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If you get preapproved for say, a 100k house loan, but then find a house for 110k, are you contractually bound to pay at most a 10k down payment? or are you able to still pay a 20% down payment of 20k to avoid mortgage insurance? I know in the converse case, when you want to buy a house for more than what you got pre approved for, you are only able to do so if you put more cash down.

It seems like since a mortgage is "callable", taking out the exact amount you asked for and then paying the difference immediately would be equivalent to simply take out less of a loan. But I can't seem to find a straight answer for this question anywhere. If this is the case, is there any downside of getting "over-approved" with respect to your interest rate? I know people say that it shows the buyer you could afford to pay more, but apart from that, is it detrimental in any way?

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  • Related: if the appraisal comes in lower than your offer, you'll have to come up with the difference.
    – mkennedy
    Apr 29, 2022 at 0:20

3 Answers 3

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TL;DR - yes, the actual loan can be for less than the pre-approval if you like.

A pre approval is for a loan UP to a specific amount , but may have particular conditions. For mortgage loans, they will include as a condition that the LTV (Loan To Value) ratio is in line with the type of the loan and your qualifications. The loan type may be VA, FHA or Conventional, with required down payments between 0 and 20%.

The thing to keep in mind is that any pre approval will be for a loan AFTER deducting any required down payment. So, if you are required to make a 20% down payment and it appraises/sales at 100k, even though you were pre approved for a loan of up 100k, your actual loan will be 80k.

If you have more than the required down payment, you could get a more expensive house, by paying it down so that the balance is less than your pre approval, or (as per your question) reduce your loan amount in order to save on the interest.

Also, note that there is a large difference between pre-APPROVAL and pre-QUALIFICATION. The later being more tentative.

Finally, the pre approval is somewhat tentative, it’s not guaranteed particularly if it takes a long time to find your house and make the deal or your employment situation changes (even changes for the better can have negative effects).

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    The only caveat I'd add is that some lenders might not be able (or be bothered) to write a loan smaller than a certain amount. So if a person were approved for "up to $100k" then decide they want to put $70k down, the lender might choose not to loan only $30k.
    – spuck
    Apr 29, 2022 at 14:00
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Preapproval is a soft upper limit, not a hard precise commitment. You most definitely can take an actual loan for less than what you've been preapproved for.

Preapprovals also usually come with conditions. For example, if the condition is "You're preapproved for $100K loan on the condition that you provide 20% downpayment" and the house costs $100K - then you are actually only preapproved for an $80K loan.

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I know people say that it shows the buyer you could afford to pay more, but apart from that, is it detrimental in any way?

The seller shouldn't know the maximum amount you have been approved for. Your buyers agent should know, but nobody should tell the seller or their agent. Telling the seller the maximum amount gives them the upper hand in negotiating.

That number you are approved for is based on your income, your down payment, your credit history, and the interest rate. That is the most you can afford, but you have no obligation to pay that much. As long as you still meet the down payment percentage you agreed to, you will be fine.

If this is the case, is there any downside of getting "over-approved" with respect to your interest rate?

In the US there are things known as Jumbo loans. If the loan is getting close to the Jumbo loan amount, which changes every year, and is location specific, then knowing which side of the limit the final loan amount will fall is important.

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  • That's not strictly true. For quick analogy I often use reimbursement limits as part of the discussion when I am negotiating for hotel room prices ("I know your listed price is $130/night. I have a requirement imposed on me that I can't stay anywhere with a price higher than $121/night" etc). Basically, it's worth revealing your limits when your limit is lower than they would otherwise offer.
    – fectin
    Apr 29, 2022 at 13:39
  • @fectin The point is that you shouldn't disclose that limit if you're trying to get them to let you pay $110. Once they know your hard limit is $121, you can't negotiate anything less. A negotiation is about each party having to guess when the other party will walk away and they get nothing.
    – Barmar
    Apr 29, 2022 at 15:04

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