Know How Much You Can Afford Before Viewing Properties

Real Estate

You get excited about rental property investing and start looking right away, but hold on – do you know how much house you can afford?

I see this all the time.  Someone gets the investing bug (and rightfully so) and goes full steam into looking at properties before they get an idea what they can afford.

Don’t Put the Cart Before The Horse

In nearly all of my posts, at some point I talk about running the numbers on a property to ensure you buy right.

Well, before you can do that you need to know what price point you can afford.  Unless you are buying a property with cash then you need to talk to a lender and see what kind of loan you qualify for.

There are two ways to go about this:

Preapproval or Prequalified

I want you to understand the difference between the two:


A prequalification letter tells us how much the bank is willing to lend us.

They determine this number after you provide them some basic information, such as:

  • How much income do you make
  • Do you have credit card debt, car loan, etc.
  • What is your credit score
  • How much do you have in savings

Find out what your number is before you go viewing properties.   If its for a purchase price of 150K then there is no point wasting time looking at properties selling for 200k.

One Caveat about Prequalifications

Prequalification does not guarantee you will get a loan for that amount.

A prequalification basically provides a number the bank thinks they will lend you based on the information provided.

However, this letter is useful as it gives us an estimated price range we can use in our property search.


The Preapproval is the amount the bank will lend you.

This is a bit more involved as the lender will want to verify the info you provide  in addition to receiving copies of financial documents.

Unfortunately many lenders use the term prequalification and preapproval interchangeably.

Do not let this confuse you.  If you have not supplied any documents to the lender for an initial underwriting then you are only prequalified, not preapproved.

Getting Pre-Approved

For this the lender will pull credit and ask documents such as:

  • Tax Returns (usually the past two years)
  • Pay Stubs (to verify income)
  • Bank Statements (to verify savings/down payment)
  • Loan Statements (other mortgages, equity lines, etc)
  • Copy of your photo I.D.

Once the lender reviews and confirms all of this information then they will issue the actual preapproval.  The preliminary underwriting they do for this takes about a day from the time you provide everything.

It’s generally a good idea to ask them to put highest purchase price they will lend on the preapproval letter. This lets us know what our ceiling is whether we plan to use it or not.

If you enjoy my posts and property investing tips than you will love the new book:

ScaredyCatGuide – Investing in Rental Properties

I literally walk you step-by-step through finding, buying and renting out a rental property.  The book is your personal mentor!

Don’t forget to download the property calculator so you can run the numbers and buy right.



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