Ways to increase your mortgage pre-approval amount
An increase in the amount of your mortgage pre-approval could help you afford the home of your dreams. If this dream is within your means, consider these strategies to help you increase the pre-approved amount.
Increase your down payment
If you are able to earn 20% deposit, this choice could significantly increase your pre-approved amount. This is because such a large down payment will eliminate the need for mortgage insurance.
Without mortgage insurance holding you back, more of your income can go directly to principal and interest. Ultimately, a 20% down payment can give you the boost you’ve been looking for.
Pay off the debt
When you apply for a mortgage, the lender reviews your debt to income ratio. Your DTI ratio is your total monthly debt divided by your gross monthly income.
In general, mortgage lenders want to see a debt to equity ratio below 43%. Although you can qualify with a higher or lower DTI, a lower ratio is more favorable in the eyes of a lender.
With that, if you have other outstanding debts, consider paying them off before seeking pre-approval. If you free up some of your monthly income by paying off your debts, you’ll be in a better position to take on a greater mortgage payment.
Increase your credit score
Credit scores are extremely important when you are a home buyer.
A higher credit score can translate directly into a large amount of pre-approval. Indeed, a higher credit rating can potentially unlock a lower interest rate. With a lower interest rate, more of your income can go directly to the principal of the home loan.
Add a co-borrower
If you can add a co-borrower of your household, it will likely increase the total household income. With more income, you may be able to unlock a larger loan amount.
Consider additional sources of income
If you don’t have a co-borrower to add, there are other ways to increase your earnings on your pre-approval request. Review the details you originally provided to the lender. If you’re like most, you probably sent in your W-2 and left it at that. But you may have other sources of income that can be considered.
Here are some additional sources of income to add to your application:
All of these opportunities are legitimate sources of income. If you forgot to include it on your original application, feel free to add it.
Use a longer loan term
A longer duration term of the loan allows you to spread out payments, which may result in a larger pre-approval amount.
For example, a 30-year loan usually results in a higher loan amount than would be approved with a shorter loan term, such as a 15-year loan. Indeed, the monthly amount is lower because the loan is spread over several payments.
If you’re comfortable with keeping the loan for a longer term, this might be a good option. Be aware that longer-term loans come with higher interest rates. You may be able to make additional payments to prepay the loan.
Get additional quotes
Each lender has slightly different underwriting standards. As a borrower, it is a good idea to get quotes from multiple lenders. You can find the lender that will give you the highest pre-approval amount when you shop around.