You Are Qualifying For A Mortgage Payment, Not A Mortgage Balance

By
Mortgage and Lending with 214-728-0449 http://TexasLoanGuy.com NMLS # 322646

When you Pre-Qualify for a Texas mortgage, remember that you are qualifying for a payment, not for the loan balance.

When a buyer calls me for a Pre-Qualification Letter (also incorrectly called a Pre-Approval letter… because there is a HUGE difference in the two), I explain to them that they are actually qualifying for the payment and no so much the balance of the mortgage. During the call we will review the numbers in detail and I explain to the client that they qualify for a mortgage payment up to $XXXX.XX. The reason I explain to them that its all about the payment is because that is truly what they can afford.

Our job as a Loan Originator is to ensure that your overall Debt-to-Income ratio is low (also called DTI). The DTI is calculated using your Gross Income (before tax) compared to your monthly obligations. These obligations include all items listed on your credit report, your full mortgage payment, and other others dues associated with the home (i.e. Condo or Homeowners Association Dues). This calculation does NOT include your utilities, cable, water, or trash.

Here’s an example…

Recently I had a client qualify for a mortgage of $1350. This was based on a Condo worth $115K. The payment of $1350 included the Principal Mortgage Payment, the Condo Association, and the Annual Taxes.

The home was taken off the market right before the buyer had submitted the offer. The following weekend, the buyer found another Condo they wanted to purchase. This home was actually slightly less in cost so they buyer assumed they would qualify.  Here is where the problem is… Although the Condo itself was cheaper, the Condo Association Dues were $110 higher per month. The overall payment would have been $1410. The buyer no longer qualifies for this Condo even though it’s cheaper than the previous Condo.

Sure, the buyer could put more money down in order to lower the balance even further and help lower the overall mortgage payment. But, had I not explained this to the buyer at the beginning, this could be a very uncomfortable conversation.

When searching for a home, make sure you understand all the qualifications by asking questions to your Mortgage Loan Originator. If the home you are buying does not have Association Dues, you may not run into this issue.  But it could make a huge difference and its best to know the full story before shopping for a home.

As always, if you have any questions about your mortgage, feel free to give me a call or send an email to John@TexasLoanGuy.com  Even if you are not in the state of Texas, I can direct you to a local professional that can assist you further in your state.

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Are you looking to purchase a Texas home?  Perhaps you love your Texas home but would be interested in refinancing your Texas mortgage to a lower interest rate?  

I'll help you get pre-approved for your Texas home loan and even suggest some very knowledgeable and professional Real Estate Agents in your area of choice.  If you are available to talk, I am available to listen.  Give me a call or visit my website for more details.

Do you want to know all of your mortgage options? Call me today and let's discuss them further.

Texas Home Loan Consultant

Always available for your Texas Mortgage and Home Loan needs!

John R Cannata    P#214.728.0449

NMLS # 322646

Texas Home Loan Expert

Frisco TX Mortgage

      

 

The views expressed on this site are mine alone and do not reflect the views of my employer.

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Cara Marcelle Mancuso 01/10/2012 09:11 AM
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Tags:
prequalification letter
texas home loans
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qualifying for a mortgage
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Rainmaker
260,498
Connie Goodrich
Keller Williams Realty - McKinney, TX
CRS ABR (McKinney Realtor)Texas

Very nice explanation of the correct fact on how buyers are qualified.  I wish you would school some of the lenders that I receive pre-approval letters with an offer submitted on one of my listings what the TRUE meaning of pre-approval really stands for .. some how their definition came from some fantasy fairy land book. Thanks for the great post!

Jan 09, 2012 02:10 PM #1
Rainmaker
732,653
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Good point John. Here in Manhattan New York, many of our preferred lenders will put in estimated HOA (we called it Common Charge) into the DTI ratio for the buyers so we have some buffer to work with.

Jan 10, 2012 03:02 AM #2
Ambassador
2,213,465
Wanda Kubat-Nerdin - Wanda Can!
Prado Real Estate South - St. George, UT
So Utah Residential, Referral & Relocation REALTOR

Qualifying takes looking at all sides and using different scenarios and that is why you are the to-go-to professional in your area John!

Jan 10, 2012 08:29 AM #3
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Thank you Connie. You know you are always welcome to call me with any questions or clients that need a free review of their financial situation. I assume your comment is directed more towards the LOs that clients find online, as opposed to the LOs that you use on a daily basis. :-)

Thanks for the comment Eileen.  Its a good idea to leave a little cushion so that the buyers have some wiggle room.

I do what I can Wanda. :-)

Jan 10, 2012 08:32 AM #4
Rainmaker
1,229,665
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Fabulous post, John.  Sometimes clients do get these issues confused ... and that's understandable.  SO many things for them to remember in this day and age with their mortgage financing.  THIS should help them better understand the rationale behind mortgage approvals.  And of course, should they still need more info .. they call you in Texas ...

Gene

Jan 10, 2012 09:16 AM #5
Rainmaker
723,229
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

John-When I began as a REALTOR several years ago, it was explained to me that there was a pre-qualifying process and a pre-approval process. And of the two, the pre-approval was better because a credit check was run and it was a more detailed examination of the prospective buyer. Are you saying there is only pre-qualifying now? I liked your example.

Jan 11, 2012 05:31 AM #6
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Very true Gene. There is quite a bit. Sometimes too much information can cause confusion. Always good to have a solid resource when it comes to Real Estate.

Wayne - I'll reply here, but will also send you an email just in case you are not following for the response.

There is a 'Pre-Approval' and 'Pre-Qualification' letter. They certainly are different... VERY different. If you click the link provided within the post, I blogged about the differences. There are LOs using the term 'pre-approval' incorrectly. A TRUE pre-approval is when the underwriter has reviewed ALL backup for the file and has given their approval on everything with exception of the property. They are saying that the buyer is in fact pre-approved to buy a home and they now just need to find one.

The 'pre-qualification' is when a Loan Officer runs credit and probably only takes 'verbal' information from the buyer to see what they qualify for. In some cases, the Loan Officer will even have the buyer send in back-up for the LO to review. If the loan officer issues the pre-approval at this point, they are issuing the wrong letter. Only the underwriter can give a TRUE pre-approval.

Jan 11, 2012 05:57 AM #7
Rainer
73,111
David Companik
Keller Williams Realty - The Woodlands - The Woodlands, TX
Realtor ▪ The WoodlandsTX ▪ davidcompanik.com

John, this is a great post - I was recently explaining to someone how HOA fees are taken into consideration in the loan approval process, and this makes it a lot clearer to me.

Jan 11, 2012 04:42 PM #8
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Thank you David. Many do not think we will consider the payment because its not a part of the actual mortgage payment. Even though we are not paying it, we do count it in the totals. Thanks for the comment.

Jan 12, 2012 09:24 AM #9
Ambassador
1,553,031
Karen Kruschka
RE/MAX Executives - Woodbridge, VA
- "My Experience Isn't Expensive - It's PRICELESS"

If that rule had not been dsiregarded we wouldn't have gotten into the recent "mess"

Jan 17, 2012 01:28 AM #10
Rainmaker
678,095
Cara Marcelle Mancuso
Long Realty - Dove Mountain, Marana AZ - Tucson, AZ
Call a Marana neighbor, I'm THERE! LONG REALTY

Congratulations on your spotlight feature in the Active Rain daily drop!  Your qualility posts deserve the recognition.  Great job here on AR.

Jan 18, 2012 02:13 AM #11
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Thanks Cara! Whats funny is that I asked about the newsletter today because I hadnt been receiving it. So, the chances that I would ask AND I would be mentioned in the same day (considering I've never been mentioned before) is pretty slim. I should go play the lottery today.

Jan 18, 2012 09:06 AM #12
Ambassador
2,135,080
Respect Realty LLC
Respect Realty LLC - Milwaukie, OR
Brokers - Oregon / SW Washington Real Estate

That is why I tell buyers when they are looking at properties that may include an HOA to not only base their purchase on price, but also how much the HOA may be.

 

Feb 12, 2012 04:43 PM #13
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