Getting Pre-approved These Days…A Bizarre Experience
Jul 7th, 2009 by Carlos
M and I are on the hunt again for a place to live. As a first step, I decided to get pre-approved for a mortgage with a lender.
In case you aren’t familiar with the term, getting pre-approved is like going through a dry run of getting an actual loan for a mortgage. The bank/lending company goes through your finances and gives you a range of how much they’d be willing to lend you. This way you don’t go looking at houses/condos without knowing how much a bank will actually lend you.
Usually, people get pre-approved for amounts that are much higher than they’re willing to actually spend. At least that’s the way it used to be.
Now that lending is so much tighter, I was a little tight myself wondering how much money the bank would lend us. Would it be enough to get a place we both like? What if it isn’t? Will we be renting forever?
So I went and met with a lending expert to get pre-approved—the whole experience was very strange.
All the calculations were done on the back of a sheet of paper. OK, no big deal. But then he circled the amount and said, “OK, this is as high as we would go for a someone with your numbers.”
I looked up at him, “Really?”
It was around 50% of our gross income!
The “responsible” percentage of your gross income that you should try to stay within is around 30%, which is pretty much where our rent is right now.
But 50% shocked me—can anyone really live their lives by paying half of what they make towards their house/condo?
M and I certainly can’t. So while it’s good news that people like us can get a lot more money from the bank than we need, it’s still kind of scary that lenders would be willing to sell a mortgage to someone who’ll need 50% of their gross pay to pull it off.
Yikes.
By the way, I’m sure it helped that we have a sizable down payment, no debt, and great credit. But still…
50% ? Whatever happened to them revamping their loan policy? I thought they were going back to the old days of under 30%? This is shocking!
Blessings
Mrs. White
Must be nice to be so rich.
[...] we make. We should know that taking out a mortgage that will cost you 50% of your gross income is a bad idea, regardless of how much you’d like to say to yourself, “Well, if they’re willing [...]
And here I thought 50% ratios are what got us into this mess! I’m with you; I wouldn’t spend more than 25-30% of my income on housing. If you do it will eat up to much of your income for other things.
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