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.
The lower your interest rate, the more you qualify for, so paying your bills on time, not utilizing too much of your available credit (below 30%), and not applying for new credit too frequently can increase your pre-approval amount.
The lower your interest rate, the more you qualify for, so paying your bills on time, not utilizing too much of your available credit (below 30%), and not applying for new credit too frequently can increase your pre-approval amount.
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.
The best way to get preapproved for a large amount is to have strong credit, little or no debt and high, steady income. People with lower credit scores, limited or uneven income or high debt levels will see lower preapproval amounts.
You can't increase your loan amount, but you may be able to apply for a second loan. Technically, there's no limit to how many personal loans you can have. Lenders may approve a second or third loan if the borrower has paid off part of the first loan and has a history of on-time repayment.
Lenders preapprove you by looking at your income, assets, debts, and credit record. But your financial life is much more complicated than that. Only you can decide how much you're comfortable paying upfront and each month — which means only you can decide how much to spend on a home.
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.
Once you have a few offers, you can try to negotiate with lenders to get a better deal. You can use the loan estimates as leverage and ask them to match or beat the lowest APR or closing costs. You can also ask them to waive or reduce certain fees, such as the origination fee, the appraisal fee, or the application fee.
Prequalification tends to refer to less rigorous assessments, while a preapproval can require you to share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
When remortgaging could be an option. You could also switch to another mortgage lender and increase how much you borrow. But this is only suitable if you can save more than you'll have to pay out in application fees to the new lender and early repayment charges for leaving your existing lender.
You can have multiple pre-approvals at the same time, in fact it's often a smart move. There is technically no limit on the number of pre-approvals you can get which makes shopping around with different lenders a no-brainer.
How many mortgage preapprovals should I get? While it's a good idea to rate-shop with at least three lenders, you only need one preapproval letter to make an offer on a home.
A mortgage that gets denied is one of the most common reasons a real estate deal falls through. When a buyer's mortgage is denied after pre-approval, it's in most cases the fault of the buyer or the lender that pre-approved them. Many of the reasons a mortgage is denied after pre-approval are actually fairly common.
Different lenders may approve you for different amounts, give you different interest rates, or charge different fees. It's in your best interest to do your homework. Research the best lenders in your area, get pre-approved by a handful of them, and compare the rates they give 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'.
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.
It is possible to borrow extra on your mortgage to pay for home repairs or upgrades and other purposes. However, you may pay more in interest over the life of the mortgage than you would with other financing options.
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