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If you're prequalified for $127k then...?

A friend of mine was prequalified for $127,000 for a home, but she continues to look at houses at or above $165,000. She has other bills, including tuition bills that average $250/month, and her monthly salary (after taxes) is $2000.

I have tried to subtly tell her I don't think she is going to be able to get a loan for that high. Am I correct in this assumption? She seems to have fantasies of being able to afford houses much higher than her prequalification, but I was under the assumption that the possibility of her getting something $40k more than what she is prequalified for is virtually out of the question?

Anyway, I guess my question is, am I correct in thinking this? Because I really would like to tell her in a more obvious way so she doesn't get her hopes up. Whoever did her prequalification is either not explaining this to her very well, considering her agent is still showing her houses 160k and above, or either my friend is not listening. Or just maybe I'm wrong, haha.

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  • 9 years ago

    a prequalification is pretty meaningless. It's someone calling up and saying = I make X, I own Y, I have Z amount of money = a prequalification is the mortgage agent saying "based on what they told me told they can get $X amount. I do not validate what they told me is correct."

    A preapproval is a bit more in-depth. It is still not guaranteeing the money but a validation of income, credit, etc is performed.

    You are correct, she is not getting more than $127 plus the downpayment amount. If she has $30000, I guess it potentially ok.

    But I think the prequal if wrong. You can typically be loaned between 2.5-3times her annual gross income. I'll be SUPER nice and say she makes $3000 a month. That puts her at $90000 TOP (as in TOP), more likely in the $75000 range.

  • 9 years ago

    Yes, you are correct...being pre-qualified for $127,000 means that is the most the bank will lend her. If she wants to buy a $165,000 house, she will have to come up with $40,000 in cash to buy the house (no, she cannot borrow the difference).

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