Why NEHM Pre-approves for Property, Not Listing Price

How much are you pre-approved for?

This question will undoubtedly come up as you begin your home search. To be considered a serious buyer, you must be pre-approved for a mortgage loan. But at New England Home Mortgage, we don’t approve you for a certain amount.

As part of our mortgage loan process, we will, of course, help determine your budget and verify your assets. We will even discuss a range for the amount you can be approved for. But when it comes time for a pre-approval letter for you to put an offer on a property, you won’t see numbers.

Instead of approving clients based on list price, we give pre-approvals based on the specific property. What do we mean by this? Instead of saying, “you are pre-approved for $280,000,” your letter will state, “you are pre-approved to buy the property at 123 Maple Lane.”

You may be thinking this seems like extra work, and sometimes it is. But we believe in doing what is best for our clients, and this pre-approval process protects buyers. Here are three reasons we pre-approve based on the property rather than the list price:

1. Property Taxes. Property taxes are an additional recurring cost on top of the list price of the home. Every year, you will pay thousands of dollars in taxes, and property taxes vary for every town. This means that in a town with moderate property taxes, you can afford a home for $300,000, but in a town with high taxes, you may only be able to afford $295,000. While this doesn’t seem like a big difference, it can be the difference between whether or not a lender pre-approves you.
2. Insurance. Similar to property taxes, insurance coverage is a factor we take into consideration based on every property. This is especially true for flood insurance. If you live along the shore and need flood insurance, this may lower the amount you can afford on the list price of the home.
3. Negotiation. The final reason we don’t include numbers on a pre-approval letter is for negotiation purposes. If you want to put in an offer at $270,000, but you are pre-approved for $300,000, the sellers will counter to get you as close to your max budget as possible.

Our goal through the pre-approval process is to help you maintain a comfortable budget. We don’t want you to fall in love with a home with a list price you may pre-qualify for, but with high taxes and flood insurance that make it out of reach. On the flip side, we want you to get your home at market value, without having to go to the very top of your budget.

Working with a mortgage professional who has your best interests at heart will look at your situation based on the property rather than the list price. Interested in getting started for the spring market? Contact us today!