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How To Increase Your Mortgage Preapproval Amount: A Guide To Getting The Most Home You Can Afford

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Published on December 12, 2023
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The right home can get expensive quickly. But what if the houses that fit your needs cost more than your mortgage preapproval amount? If it makes sense for your finances, it may be possible to boost your preapproved amount.

Let’s explore how to increase a mortgage preapproval amount if you aren’t happy with your original offer.

How Much Can You Get Preapproved For?

A mortgage preapproval essentially allows you to get a jump-start on the mortgage application process before you find a home you want to buy. Preapproval requires a close look at your income, assets and credit.

When you receive a preapproval letter, it indicates the dollar amount a lender is willing to lend you. The amount reflects what the lender thinks you can repay based on your income, credit and assets.

But what if you need to increase your mortgage preapproval amount? You may need the boost to buy a home in a high-cost area or if the housing market is competitive.

Is It Possible To Increase Your Mortgage Preapproval Amount?

While you may be able to increase your mortgage preapproval amount, it’s a good idea to spend no more than 30% of your monthly gross income on your housing expenses. The percentage should include your mortgage and other costs of homeownership, such as your utilities or any applicable homeowners association (HOA) fees.

Look at your budget closely to help decide what size mortgage payment you’re comfortable with. If you can comfortably afford a larger mortgage than a lender preapproved you for, you’ll need to prove you can handle a larger loan before requesting a higher amount.

In that case, there are several options to help boost your preapproved amount.

Ways To Increase Your Mortgage Preapproval Amount

An increase in your mortgage preapproval amount may help you afford the home of your dreams. If your dream is within your means, consider these strategies to help you increase your preapproved amount:

Increase Your Down Payment

If you make a 20% down payment, you can considerably increase your preapproved amount because a down payment of 20% or more will eliminate the need for mortgage insurance.

Without mortgage insurance holding you back, you can allocate more of your income directly toward the loan’s principal and interest. Ultimately, a 20% down payment may give you the increase you’ve been looking for.

Pay Off Debt

When you apply for a mortgage, the lender looks at your debt-to-income ratio (DTI). Your DTI ratio equals your total recurring monthly debts divided by your gross monthly income.

Mortgage lenders generally require a debt-to-income ratio of less than 50%. Although you can qualify with a higher or lower DTI, lenders prefer a lower ratio.

If you have other outstanding debts, like credit card balances, consider paying those down before applying for preapproval. If you free up some of your monthly income by paying down debt, you’ll be in a better financial position to take on a larger mortgage payment.

Raise Your Credit Score

Credit scores are incredibly important to home buyers.

A higher credit score can directly translate into a large preapproval amount because a higher credit score can potentially unlock a lower interest rate. With a lower interest rate, more of your income can go directly toward the mortgage loan principal.

Improving your credit score may take some time, so it’s best to make boosting your score a priority before you apply for a loan. Your credit issues may not be a result of late or missing payments. Check your credit report for any inconsistencies or signs of fraud and report them to the appropriate agency.

Add A Co-Borrower Or Co-Signer

If you add a co-borrower from your household, that will likely increase the total household income. With more income, you may unlock a larger loan amount. Adding a co-signer with better credit can help improve the credit score on the mortgage application.

Consider Additional Sources of Income

If you don’t have a co-borrower, there are other ways to boost your income on your preapproval application. Look over the paperwork you first provided the lender. If you’re like most borrowers, you likely submitted your W-2 and left it at that. But you may have other sources of income a lender can consider.

A few additional sources of income to add to your application can include:

These revenue streams are legitimate sources of income. If you forgot to include any of these on your original application, don’t hesitate to add them.

Choose A Longer Loan Term

A longer loan term allows you to spread out your mortgage payments, which can lead to a larger preapproval amount.

For example, a 30-year loan usually results in a higher loan amount than a shorter loan term, such as a 15-year loan. With a 30-year home loan, monthly mortgage payments are lower because the repayment period is longer.

If you’re comfortable paying off a longer-term loan, this may be a good option. A potential downside is that longer-term loans have higher interest rates. But you may be able to make extra payments to pay the loan off early.

Use A Different Loan Type

Depending on where you live and where you plan to buy, you may qualify for a higher preapproval amount with a government-backed loan, like a Federal Housing Administration (FHA) loan. You may also qualify for a higher preapproval amount with an adjustable-rate mortgage (ARM).

Get Additional Quotes

Every lender has slightly different underwriting standards. Shop around and get quotes from multiple lenders to find the one willing to give you the highest preapproval amount.

See What You Qualify For

You can get a real, customizable mortgage solution based on your unique financial situation.

Get Started

Avoid The ‘House Poor’ Trap After Getting Preapproved

Becominghouse poor” is a common challenge many home buyers face. You’re “house poor” when your budget is stretched too thin by an oversized monthly mortgage payment.

To keep your new home from taking over your budget, try sticking to the 28% rule. This rule recommends spending no more than 28% of your gross income on your mortgage payment.

For example, let’s say you make $5,000 a month in gross income. If you were following the 28% rule, you would spend $1,400 on your mortgage each month.

It’s critical to avoid overburdening yourself with a mortgage payment that reduces your ability to save or invest for other important financial goals. Take the time to evaluate your budget to ensure you’re not buying a house you can’t afford.

The Bottom Line

You can increase your mortgage preapproval amount. Before trying out any strategies that can increase your preapproval amount, such as paying off debt or recruiting a co-borrower, make sure you can afford the payments by closely evaluating your budget. If you’re looking for a competitive mortgage offer, start the mortgage process today and see what kind of loan you qualify for.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting, and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.