This article answers a common home-buying question: Can I offer more than my pre-approval amount when buying a house? You’ll find the main ideas outlined in the bullet points below, followed by a more comprehensive explanation.
This article in a nutshell:
- Home buyers often consider houses that cost more than their mortgage pre-approval amounts.
- You can definitely offer more than the pre-approval, if you feel that the seller’s asking price is justified.
- Just know that your mortgage lender will probably stick to the amount they pre-approved you for in the first place (or close to it).
- In these scenarios, buyers typically make up the difference between the loan amount and the purchase price by increasing the size of their down payment.
- The appraisal ties into this as well. The lender will have the home appraised to determine its market value, and probably won’t lend more than that amount.
Can I Offer More Than My Pre-Approval on a Home Purchase?
“Can I offer more than my pre-approval amount on a house I want to buy?”
This is a common question among home buyers, especially those who have never been through the process before. The short answer is yes, you could certainly offer more on a house than what you’ve been pre-approved for. But you’ll probably have to pay the difference between the loan amount and the purchase price out of your own pocket.
It’s actually a pretty common scenario. Here’s how it unfolds: The home buyers go to their mortgage lender to get pre-approved for a specific loan amount. Then they start the house-hunting process and find a home they want to buy. The house costs more than their mortgage pre-approval amount.
As a buyer, you have several options in this scenario:
- You could add cash to your down payment to cover the difference between your loan amount and the purchase price, if you can afford to do so.
- You could find another home to purchase, one that is priced closer to your loan amount.
- You could ask your loan officer if you qualify for a larger mortgage size, to get you closer to the purchase price of the house you want.
How you proceed will depend on your budget, the amount of money you have in the bank, and other factors specific to your situation.
What Does It Mean to Be ‘Pre-Approved’ Exactly?
This will all make more sense if we establish what a mortgage pre-approval means.
When you get pre-approved for a home loan, the lender will review your financial situation and tell you how much they are willing to lend you toward a home purchase. But that doesn’t mean you’re fully approved for the loan. Not yet anyway.
After you’ve been pre-approved, you can start the house-hunting process, choose a real estate agent to work with, etc. Eventually, you’ll make an offer on a home you want to buy.
Once you and the seller have signed a purchase agreement, you can go back to your mortgage lender to complete the underwriting approval process. The lender needs to know how much you have offered and how much the home is actually worth, before they can complete the underwriting stage.
When the House Costs More Than the Pre-Approval
Here is what you need to know about the pre-approval process, as it relates to your purchase offer.
The pre-approval does not limit you to a certain home price. It only limits you to a certain loan amount. If you can make up the difference between out of your own pocket, then you could certainly offer more than your mortgage pre-approval amount on a house.
If you can afford to do this, there’s nothing to stop you from pursuing it. But if you can’t afford the extra out-of-pocket expense, you will probably have to find a lower-priced home to purchase.
Showing the Seller You Have the Funds
When buyers who use mortgage loans submit a written offer to buy a house, they usually include a copy of their mortgage pre-approval letter. Or their agent will submit it on their behalf. Either way, it’s important to show the seller you have the funds needed to complete the purchase.
It’s also common for sellers to request proof of funds from the buyer. They usually want to see evidence that the buyer has money in the bank for their down payment (and possibly their closing costs as well). Real estate agents refer to this as a “proof of funds letter,” fittingly.
Sellers want to see this for a fairly obvious reason. They want to make sure they’re not wasting their time — and taking their home off the market — for a buyer who won’t be able to reach the finish line and close the deal.
So, if you offer more than your pre-approval amount on a home, be prepared to show documents that prove you can actually afford it.
How the Home Appraisal Ties into This
It’s important to consider the home appraisal process as well, because it relates to your final mortgage approval.
Once you have signed a purchase agreements / sales contract with a seller, you will provide a copy of it to your mortgage lender. They will then hire a home appraiser to come and evaluate the property.
The appraiser’s mission is to determine the current market value of the property you’re buying. The lender wants to make sure you aren’t offering more on a home than it’s actually worth.
If you offer more on a house than the appraiser says it’s worth, it might create an additional obstacle for mortgage approval. In that scenario, you might have to work with the seller to reduce the asking price.
Summary and Conclusion
If you find a house that costs more than your mortgage pre-approval amount, you can certainly make an offer to buy it. Just keep in mind that the lender could limit you to the specific amount they pre-approved you for at the onset.
In that case, you would have to make up the difference between your loan amount and the sale price of the home in the form of a down payment. The bigger the gap between the pre-approval and the purchase price, the more money you will have to pay out-of-pocket to close the deal.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author