A pre-approval is key before you start looking for a home. It lets you know how much you can afford to spend on a home by outlining how much you qualify for. Sometimes the amount a lender is willing to let you borrow is lower than you thought and even with your down payment, you won’t be able to buy that house you had your eye on. Devastating, right?
Luckily, here are five ways you can increase your pre-approval amount.
1. Lower Your Debts
An important thing that lenders consider when determining how much you qualify for is your debt-to-income ratio. This measures your outstanding debts to your monthly income. If you don’t have much free income left because a large portion of it is committed to paying off outstanding debts, you may not qualify for the mortgage amount you want.
Before applying for a mortgage, try paying off any debts you can, especially the ones with high-interest rates. This will help you qualify for more.
2. Increase Your Credit Score
If you’re thinking about applying for a mortgage within the next two years, it’s a great idea to start thinking about how you can improve your credit rating - especially if you currently have a poor/fair credit score.
The biggest thing you can do to help your credit score is to always make your payments on time. Lenders consider your credit score basically to see if you are reliable to pay back your loan.
3. Change Your Mortgage Terms
Mortgage terms can have an impact on your pre-approval amount. For example, variable rates are currently higher than fixed rates. Considering that, you’ll have to pay more in interest and therefor have less capital to pay toward your principal. The best way to find out which mortgage terms better serve you is to work closely with your mortgage specialist.
4. Make A Larger Down Payment
If you have more capital saved, consider putting it down on the home. A larger down payment means you need to borrow less from the lender, and they may be able to approve you for a higher purchase price.
Don’t forget about the First-Time Home Buyer Incentive! If you don’t have much money saved to go towards your down payment, this is a good way to increase the amount you can put down on the house.
5. Find A Co-Signer
Having a co-signer is sometimes a tricky topic. When someone co-signs on your loan, they are as financially responsible as you are for the payments. If you are lucky enough to have generous close friends or family with good credit to offer their name on your application, it could increase how much the lender is willing to lend you.
Getting pre-approved for a higher amount is possible; it just may take a little work and time. However, before requesting a higher amount, ensure you can afford the higher payment. The more you borrow, the higher your mortgage payment will be. Even if you’re approved for your max amount, it’s a good idea to complete an in depth budget sheet to ensure you can afford the expenses outside of your new home.
Think about how much you can afford and if your pre-approval doesn’t match that amount, figure out what you can fix to get the desired amount. It may take a little more time or effort, but in the end, you’ll be capable of buying your dream home.