Is your mortgage pre-approval lower than you think it should be?
Maybe you have a high income or great credit. You might even pay less monthly to buy a house than to rent.
Why didn’t you qualify for more?
Get a second opinion. Start a pre-approval here.
Why Pre-Approvals Come In Low
Your pre-approved amount is based on your monthly debt payments versus your income.
Your credit score and down payment play into the equation, but not as much as you’d think.
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.
Qualification Factor | Amount |
Before-Tax Income | $5,000 |
Max. Total Payments (50%) | $2,500 |
Car Payment | -$500 |
Student Loan Payment | -$300 |
Credit Card Min. Payments | -$75 |
Property Taxes | -$250 |
Homeowner’s Insurance | -$75 |
FHA Mortgage Insurance | -$80 |
Max. Mortgage Payment | $1,220 |
Max. Home Price* | $180,000 |
*Based on FHA Loan at an example rate of 7%. Rate may not be available. Request your rate from a lender.
As you can see, it’s hard to qualify for a large home price with lower income and higher debts. In fact, you may not qualify to buy a home at all if your monthly debt payments are already around 40-50% of your income.
For example, your income is $3,000 per month and you have $1,500 per month in car loans, student loans, and personal loan payments. You could not be approved to buy a house since you’re already using 50% of your income on debt payments.
So if you have lower income and high debts, is there a way to get pre-approved?
1. Work on Debt Payments
Working on debt payments doesn’t necessarily mean paying off debt.
You can increase your maximum home payment by consolidating debt into lower monthly payments.
It’s not the debt load, but what you pay monthly.
For example, it’s better to have a $200 payment on a $25,000 loan than a $700 payment on a $10,000 loan – at least for mortgage qualification purposes.
Check for opportunities to reduce payments:
Refinance auto loans to a longer term
Consolidate multiple loans into one loan with a lower payment
Prioritize paying off debts with the smallest balances but largest payments
Request an income-based repayment option for student loans
Restructure any loans if it will reduce your monthly payments
However, be cautions of debt management companies. These services often hurt your credit.
Another word of caution: don’t spend all your savings to pay down debt. This could be counter-productive, as you will have nothing left for the down payment, closing costs, or a homeownership emergency fund.
Get pre-approval help from a lender. Start here.
2. Increase Your Income or Find a Co-Borrower
There are more ways to increase your income than just getting a raise.
Sure, you can look around for a better opportunity that pays more. This will certainly help.
But you can also consider buying a home with an “occupant co-borrower” or “non-occupant co-borrower”
Occupant Co-Borrower
An occupant co-borrower is someone who will live in the home with you.
This does not have to be a relative, spouse, or significant other. Unrelated people buy homes as joint ventures all the time.
A co-borrower with regular income and reasonably low debts can double your buying power.
Let’s take the example from above and see how a co-borrower helps.
Qualification Factor | No Co-Borrower | With Co-Borrower |
Before-Tax Income | $5,000 | $10,000 |
Max. Total Payments (50%) | $2,500 | $5,000 |
Debt Payments | -$875 | -$1,500 (both borrowers) |
Property Taxes/Insurance | -$325 | -$450 |
FHA Mortgage Insurance | -$80 | -$210 |
Max. Mortgage Payment | $1,220 | $2,850 |
Max. Home Price* | $180,000 | $425,000 |
*Based on FHA Loan at an example rate of 7%. Rate may not be available. Request your rate from a lender.
Finding a co-borrower helped this buyer qualify for a much larger house. The two co-borrowers can share the bigger home and both achieve homeownership much more easily than buying separate residences.
Non-Occupant Co-Borrower
Certain loan types allow you to add a borrower to the loan who will not live with you. This is called a non-occupant co-borrower.
This is a harder situation compared to an occupant co-borrower. The individual will have their own separate housing expense. They may not help you qualify for more home.
Still, this type of co-borrower helps many buyers who can't qualify on their own.
Do You Qualify for Low Money Down?
3. Don’t Waste Time Saving a Bigger Down Payment
One mistake is trying to save up a bigger down payment to help you afford more.
Putting more down reduces your payment, but not by much. And remember, it’s your payment, not your loan amount, that determines your maximum home price.
And while you’re saving, home prices keep rising. You end up making no progress on your homebuying goals.
Qualification Factor | 3.5% Down | 10% Down |
Before-Tax Income | $5,000 | $5,000 |
Max. Total Payments (50%) | $2,500 | $2,500 |
Debt Payments | -$875 | -$875 |
Property Taxes/Insurance | -$325 | -$325 |
FHA Mortgage Insurance | -$80 | -$80 |
Max. Mortgage Payment | $1,220 | $1,220 |
Max. Home Price* | $180,000 | $200,000 |
*Based on FHA Loan at an example rate of 7%. Rate may not be available. Request your rate from a lender.
In this case, saving an extra $14,000 in down payment gets you $20,000 more in home price. Hardly worth it.
You’re better off paying off debt with that $14,000, freeing up space for your home payment.
Start Your Low-Down-Payment Conventional Loan
4. Get a Second Opinion
It’s unlikely another lender can approve you for more house. Every lender must follow similar rules.
However, some lenders are slightly more lenient than others.
But your greatest “win” might be finding a creative loan officer who can employ some of the ideas above or think “outside the box.”
An inexperienced loan officer may not know all the alternatives, workarounds, and strategies.
It’s worth looking for an experienced professional to exhaust all options.
Get a second opinion here.
Is the Pre-Approval For the Loan Amount or Purchase Price?
Your pre-approved amount is for the home price.
For example, if your pre-approval says $200,000, you are approved for a $200,000 home.
A pre-approved amount is not referring to the loan amount. It will say something like “you are approved for a home price of $200,000 with 3.5% down.” You can extrapolate your maximum loan amount from this statement.
What If You Don’t Qualify For Enough to Buy Anything?
It’s quite possible that you can’t qualify for a home in your area. Affordability has taken a hit since 2019. Not only did home prices skyrocket during the pandemic, but they stayed elevated even as interest rates doubled in 2022.
If you’ve employed all the strategies above, it’s best to work on your career. Get promotions and raises until your income is high enough to qualify for local homes.
Another option is to change where “local” is for you. Moving to affordable states like Michigan, Illinois, Georgia, or Ohio can make a big difference if you can work remotely in your current job or find comparable employment there.
If homeownership is your top goal, you can find a way to buy.
See How Much You Qualify For
Getting a pre-approval often takes a day or less depending on your situation.
Find a lender, and you may have your pre-approval letter in hand faster than you thought possible.
Start here.
About The Author:
Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
