Homebuying in America: Her lender said she could borrow $250,000. She borrowed half of that

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. 

Setting the scene on homebuying 

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. 

Behind her homebuying experience 

Rabbini’s instinct to borrow less than she was offered proved wise. What looked like a generous loan offer quickly revealed itself as a potential trap. “Going through the process, there are all these things you get nickel-and-dimed on that you don’t see coming,” Rabbini continues. “If you don’t know what you’re looking at, you’re just signing your name up for expenses that you don’t even know could exist.” 

Indeed, the homebuying process can be confusing and overwhelming for even the most spreadsheet-savvy financial gurus. When it comes time to buy, the best thing to do is arm yourself with information. In addition to finding a loan officer to help walk you through the process, Lindner also recommends taking a HUD-certified first-time buyer course. Shopping around for a mortgage rate can also help make your monthly housing payments more manageable.

What this means for you

Prequalification and preapproval letters show you how much money a bank is willing to risk lending you — not what you can actually afford. Many home lending experts consider 25% to 28% of your gross income going to your mortgage a comfortable rule of thumb. Though it’s a helpful benchmark, it’s not a set-in-stone rule. 

It’s smart to build in a little buffer for some of the hidden costs of homeownership, like rising property taxes, insurance costs and sudden home damage. Linder advises homebuyers to not skip the home inspection, as it can reveal problems you’ll end up paying for later. “Some realtors may say that in this world, we don’t go in with any contingencies because it’s such a tight market, and that may be true,” he says. “But you should be able to get a home inspection if you’re concerned about anything that may impact your ability to pay your mortgage in the future.”

Her homeownership dream

Rabbini lived in her Ohio home up until 2021, when she bought another house in Lexington, S.C., and relocated to escape the grim Ohio winters. In addition to the two home purchases, she has bought and sold four different investment properties. 

She likes her South Carolina house, but doesn’t see it as her forever home. When her daughter goes off to college, she plans to downsize to a lakeside condo. “I want to wake up every day and see the water,” she says.