How to Increase Pre-Approval Amount
7 Steps to Increase your Mortgage Pre-Approval amount
Yes, you can increase your pre-approved amount for a mortgage. If you have recently been pre-approved for a mortgage, but have the desire to increase the amount of your pre-approval, then you will need to follow these 7 steps.
In most cases, applicants pre-approved loan amount is determined by the amount of gross monthly income versus the amount of monthly debt payments you have. In this article, we will discuss each of the 7 steps in detail to give you a simple step by step plan to increase your preapproved amount.
Once you complete these 6 steps, you can provide the updated documents verifying these changes to the lender in request to increase your pre-approved amount and send you an updated pre-approval letter.
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Summary of Steps to Increase your Pre-Approved Amount:
- Pay down installment loans to under 10 payments remaining.
- Refinance high interest rate auto loans to a lower rate and longer term.
- Increase your income.
- Add a cosigner or co-borrower.
- Increase your down-payment.
- Obtain a lower interest rate on your mortgage.
- Pay off other debts like credit cards and personal loans.
1. Pay down installment loans to under 10 monthly payments remaining to lower your debt-to-income.
All loan programs like, FHA, VA, USDA and conventional will only count existing installment loans that have over 10 monthly payments remaining into your debt-to-income ratio. Therefore, to lower your debt to income ratio, you can pay down each installment loan to under 10 payments and that debt will be excluded from the debts used to calculate your debt-to-income ratios.
As an example, lets assume you have an auto loan that has a total of 16 monthly payments remaining until the loan is paid off. In this example you can pay the sum of 6 monthly payments in advance to the creditor of the auto loan. The result will be that you only owe 10 payments on your auto loan, and therefore, it will not be counted in your debts.
2. Refinance higher interest rate auto and personal loans to lower monthly payments.
If practical, refinancing higher interest rate auto and personal loans can be a viable option to lower your monthly payments and increase your preapproved amount to purchase a home. Refinancing involves obtaining a new loan with better terms to replace your existing loan(s). Here are some key points to consider:
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Lower interest rates: By refinancing, you can potentially secure a loan with a lower interest rate than what you currently have. This can result in significant savings over the life of the loan.
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Extended loan term: Refinancing allows you to extend the repayment term of your loan. While this may lower your monthly payments, keep in mind that it could increase the total interest paid over the life of the loan.
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Improved credit score: If your credit score has improved since you took out your original loans, you may qualify for a lower interest rate through refinancing. Regularly monitoring and working on improving your credit score can help in this regard.
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Consolidation of loans: Refinancing gives you the opportunity to consolidate multiple loans into a single loan. This can simplify your finances by combining multiple monthly payments into one, potentially with a lower interest rate.
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Fees and costs: Refinancing may involve certain fees, such as application fees, origination fees, and prepayment penalties. Consider these costs when determining if refinancing is the right option for you.
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Compare offers: Before refinancing, it's crucial to shop around and compare loan offers from different lenders. Look for the best interest rates, loan terms, and overall cost structure that align with your financial goals.
WARNING: If you are currently pre-approved for a mortgage and are exploring ways to increase your eligible loan amount we recommend that you discuss these approaches with your loan originator prior to executing each step. While each step is a valid and proven approach to increase your eligible loan amount, hard credit inquires can lower your credit score.
Remember, refinancing should be a carefully considered decision. It's essential to assess your financial situation, evaluate the potential savings, and determine if the benefits outweigh any associated costs. Consulting with a financial advisor can also provide personalized guidance based on your specific circumstances.
3. Increase your Gross Monthly Income.
Many homebuyers or homeowners will use this opportunity to purchase a home or refinance as a justified reason to approach their employer for a long overdue pay raise.
From our experience, more often then not, when an employer is approached by an employee who needs a raise to income qualify for a home, or a larger loan amount many employers will concede to the request and authorize a pay raise.
For documentation, the lender will request a verification of employment (V.O.E) from the employer. The employer will list out your gross annual income, gross year-to-date earnings and any recent raises that will be included into your income.
4. Add a cosigner or coborrower.
To increase your pre-approved eligible loan amount and sales price to purchase a home, you can add a coborrower to the loan application. Assuming the co-borrower does not have a lot of monthly debts, the additional income from the co-borrowers employment, or retirements will be included and can increase your loan amount to purchase a higher priced home.
NOTE: It is important to understand that the co-coborrowers credit score will also be included into the loan application. Current underwriting guidelines for all loan programs will use the middle credit score of the applicant with the lowest scores to determine eligibility and interest rate offers, Therefore, applicants should verify this information before including the prospective co-coborrower on the loan application.
No credit pulls, spam calls or emails. Just stupid low rates.
Get Pre-Approved or Try the Mortgage Calculator.
5. Increase your down payment.
You should only consider increasing your down payment beyond the down payment requirements for the loan program you qualified for, when you have no additional debt obligations that could be paid off for both installment and revolving or paid down under 10 monthly payments (installment accounts only).
If you have no additional debts you can pay off or under 10 payments, then you can increase your pre-approved amount, by increasing your down payment. The net affect will be for each additional dollar you increase your down payment, you will increase your eligible purchase price of the home.
6. Obtain a lower interest rate on your pre-approved mortgage.
Most homebuyers and homeowners will typically stay with the mortgage lender that issues the pre-approval. Therefore, there is a high probability that applicants can shop and compare real loan offers and mortgage pre-approvals to find a lower interest rate mortgage lender.
A 1% lower interest rate is equal to approximately 10% more purchasing power!
To avoid hurting their credit scores, applicants should verify that each lender will use a soft pull credit pre-approval that does not affect the credit score.
Use an online instant mortgage marketplace that offers pre-qualifications and mortgage pre-approvals for several national mortgage lenders with one simple application.
7. Pay off other debts like credit cards and personal loans to lower debt-to-income.
If you have the access money, aside of the down payment funds needed to purchase a home, you can pay off debts and they will be excluded from your debt-to-income calculations.
When applicants agree to payoff debts at or before closing, the mortgage lender can issue a conditional mortgage pre-approval subject to the requirements of paying off these debts at or prior to loan closing.
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Summary of Increasing Pre-Approved Amount
When purchasing or refinancing a home, it is important to minimize your monthly debt load and increase your monthly income as much as possible. This not only satisfies the underwriting requirements but also provides safeguards for you to insure affordability. To increase your preapproved amount, you have the ability to pay installment debts down to under 10 remaining payments, refinance high interest rate credit lines, and consider adding a co-coborrower and asking for a raise.
For over 22 years, I have used these strategies to increase the pre-approved amount for our applicants. If you have questions or need assistance I welcome you to call me anytime.
