What Does the Pre-approval Mean?

Originally posted 2008-11-29 11:04:02. Republished by Blog Post Promoter

As a buyer, you are excited because you have a pre-approval letter, but what does the letter mean?  The pre-approval letter is determined by looking at your income to debt ratio true enough; however, are you aware that all your debt is not concerned.  What debt you ask?  The light bill, water bill, phone bill, grocery bill, cable bill, clothing bill, etc. and those bills can be more depending on where you live.

Now that puts the pre-approval letter into a new prospect doesn’t it?  Don’t get discourage.  Just do your homework.  Buy where you are alright comfortable and be patience.  With this market being a buyer’s market, you will find a home that is your comfortable range.

Next, you must determine what type of loan you want an adjustable rate or a fixed rate.  The difference is that the adjustable rate will do just that adjust and a lot of time it is not down, but up.  If you choice the adjustable rate, find out what the maximum rate is and determine whether you can afford the adjustment.  The mortgage broker and/or your Realtor can show the difference in payment. 

The fixed rate is just that fix.  The rate will stay the same for the life of the loan.

Now, what can change besides your rate is the taxes and insurance. 

With the taxes, you can head off this change by filing for your homestead and mortgage exemptions.  By the way, these exemptions are only for your primary residence, the one you live in.  You can file for these exemptions within 30 to 45 days of closing that should be long enough for the title company to get the property in your name.

With the insurance, the premium that you pay when you purchased your home may change by renewal of the policy.  Therefore, three months prior to your renewal of the policy call your agent to see what your new premium will be.  Your renewal date will be the anniversary of the day you purchased the home.  If the premium goes up more than $100 dollars start shopping.  Now keep in mind your credit now influences your insurance premium and any claims that you may have filed the previous year.  Your present agent can make some adjustment to your present policy to decrease the premium and it may be worth asking for those adjustments before moving to another company.  The insurance agent can adjust your replacement cost.  What is replacement cost?  Replacement cost is the cost it will take to rebuild your home if it was completely destroyed.  The most that your premium can be adjusted is within 80% of the replacement cost.  For instance, if your replacement cost is $100,000, then the lowest you can adjust your replacement cost is $80,000.  The replacement cost adjustment must be able to pay off your present mortgage, and hopefully enough to build you another home but in most cases it will be enough to start. 

Please consider these facts when you are looking at your pre-approval letter and smiling ear to ear with joy.

Even Fannie Mae is Time Conscience

The number of homeowners in default has led Fannie Mae to experiment with a pre-approval process for a short sale prior to getting an offfer on the property.

If this test works, it will reduce the time necessary to get the short sale approved and make the concept of a short sale more attractive for the seller, Realtor, and more importantly the potential buyer.  Often times,  buyers have passed and not put offer in on homes that were subject to a short sale approval due in part to the longevidity of getting the offer approved.  I am sure that Fannie Mae may have discovered as many Realtor have that the longevidity contributes greatly to the attempted short sale often times going into foreclosure.  When this happens the lender now has the added risk of losing more money by the value being exposed to the downward trend in market value. 

This experiment is hoped to yield a closing process that is closer to that of a traditional conventional mortgage or FHA loan.  Both products can take up to 30 to 45 days to close were as the short sale have taken as long as eight weeks. 

Lastly, this new concept is being experimented upon in hopes to move the market to an upward trend by reducing the amount of properties that are on the market for sale.