Preapproval Certificate VS Mortgage Disbursement -You were preapproved but your house was rejected!

I'm going to make this entry quick. Really, this is your bankers or mortgage specialists job to explain....but it impacts you and me and some financiers aren't doing a good job explaining how this works.

When you go to your bank of choice and apply for a mortgage, you are taking the first step, looking to be "PREAPPROVED". Let's not get technical. All the bank does at this stage is look at your credit scores and your income and debt levels and ensure that you'd be able to service the extra debt burden known as the mortgage with your current income stream and your current debt obligations and that no more the 35% of your income is being eaten up by paying your monthly mortgage.

On top of the mortgage amount the bank preapproves you for...you then put your downpayment. The total of which will determine the HOUSE PRICE you can afford.

Now, you're well into the game of looking at homes. You've located a home and are bidding on it. You win in the bids. NOTE******* your bank sometime before the closing date will send an appraiser to the property. The focus now shifts from you being able to afford the debt to the bank believing that you paid the right amount for the house. Should they dispute that number, they will forward the mortgage amount but you will now have to increase your downpayment to offset the lowered valuation. Remember the bank is using your house as collateral in the event that you go bankrupt or the market shoud correct, the bank wants to feel as good as they can that you paid "market value" for the home you purchased.

In today's environment with low inventory and plenty of bidders, some buyers are paying wacko dollars for homes. Maybe they didn't understand that the preapproval differs from the final mortgage disbursment which takes place following the bank satisfying themselves with the purchase price on the agreement. Some deals are struggling to close of late b/c the valuations the buyers aloted to the home just don't add up.

So now you know that the bank first approves you as a Buyer. Later and only after you buy does the bank approve the actual house!!

This needs to be understood by erach and every buyer and again a claim can be made to use an agent who knows what's going on in the area of interest to you!!

Keep the comments and questions coming by email.

Cheers-

Michael Gruenstein MBA CSC
mgruenstein@trebnet.com
http://www.TheSmithsBuyAHouse.com