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First time homebuyer figuring things out as I go.

I pre-qualified for a mortgage of more than I can actually afford. The broker asked me how much I wanted to spend, and was given an approval letter for that much (about 35% less than what I qualified for).

Is there any benefit in having an approval letter for more than I intend to spend?

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    Is there a possibility that you might want to stretch your budget if you found the "perfect" place? It's very common for home-buyers to be approved for more than they should actually spend and you should be commended for not being trapped by the "well the bank said I'm approved so I must be able to afford it" mentality. – BobbyScon Jan 26 at 16:54
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    Flexibility. If your approval letter is for $300K, and the house you really want is $310K, what happens? (Of course, those "little extras" tend to pile up until you're "a lot" over budget.) – RonJohn Jan 26 at 17:03
  • Do you have a house picked out to purchase or are you still searching? – Nosjack Jan 26 at 17:32
  • The counter-example might be if the house you really want is $310K but you could use your pre-approval for $300K as justification for why you are offering less. I doubt it would make any difference; the seller probably won't care unless they are desperate to sell. – spuck Jan 26 at 18:14
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I wouldn't stress out about the pre-approval letter. They aren't legally necessary, and mainly exist as a reassurance to the seller that you aren't wasting their time. Once you nail down a house and an approximate purchase price, you can ask your lender to issue a mortgage commitment letter, which is slightly stronger than a pre-approval letter anyway. As to your question of how much to have the mortgage commitment letter written for, it depends.

In general, if the house has been on the market for a while and you suspect (or know) that you are the only current offer, I'd lean towards a lower number. This will enable you to pretend to be forced to cap your offer, which could help prevent a higher counter-offer from the seller. However, if you expect (or know) there will be multiple offers, a higher number may be better, because from the seller's point of view it seems to lessen the chances of financing falling through, and they may be more likely to select your offer.

That being said, note that commitment letters are for the mortgage amount, and may not consider that the down payment amount can vary as well. The fact that you can simply put an addition $10K down if you want to enables you to increase your offer without getting a new commitment letter issued every time.

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    I don't know if these kind of mind games have any effect. If you "have to cap your offer" the seller can say, "just find the extra $10k, ask your parents/siblings." Then what are you going to say - "I'm an orphan and an only child"? – Orange Coast- reinstate Monica Jan 27 at 5:25
  • @OrangeCoast I don't know either. The thinking is more along the lines of revealing less information than you have to. I remember my first commitment letter was written for the exact amount of my initial offer. In addition to the amount, it even included the interest rate and term, all of which ended up being quite different. I think when dealing with a home that doesn't have many offers, the usual response to a counter offer is to move up slightly along with "I feel my offer is fair." (Assuming it is.) – TTT Jan 27 at 23:15

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