even daily. If rates are higher right now than when the buyer was preapproved, then their preapproval amount may have changed for the better, or for the worse. An interest rate cannot be locked in until a buyer has a home under contract.

Does the buyer know what their payment is going to look like at this purchase price? There is a lot of sticker shock when it comes to mortgage payments right now. So why does ALL of this effect a preapproval? What many people don’t know is that a buyer is NOT preapproved for a purchase amount. A buyer is preapproved for a Monthly Mortgage Payment. Purchase price of a home, interest rates, property tax amount, HOA fees…those all change what that monthly payment is… and that changes how much a buyer is preapproved for.

As a Realtor, when working with a buyer and they find a home they love, I want to make sure that my buyer’s lender has gone over what the payments will look like for that home before we write up an offer. I also want to provide a ‘fresh’ preapproval letter with my buyers offer so that the sellers, and the sellers Realtor, will feel as secure as possible in my buyer’s offer. When working with a seller, when we receive an offer, I want to make sure that these buyers are as solid as possible before the sellers accept the offer. This includes being as sure as possible that the potential buyers lending information is up to date with their lender and requesting an updated preapproval letter.