When you reach the point in the homebuying process where a lender tells you how much you're eligible to borrow, it can feel like permission to spend. But eligibility and affordability are two very different things. It's a lesson Khyrunnessa Rabbini learned early on.
At 29 years old, Rabbini walked into her local bank in Cincinnati, Ohio, ready to buy her first home. On a $55,000 salary in 2008, she received a prequalification letter offering up to $250,000. "My gut told me that this wasn't a good idea," she says. So she bought for about half that amount instead — a decision that gave her the financial footing to eventually build a real estate investment portfolio spanning six properties over nearly two decades.
Now a seasoned homebuyer, Rabbini still feels thankful she got off on the right foot with homeownership, which gave her a strong foundation to build on. Here's what she's learned from her experience, and how you can use it in your own journey.
What Rabbini received from her bank was a prequalification letter, which is different from a preapproval. They seem similar, but are critically distinct from one another. Prequalification is a simpler process that relies primarily on your self-reported information. Preapprovals are more involved and offer a more exact loan amount and interest rate. Your lender will ask for documentation like pay stubs, bank returns, account statements and credit history. You typically receive a preapproval letter typically comes earlier on in the process, while a prequalification comes into play when you're ready to start making real offers.
Between the preapproval and prequalification, "the more accurate number is always going to be the preapproval," says Scott Lindner, national sales director for mortgage lending at TD Bank. He reminds borrowers that securing a prequalification letter is merely the starting line — not the finish line — of the homebuying process.
At 29 years old, Rabbini walked into her local bank in Cincinnati, Ohio, ready to buy her first home. On a $55,000 salary in 2008, she received a prequalification letter offering up to $250,000. "My gut told me that this wasn't a good idea," she says. So she bought for about half that amount instead — a decision that gave her the financial footing to eventually build a real estate investment portfolio spanning six properties over nearly two decades.
Now a seasoned homebuyer, Rabbini still feels thankful she got off on the right foot with homeownership, which gave her a strong foundation to build on. Here's what she's learned from her experience, and how you can use it in your own journey.
What Rabbini received from her bank was a prequalification letter, which is different from a preapproval. They seem similar, but are critically distinct from one another. Prequalification is a simpler process that relies primarily on your self-reported information. Preapprovals are more involved and offer a more exact loan amount and interest rate. Your lender will ask for documentation like pay stubs, bank returns, account statements and credit history. You typically receive a preapproval letter typically comes earlier on in the process, while a prequalification comes into play when you're ready to start making real offers.
Between the preapproval and prequalification, "the more accurate number is always going to be the preapproval," says Scott Lindner, national sales director for mortgage lending at TD Bank. He reminds borrowers that securing a prequalification letter is merely the starting line — not the finish line — of the homebuying process.
4 months ago
