If you aren’t satisfied with your initial preapproval amount, you can take steps to possibly unlock a higher mortgage loan amount.
Before you jump into increasing your mortgage loan amount, consider whether you can truly afford the bigger payments. Take the time to realistically assess your budget before attempting to increase your preapproval amount in order to buy a house.
If you decide that a larger preapproval amount is the right move for your finances, you have several ways to give that amount a boost. Consider these actionable steps to get approved for a higher mortgage loan:
1. Improve Your Credit Score
A good first step is to look at your credit report. If you already have a great credit score, you can’t do much to raise it significantly. But if you have a credit score that could stand some improvement, then take action.
When you improve your credit score, a lender may be willing to increase your preapproval amount. Additionally, a higher credit score may be able to lower your interest rate.
2. Generate More Income
A bigger income can lead to a larger preapproval amount. That’s because you’ll be able to handle a larger mortgage payment with more money coming in every month.
Of course, generating more income can be easier said than done, so it pays to think through all of your income sources. Chances are that you only included your W-2 income on your application. But you can go back to include other sources of income.
A few easily overlooked sources of income include alimony, child support, disability income, Department of Veterans Affairs (VA) benefits, retirement benefits, side hustles, and bonuses. If your household receives any of these types of income, you may be able to include it on your application.
When determining how much you can borrow, a lender will compare your monthly debt payments to your gross monthly income to determine your debt-to-income ratio (DTI). If you have an extensive monthly debt burden – for example, a high DTI ratio – your preapproval amount will be lower. But if you can eliminate some of these debts – such as credit cards or personal loans – from your books, then a lender may be willing to increase your preapproval amount.
4. Find A Different Lender
Not all lenders view things in the same way. If a mortgage lender provides a low preapproval amount, then you may decide to fill out another mortgage application with a different lender. In some cases, you may find that switching lenders makes all the difference.
5. Make A Down Payment Of 20%
If you can make a down payment of at least 20% of the total purchase price, you may be approved for a higher loan amount.
That’s because putting down 20% eliminates private mortgage insurance (PMI), which is a cost tacked onto your monthly payments when you take out a conventional loan. The lender may increase your preapproval amount without mortgage insurance added to your monthly mortgage. Keep in mind, that government-backed loans like FHA loans may include mortgage insurance premiums which are cannot be removed with a larger down payment.
6. Apply For A Longer Loan Term
A home loan with a longer term allows you to stretch out your mortgage balance over more payments. In most cases, a longer term – such as a 30-year fixed-rate mortgage – will calculate into more affordable monthly payments. As a result, a lender may be willing to lend you more if the loan is set for a 30-year versus a 15-year term.
7. Find A Co-Signer
Closing a mortgage with a co-signer is typically not ideal for the co-signer. Although you’d be living in the house, their assets would be on the line if you couldn’t keep up with your mortgage payments. As such, it can be challenging to find a willing co-signer.
While it may be difficult to lock down a co-signer, if you can recruit a willing family member or friend with a high enough income, then you may be able to give your preapproval amount a boost.
8. Find A More Affordable Property
Ultimately, you may not be able to increase your mortgage amount. But that doesn’t mean homeownership isn’t in the cards. Instead, you’ll have to start searching for a more affordable property.
If you aren’t sure how much you can afford, consider using a mortgage calculator to see how the numbers work out. You can play around with the options to find the most affordable option for your situation.
If you want to make things even more specific to your situation, check out our home affordability calculator. It will allow you to run the numbers on what home price you can afford right now.
You can take various steps to increase your preapproval amount. These include making a higher down payment, getting a longer loan term, finding a co-signer and, perhaps, becoming preapproved by multiple lenders. It's also best to start the home buying process in a position of financial strength.
You can take various steps to increase your preapproval amount. These include making a higher down payment, getting a longer loan term, finding a co-signer and, perhaps, becoming preapproved by multiple lenders. It's also best to start the home buying process in a position of financial strength.
In most cases, you can't increase your loan after the fact. However, you may be able to take out a second personal loan. If you want or need to borrow more, we'll review your options, their pros and cons, and some alternatives to borrowing.
In most cases, however, lenders won't extend your pre-approval because they need your current information to determine loan eligibility, interest rate, and loan amounts.
That's the threshold most creditors use as a guideline for someone that is managing their debt well. If you accept a pre-approved credit card increase, you can decrease your credit utilization ratio. Making you more appealing to creditors. That's how a higher credit limit can improve your credit score.
If you have more than the required down payment, you could get a more expensive house, by paying it down so that the balance is less than your pre approval, or (as per your question) reduce your loan amount in order to save on the interest.
It's possible to top up a loan, but you should consider how this will affect your finances before going ahead. For example, taking out more credit could mean you pay more interest overall. So, you need to weigh up the pros and cons to find the best option for you.
If you wish to increase the loan amount borrowed, you will need to start a Personal Loan Refinance application. Please note that in the case additional funds are requested in the refinancing, it will be considered 'New Debt'.
Most preapprovals are good for 90 days, but some lenders issue 60-day and 30-day limits. Best practice is to get preapproved for a mortgage just before you begin serious house hunting.
What happens if I don't use my preapproval? If you don't use your preapproval before it expires, you'll have to requalify, which means you might have to resubmit proof of income and debt to be reapproved.
Your finances can change dramatically within a few months, so the window is narrow to make sure everything is still accurate when you find the home you want. If you haven't purchased a home by the time the preapproval letter expires, you'll need to reapply for another preapproval with your lender or a new one.
If your home has increased in value since you bought it, you could borrow a further advance from your mortgage lender. There are reasons why this might be a good idea, but you should find out what it could mean for your repayments.
It's all about your “debt-to-income ratio.” For example, your before-tax income is $5,000 per month. You may be approved for a debt payment load of $2,500. But that doesn't mean you can qualify for a $2,500 principal and interest mortgage payment. Here's what you may qualify for in this example.
You can qualify for an FHA loan with a low credit score of 500 and a 10% down payment, or 3.5% down if your FICO is 580 or above. FHA loans accept applicants with credit scores as low as 500. Applicants with scores between 500 and 579 need a 10% down payment.
Pre-approval is typically valid for 3-6 months, but it will vary between lenders. Ideally, if you want to move on with a different lender, you'll make the switch before you've got serious about a property. You can typically extend your pre-approval by simply ringing up your bank or mortgage broker.
A preapproval letter is based on assumptions and it is not a guaranteed loan offer. But, it lets the seller know that you are likely to be able to get financing. Sellers frequently require a preapproval letter before accepting your offer on a house.
A credit limit increase is for a credit card you already have. The company that issued your card will offer a pre-approved credit limit increase that can be hundreds or thousands more than your existing limit. Generally, you need to accept the offer online, by phone, or by signing for it.
You will complete a mortgage application and the lender will verify the information you provide. They'll also perform a credit check. If you're preapproved, you'll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for 90 days.
Introduction: My name is Twana Towne Ret, I am a famous, talented, joyous, perfect, powerful, inquisitive, lovely person who loves writing and wants to share my knowledge and understanding with you.
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