When you initially start your search for a home to buy, you will need to have a preapproval from a mortgage lender. The preapproval states that you meet the eligibility guidelines to buy a house, and it tells you how much you can borrow. You do not get the home loan, though, until you choose a house and work through the closing steps. As a result, the home you select will affect your loan. Here are some of the effects it might have.
The Amount of Money You Borrow
The first effect your selection has is the amount you borrow. Suppose a lender preapproved a loan up to $250,000. If you buy a house that costs less than this, you will only finance what you need. Therefore, you might finance much less than this after agreeing on a lower price and putting money down. You do not have to borrow the total amount the bank preapproved you to get. Instead, you borrow only what you need.
The Amount of Your Down Payment
Your preapproval letter might also state the percentage needed for your down payment. Suppose the lender required 20% down on your purchase. If you bought a house for $250,000, you would need $50,000 for the down payment. If you bought a house for $200,000, you would need $40,000.
The Appraisal Also Affects the Down Payment
Taking the down payment one step further, you must realize that the appraisal also affects the money you need. For example, suppose you offer to pay $250,000 for a house and need 20% down. You will need $50,000 for the down payment. Now, suppose the house appraises for only $240,000. Because you needed 20% down, it means that your lender will give you 80% of the home's value for the loan. 80% of the home's value is $192,000. If you continue with the purchase price of $250,000, you will need $58,000 down. When a house appraises for a lower amount than the purchase price, it might be wise to renegotiate with the seller to pay a lower price.
The Steps Needed for Closing
One last thing to consider is the type of loan you get. Every loan program has different rules and requirements. If you use some loan programs, you might need fewer inspections and steps for closing. Other loan programs might have more requirements. You might want to contact companies like Choice Mortgage as you begin searching for a house to buy. By doing this, you can learn more about home loans.