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.