When buying a home, we need to use the mortgage pre-approval amount to cover the insufficient money. So how to increase the mortgage pre-approval amount? This article will help your mortgage pre-approval amount in eight steps. It also details the mortgage pre-approval amount, and what to look for.
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What is a Mortgage Pre-approval Amount?
The mortgage pre-approval amount you can borrow to buy a home is determined through the mortgage pre-approval process. Your entire financial situation, including details on your income, assets, and credit score, will be examined by a lender before granting a preapproval. In order to do this, you must provide your lender with specific documentation proving that you can afford the loan’s monthly payments.
The pre-approval amount you receive will depend on the results of the lender’s thorough examination of your personal finances. Your preapproval typically includes details about your potential interest rate in addition to the maximum loan amount.
If you want to go one step further, Rocket Mortgage offers Verified Approval, a more thorough analysis of your financial situation that can give you a better idea of the loan amounts you are eligible for. When you find the ideal home, having this higher level of vetting by your lender will also enable you to make a stronger offer.
How Do Mortgage Pre-approval Amount Work?
A formal letter from a mortgage pre-approval amount that details the amount, interest rate, and terms of the loan you have been given permission to take out is known as a mortgage preapproval. To determine how much you can borrow, lenders examine your financial situation, taking into account things like your debt-to-income (DTI) ratio, credit score, and assets.
Although obtaining a mortgage preapproval is optional, doing so will be the first of many steps in the mortgage process and will demonstrate to sellers and real estate agents that you are serious about purchasing a home. This is because you have already begun the loan approval process and have had your finances verified by a lender.
When sellers evaluate offers for their properties, they occasionally take into account a prospective buyer’s mortgage preapproval status. In fact, many real estate agents might demand a mortgage preapproval prior to allowing you to tour a house.
Can You Increase Your Mortgage Pre-approval Amount?
The maximum you can ultimately afford to spend on a home purchase is not always the mortgage pre-approval amount you have been pre-approved for. You can take steps to increase the amount of the mortgage preapproval if you believe your finances can support a larger loan. Here’s how:
- Find a co-signer or co-borrower
- Improve your credit score
- Boost your income
- Pay off other debts
- Make a larger down payment
- Talk to another lender
You may be able to look at a wider range of homes if you have a higher preapproval amount.
How to Help You Get Approved for a Higher Mortgage Loan?
If your initial preapproval mortgage pre-approval amount doesn’t meet your needs, you can take action to potentially unlock a higher mortgage loan amount.
Consider whether you can actually afford the higher payments before deciding to increase the size of your mortgage loan. Before attempting to raise your preapproval amount, take the time to honestly evaluate your budget.
You have a number of options if you decide that a higher preapproval amount is the best course of action for your finances. Consider these actionable steps to get approved for a higher mortgage loan:
1. Improve Your Credit Score
Checking your credit report is a good place to start. You can’t do much to significantly improve your credit score if it’s already excellent. However, if your credit score could use some work, take steps to fix it.
Lenders might be willing to increase the preapproval amount they’ve given you once your credit score rises. Additionally, a better credit score might be able to lower your interest rate.
2. Generate More Income
The mortgage pre-approval amount may increase with higher income. That’s because, with more money coming in each month, you’ll be able to afford a larger mortgage payment.
It pays to consider all of your income sources because increasing your income can be harder said than done. It’s likely that all you listed on your application was your W-2 income. But you can go back and add more income sources.
Alimony, child support, disability income, veteran’s benefits, retirement benefits, side jobs, and bonuses are a few easily overlooked sources of income. You might be able to disclose any income your household receives on your application if it qualifies as compensation in any way.
3. Pay Off Debts
Your debt-to-income ratio (DTI), which is used to determine how much you can borrow, is calculated by dividing your gross monthly income by the sum of all your monthly debt payments. If you are heavily indebted each month, such as a high DTI ratio — the amount of your preapproval will be less. However, if you can pay off some of these debts—like credit cards or personal loans—from your records, a lender might be willing to increase your preapproval amount.
4. Find a Different Lender
Different lenders have different perspectives on various issues. If a mortgage lender offers a low preapproval amount, you might choose to submit a second mortgage application with another lender. You might discover that switching lenders is the only thing that can help with mortgage pre-approval amount.
5. Make a Down Payment of 20%
You might be granted a larger loan amount if you can put down at least 20% of the total purchase price.
This is due to the fact that a cost added to your monthly payments known as private mortgage insurance (PMI) is eliminated with a 20% down payment. Without increasing your monthly mortgage payment or adding mortgage insurance, the lender may increase the preapproval amount.
6. Apply for a Longer Loan Term
You can spread out your mortgage pre-approval amount balance over more payments if you take out a loan with a longer term. Most of the time, a longer term will result in more affordable monthly payments, like a 30-year fixed-rate mortgage. As a result, if the loan is set for a 30-year term as opposed to a 15-year term, a lender might be more willing to lend you money.
7. Find a Co-Signer
Co-signers typically don’t prefer to close a mortgage with another party on it. Their property would be at risk if you couldn’t make their mortgage payments even though you would be residing there. Finding a co-signer who is willing to do so can be difficult as a result.
While it might be challenging to secure a co-signer, if you can find a willing relative or friend with a sufficient income, you might be able to increase your preapproval amount.
8. Find a More Affordable Property
In the end, you might not be able to raise your mortgage payment. Ownership is still possible, despite this. You’ll need to start looking for a less expensive property instead.
Use a mortgage pre-approval amount calculator to run the numbers if you’re unsure of how much you can afford. You can experiment with the choices to determine which is the most affordable for your circumstances. Check out our home affordability calculator if you want to tailor the results even more to your particular circumstances. You can calculate the price of a home that you can currently afford by doing so.
How Much Will You Be Preapproved For?
When evaluating your application for mortgage pre-approval amount, a mortgage lender will consider your income, assets, and credit history. The specifics of your financial situation will have a significant impact on the amount of preapproval you receive.
You should, however, determine for yourself what size of the mortgage payment will fit into your budget regardless of what you are initially preapproved for. Most experts advise against spending more than 30% of your gross monthly income on housing expenses, including utilities, homeowners insurance, and homeowners association (HOA) dues.
Even though it’s incredibly alluring to look for a more expensive home with all of the features on your wish list, your present financial situation might not allow for a larger mortgage.
Avoid the ‘House Poor’ Trap After Getting Preapproved
If you can raise your credit score, reduce your debt, or increase your income, your mortgage loan preapproval amount may increase.
Instead of pushing for a higher preapproval amount, it might occasionally make more sense to reduce your house-buying budget or put homeownership on hold. If you exert too much pressure, you might end up with a larger loan sum, which would wreck your monthly spending plan.
A good personal finance rule of thumb is to limit your mortgage payment amount to no more than 30% of your gross monthly income. That should still leave you with enough money to support your lifestyle and pay for other expenses.
Now, do you grasp how to increase mortgage pre-approval amount? In this article, you find out eight steps about increasing a mortgage pre-approval amount and avoiding the ‘House Poor’ trap after getting a mortgage pre-approval amount.
