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Ignore the pre-approval amount - what payment are you comfortable with?

I was chatting with a young man the other day that
is beginning his home search and we were discussing
mortgage pre-approvals. Preapproved mortgage amount and house payment He and his wife had talked
with a mortgage lender previously and had been
given an amount that they were qualified to purchase.

My comment to him was “Talk about what payment you
are comfortable with first, then ask the lender to look at the
whole picture and give you a purchase price based upon the
mortgage payment you want.”

I think this is so important, more important than the ever quoted “pre-
approved amount”.

In Macomb County there are varying property taxes for each city & township
and school districts. There can be as much as a $1000-$2000 difference in
taxes for the same priced home. This equates to $85 to $170 more in property
tax escrows in a monthly mortgage payment.

The best way to avoid payment shock when you fall in love with a home is
to tell your buyers agent what payment you are comfortable with, and review
the good faith estimate that your mortgage lender provided to you.

We can look at this estimate and see how the mortgage lender calculated your
payment (including property taxes and insurance) and make adjustments to
search for the homes for you that fall within your comfortable payment range.

For example: A $200,000 home in Sterling Heights that is in the Utica School
district and is owner occupied will have an estimated property tax of $2900.

The same $200,000 home in Clinton Township with Chippewa Valley schools
would have property taxes of approximately $3700.

If a buyer chose the latter, they would have to adjust the purchase price that
they are comfortable with downwards approximately $10,000 to compensate
for the higher property taxes.

Please talk to your buyers agent about a payment amount, not simply a
pre-approved amount. After all, the goal is to not only find you a house you
are thrilled with, but for you to have a mortgage payment you can live with comfortably.

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Posted by Kris Wales - Macomb County MI real estate blog & homes for sale search site on 03/16/2008 06:24 AM

Comments (22)

mortgage payment, property taxes, home buyer, macomb county, kris wales, buyers agent

This post has been included in Michigan Information Macomb County, MI Information

22 Comments on Ignore the pre-approval amount - what payment are you comfortable with?

MAR

2008

Good tips, thanks.

Great advice. And one other important question to ask is: Are the property taxes included in this payment? Or am I expected to pay them out of pocket at the end of the tax year? Sometimes a lender offers a lower payment by not holding taxes in escrow, which can be a huge shock when the tax bill shows up.

Good Post Chris!

When you look at payments it will make the whole process go easier. One other thing you must consider is MI. With recent changes MI rates can be exteremly high when financing over 90%, low credit scores, or FTHB's. I just refianaced a couple that had a 110K mortgage and a MI factor of 241 a month. Put them in FHA program and MI went to 43 a month. Between that and interest rate I saved them over 300 a month

Tony

Kris- you give good advice to your clients. I work the same way as you. As Penny says, what about the taxes? Most lenders are giving the clients payments for principal & interest without taxes & insurance. I also remind them about their gas, electric, phone & some have association fees.

Kris - This is one of the most valuable posts I've read. Too many consumers (and agents) get caught up in the numbers without looking at the whole picture. Taxes play a HUGE role in payment and too many people forget about that.

I think that looking at the whole picture will help avoid some of the mess that Michigan (and other states) are going through right now... it's up to the Realtor to consult the buyers in hopes of giving them the 'whole picture'.

Jeff Lund

Five Star Real Estate

Grand Rapids, Michigan

From being in the Mortgage end so long I do this with all my clients. Its a big difference from what they qualify for than what they want a mortgage payment to be. Great due diligence!

P. Timothy: You're welcome.

Penny: Thankfully a quick look at the good faith estimate will let me (and my clients!) know if the property taxes have been figured in to the equation. In my area I rarely see a non-escrowed mortgage. It's amazing how many don't consider the property taxes involved. Thanks for commenting Penny.

Tony: I'm hearing the same things. This is why I tout the FHA/VA products. The mortgage insurance can be burdensome for many families. You did a good job for your buyer clients Tony.

What a great post Kris! I have seen to many buyers get caught up in the "but I was approved for" amount. Once they see the WHOLE payment they freak! I always suggest they ignor the pre-approval amount and suggest they tell their lender what they are comfortable with!

Kris - This is some great information - I have seen so many buyers fall in love with a house - than die when they see the payments. At that point it is tough to find another house that is comparable, because they keep going back to that house. Thanks for the posting and the great information.

Laura: When I'm working with first time home buyers, especially those that haven't rented and paid utilities, I bring it all up. Most of the time they have carefully thought about all the "extras" but sometimes they are shocked that they didn't budget for them. Thanks Laura.

Linda: Thank you. Property taxes, homeowners insurance, utilities..they all play such a big part in a buyers "comfort zone" in regards to total financial responsibility in owning a home.

Jeff: I agree. I also caution against those first year new furniture- new floor covering purchases. Take the first year to get used to the mortgage payment and all the little added on costs to home ownership.

Laura: I'm sure your clients appreciate that! Thank you.

Leesa: It sounds like we talk about the same thing with our clients: What payment are YOU comfortable with? Then we help them from there to not have payment shock! Thanks Leesa.

Vincent: You brought up another good reason to talk about the property taxes and make the adjustments to what the buyers will view. Thank you!

Kris - even we I look at my own situation I could qualify for a much larger mortgage but have to look at the other things in life too. Once I explain to my buyer clients budgets affect everyone they are much more willing to open up and get honest with me and themselves.

For a lot of buyers that is exactly what they are looking at. Nice post and I like the squeezing bill photo!

Your Friend in Charlottesville, Virginia!

Nannette: Budgeting is universal. I often talk about the same thing Nannette. What I can afford according to a mortgage lenders pre-approval and what we want to spend monthly are entirely 2 different things most times. Thank you.

Charles: Thank you Charles. Hope all is well in your neck of the country :-)

Good advice. These variations in tax rates can become very large and go un-noticed.

Kris--Understanding what a preapproval amount is is essential. Great explanation as taxes in different areas can make a tremendous difference in payment. Anyone considering a home with association fees has another payment consideration to make as well.

Kris, I like to have the lenders' maximum for the lenders letter to make them look as strong as I can as buyers, then explain that their credit is so great because they are much more conservative than the lender. I agree that the comfort level is the important thing.

great advice, Kris. Did you have a fun birthday? I've known very few people that want to buy what they are qualified for and be in a "house poor" situation.

Kris,

Great service to your clients, and great post.

First-timers in particular need the whole picture to avoid complete shock.

And, I would rather sell them that more expensive home in 5-8 years than break them on their first one...

MAR

2008

Kris, excellent advice, especially for first-time homebuyers!

MAR

2008

Gary: Thank you. Those property taxes can throw a wrench into things can't they? Much better for buyers to know the whole picture up front!

Teri: Absolutely! HOA fees are another set of costs that should be looked at upfront.

Patricia: That is another way to look at things, thanks. As long as the clients know that the limit is perhaps not what they want to pay (or are comfortable with) the full pre-approved amount does look good to a listing agent and their seller.

Missy: I had a wonderful bday, thanks so much :-) You're correct, no one wants to end up being "house poor".

Mike: I fully agree. I want people to be happy not only at the closing table, but years later.

Marlene: Thank you. You're correct, first time home buyers aren't familiar with all of this, and can really use the help in analyzing all of the costs that are going to be coming their way.

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