How to increase the mortgage pre approval amount? That is something every potential homebuyer is wondering.
Homebuying is a tricky journey. We might start off looking for one thing but perhaps walk out with something completely different.
If this happens to you during your home search, it can be difficult to cover all the extra costs which are likely to crop up when making additions or changes to your new property.
One way around this is by increasing your mortgage pre approval amount!
But the question is, can you increase your pre-approval amount? Let’s find out.
Can you Increase Your Mortgage Pre Approval Amount?
One of the financial milestones you may want to consider when it comes to purchasing your first home is getting a pre-approval.
A pre-approval allows you to feel confident knowing that if an offer on a home happens to come up, you’re likely going to have the capability of securing financing without having to worry about not being approved for the funds needed.
This can also save time in your buying process as sometimes sellers will only accept offers from buyers who have confirmed their ability to purchase by having in hand proof that a loan has been approved.
In general, it’s best to stay within 30% of your current monthly income after factoring in a mortgage payment and other related property expenses such as utilities or homeowner association fees.
How to increase the mortgage pre approval amount?
To determine your comfort level with mortgage payments, you should carefully examine your budget. Assume that you are able to comfortably afford a larger mortgage than you were pre approved for.
A few options exist to potentially increase your preapproval amount:
1. Put more money down
The amount of money you put down (down payment) directly affects your mortgage pre approval amount. Therefore, if you are discussing “how to increase your mortgage pre-approval amount”, it all depends.
Typically in the USA, every property purchase requires minimum cash down payment of 5% – 20% of the purchase price.
There are cases where you could do a 3.5% down payment. However, that probably won’t help you increase the mortgage pre-approval amount.
But if you’d like to learn more about these percentages visit the following blog post «How Much Money Do You Need to Buy a House?»
For instance, if you want to buy a home that’s worth $500,000 and you have a down payment of 20%, you will need to pay $100,000 as an initial deposit toward the cause.
Now, this doesn’t mean that one has to save up this large amount before they even begin looking for homes. However, it does mean that one needs to start putting money away much earlier in case they decide to buy right away than if they had more time when applying for a mortgage.
The lender will want to know how much down payment you are saving and what percentage of your total property purchase this entity represents.
To learn how increasing your down payment might impact your monthly housing costs, check out our Mortgage Payment Calculator.
By playing around with different numbers, you can see how adding more money to the “right places” can potentially save you some cash.
2. Get rid of any debt you have
When you take out a mortgage for your home, the bank will review your income and credit profile to help them determine how much money they are willing to lend.
After considering these factors, and if everything looks good on paper, the bank will assign you a debt-to-income ratio (DTI). The higher this number is, the higher your lending risk is considered.
Your DTI is meant to ensure that you have enough income coming in each month to cover at least your minimum monthly mortgage payment.
When calculating your debt-to-income mandate, in order for you to qualify for a larger mortgage, start by paying off or lowering any existing debts. The debts include those associated with credit cards, car loans, child support, or even student loans.
These types of monthly expenses tend to lower one’s income while increasing their daily expenses and can make it difficult to achieve goals within monthly budget constraints.
Once these recurring payments are eliminated, any excess cash flow can be redirected towards other various debts and eventually save up to purchase a fully upgraded home you’ve always dreamed of and one which will be well within your budget!
3. Consider Additional Sources of Income
You can also consider additional sources of income when determining if you can increase your pre-approval mortgage amount.
Look over the details that you initially provided the lender with before submitting your application and see if you may have left anything off.
Most people do not consider additional sources of income when approaching taking out a mortgage because they are only considering their W2 on the application, which is common practice.
However, there may be additional legitimate means of providing supplemental funding if you happen to own investment property or get alimony or child support payments all of which are valid sources that should also be taken into consideration.
If any of these elements were missing from your original application, please let the lender know right away so they can provide you with an amended package that will enable you to get approved for more funding!
4. Shop around for lower mortgage rates
Getting the best mortgage rate you can is the number one way to reduce your regular mortgage payment and cut down on the total cost of home ownership.
Find a lender who will accept less money from you upfront.
You should be able to negotiate with rates depending on how much you’re willing to put down when purchasing a house, especially in this economy when everyone has different needs for finances, credit score considerations, and all other aspects of their entire financial portfolio, including retirement savings and investments.
Some lenders are more balanced with risk than others so they might be more flexible with interest rates, that’s why it’s important to shop around because there could be thousands of dollars at stake if not enough time is devoted to finding a good balance between the services of several different companies.
Make sure your real estate agent has expertise in the areas where you are looking to buy a home, and ask them to use their knowledge and experience to help you select the lender who can give you the best interest rates.
Note: There are banks specialized only in loans for the purchase of houses and these types of banks are the best option since they can generally lend more money and more easily than a conventional bank.
Reach out to us today and we can guide you in this process!
Understanding your mortgage interest rates, conditions and fees is a critical component of home ownership.
Your mortgage rate will depend on many factors including your income status, the size of your down payment, and adjustments for market fluctuations.
You should thoroughly review each option available to you and decide which one will be most beneficial based on your unique situation.
5. Work on your credit score
When considering how to increase the mortgage pre-approval amount, consider your credit score as well.
Your credit score indicates to a prospective mortgage lender how likely you are to pay your bills on time and how much of a risk you’re considering when it comes down to delinquency.
Lenders also consider the amount of debt that you already have in order to work out how much more they will let you borrow. Therefore, if you have built up little or no debt history or put yourself in a good position by having little debt, your chances of getting a larger loan will increase. Thus, lenders will know that there’s less chance of compensation by having someone else take over your responsibilities through an insurance claim, for example.
According to this theory, the lower the interest rate, the more money goes directly towards housing (mortgage) payments every month. Thus, showing you why one’s credit score is so important. It keeps what matters most within reach!
[Related Article: How to Buy a House in Massachusetts with Bad Credit]
The bottom line
Applying for a larger mortgage is a challenge, but there are ways to ensure that you have what it takes to get one.
Initially, it is important to be honest about what type of home you want, how much money you have, and what your long-term plans are. Check the different types of homes we’ve sold over the years on our Zillow page.
Armed with these answers, you may want to check out our online mortgage calculator. It will give you a better idea of whether or not a mortgage lender will approve you based on all of the factors.
I’m Juan Cano, a real estate agent very excited to help you start your journey to buy a house. Get in touch today and discover how I could help you get closer to your dream home!