Pre-approval said I qualified for $340,000. Underwriting said $190,000, eleven days before closing
First attempt at a small duplex, $268,000, both sides rented. I went to a broker because two banks had already looked at me funny for being self-employed.
He took my paperwork, asked a few questions, and produced a pre-approval letter for $340,000 the next day. I felt great. Wrote an offer, got accepted over one other bid, put down $3,500 earnest, spent $650 on an inspection and $575 on the appraisal.
What happened at underwriting is that they calculated my income differently than my broker had. He used the gross revenue off my 1099s, roughly $118,000. Underwriting used my Schedule C after expenses, which averaged closer to $54,000 across two years because I write off a truck and a lot of materials. My debt to income went from comfortable to nowhere near, and the file was declined. Eleven days before we were supposed to close.
My financing contingency had already expired because I'd waived out of it at day 21 on the strength of the pre-approval. The seller kept $1,750 of the earnest money in the end, which was better than losing all of it, and the inspection and appraisal money is just gone. Call it $2,975 plus five weeks.
The part that stings is that nobody lied to me. I answered "what do you make" with the number on the top of my tax return, because that is the number I think of as what I make. Nobody asked me for the bottom of it.
What I'd do differently. Bring two years of full tax returns to the first meeting and ask the broker to write down, in front of me, what income figure he is using and where it came from. And I would not waive a financing contingency on a pre-approval letter again, because I now understand that letter was an opinion and not a decision.