Mortgage Preapproval Amount: In today’s uncertain economic climate, many prospective homeowners are looking for resources to help higher their chances of success when applying for a mortgage loan. This article provides an in-depth guide on how to increase your mortgage preapproval amount, including tips on budgeting and managing debt, so you can get closer to realizing your dreams of homeownership.
What is a Mortgage Preapproval?
A mortgage preapproval is a written commitment from a lender that says how much of a loan you can qualify for, up to a certain dollar amount and interest rate. This can give you a significant leg up when you’re ready to start shopping for a home, since you’ll have a good idea of your price range before you even begin looking.
Preapprovals are based on an individual’s financial history, including credit score, debt-to-income ratio, employment history, and other factors. The lender will also look at the property itself to make sure it meets their guidelines.
Improving Credit Score and History
If you’re looking to increase the amount you’re pre-approved for on a mortgage, there are a few things you can do. By taking some strategic steps, you can improve your credit score and history, which will in turn give you a higher pre-approval amount. Here’s a step-by-step guide on how to do it:
Check your credit report and score. The first step is to know where you stand. Get a copy of your credit report from all three major credit bureaus (Experian, TransUnion, and Equifax) and review them for any inaccuracies. If there are any errors, dispute them immediately. Your credit score is also important – aim for a score of at least 680, which is considered good.
Pay down your debt. One factor that goes into your credit score is your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes towards paying off debts. To lower your DTI, focus on paying down your existing debts, including any high interest rate debt such as credit cards.
Build up your savings. A large down payment shows lenders that you’re a responsible borrower who is less likely to default on the loan. Try to save up at least 20% of the purchase price of the home so that you can avoid private mortgage insurance (PMI).
Increasing Savings
If you’re like most people, you probably want to increase your mortgage preapproval amount. After all, a higher mortgage preapproval amount means you can buy a more expensive home, right?
Unfortunately, it’s not that simple. Your mortgage preapproval amount is based on your income, debts, and credit score. So, if you want to increase your mortgage preapproval amount, you’ll need to take some steps to improve these factors.
Lowering Debt-To-Income Ratio
Debt-to-income ratio (DTI) is a key factor that lenders consider when evaluating a loan application. It’s a ratio of your monthly debt payments to your monthly income. A higher DTI ratio indicates more debt and less income available to pay for housing, which can make it more difficult to qualify for a loan or get the best mortgage rates.
There are a few ways to lower your DTI ratio:
Pay down high-interest debt: This will help lower your monthly debt payments and free up more income to put towards your mortgage.
Increase your income: If you can find ways to bring in more money each month, you’ll have more wiggle room in your budget to cover your debts. This could mean getting a better job, working overtime, or finding other sources of income like renting out a room in your house.
Refinance into a longer loan term: If you have a high DTI because of large monthly payments on a short-term loan, you may be able to refinance into a longer loan with smaller payments. This will give you some breathing room in your budget each month and help lower your DTI over time.
Make a larger down payment: A larger down payment means you’ll need to borrow less money and have smaller monthly payments. This will help reduce your DTI right away and make it easier to qualify for a loan with competitive interest rates.
Benefits of Increasing Your Mortgage Preapproval Amount
If you’re looking to buy a home, one of the first steps you’ll need to take is to get preapproved for a mortgage. Mortgage preapproval is an essential part of the homebuying process, as it tells you how much money you’ll be able to borrow from a lender.
If you’re not sure how much money you should be preapproved for, or if you’re looking to increase your mortgage preapproval amount, there are a few things you can do. In this article, we’ll give you a step-by-step guide on how to increase your mortgage preapproval amount.
Get Your Credit Score in Shape
One of the best ways to increase your chances of getting a higher mortgage preapproval amount is to make sure your credit score is in good shape. Lenders will use your credit score to help determine how much money they’re willing to lend you, so it’s important to have a good credit score before applying for preapproval. You can check your credit score for free with sites like Credit Karma or Annual Credit Report.
If your credit score isn’t where you’d like it to be, there are some things you can do to improve it. You can start by paying all of your bills on time and making sure there’s no inaccurate information on your credit report. You can also try to reduce your overall debt load by paying down high interest debts such as credit cards.
Strategies to Deal with Denied Loans or Low Approval Limits
If you’re denied for a mortgage loan or have a low approval limit, there are strategies you can use to improve your chances of getting approved or increasing your approval amount.
Check your credit score and report for errors. Sometimes a low credit score is the reason for being denied a loan or having a low approval limit. If this is the case, you can work on improving your credit score by paying down debt and making timely payments in the future. You should also check your credit report for errors that could be bringing down your score.
Save up a larger down payment. A bigger down payment will show lenders that you’re serious about buying a home and can afford to make monthly payments. This could increase your chances of getting approved or increase your approval amount.
Get prequalified with multiple lenders. Each lender has their own criteria for approving loans and they may view your application differently than others. By getting prequalified with multiple lenders, you can compare offers and choose the one that gives you the best chance of getting approved or offers the highest loan amount.
Find a cosigner if you can’t qualify on your own. If you have a family member or friend who is willing to cosign on your loan, this could improve your chances of getting approved or increase your loan amount since their income and credit will also be considered when applying for the loan.
Conclusion
Increasing your mortgage preapproval amount is a great way to ensure you’re in the best position when hunting for a house. By following our step-by-step guide, you should be able to quickly take the necessary steps to get your preapproval amount higher and better match it with potential houses on the market. It’s important to do due diligence before trying any of these methods, though, as they can have negative consequences if used improperly or without caution. Being well informed is always key when taking such financial decisions!
Related: Getting A Mortgage Preapproval