How to Increase Your Mortgage Pre-Approval Amount
Getting pre-approved is the first step to homeownership. A pre-approval letter demonstrates that you qualify for a home loan and the total loan amount a lender might be willing to offer.
A mortgage pre-approval doesn’t guarantee you’ll receive the same amount during final approval. However, it can help your offer look more appealing to sellers, showing them that you’re a serious buyer who can afford to purchase their home.
Learning how to increase your mortgage pre-approval amount can give you more purchasing and negotiating power when hunting for a house. Keep reading to learn more about mortgage pre-approvals and how to increase your amount to help your offer get accepted.
- A mortgage pre-approval can help you learn how much you might be eligible to borrow when you apply for final loan approval.
- Mortgage pre-approval letters give you more purchasing and negotiating power by making you look like a more serious and qualified buyer to sellers.
- Increasing your credit score, making a larger down payment, reducing debt, getting a cosigner or co-borrower, and applying for a longer term can help you increase your pre-approval amount.
What Is a Mortgage Pre-Approval?
A mortgage pre-approval is an initial evaluation of your financial situation and can help you learn how to get approved for a home loan. Lenders conduct mortgage pre-approvals to help you understand the maximum loan amount you may be eligible for based on your financial information.
Obtaining a mortgage pre-approval letter is an important step in the home-buying process because it helps you understand your budget. Paired with a proof of funds letter, it can give you even more purchasing power by showing sellers you’re a serious and qualified buyer.
It’s important to note that the mortgage pre-approval amount and your final approval amount may differ since the final approval amount depends on financial factors and market conditions at the time you apply.
What Determines Your Pre-Approval Amount?
Your mortgage pre-approval amount depends on several financial factors at the time you apply, including:
- Employment history
- Credit history and score
- Debt information
Documents you need for mortgage pre-approval typically include pay stubs, tax returns, bank statements, and W-2s, but your lender may request other documentation to help them get a complete view of your finances.
After reviewing this information, the lender either approves or denies your application. If you’re approved, you’ll receive a pre-approval letter stating the maximum loan amount you qualify for, which can then be used to help you shop within your budget when house hunting.
Every borrower is different. For instance, some individuals can get a loan without a job while others can’t, based on other financial factors. Your lender can help you understand how they determined your eligible loan amount and how the different factors influenced them.
The pre-approval letter is typically valid for only 60 to 90 days and can be used as a negotiating tool when making an offer on a home.
Ways to Increase Your Mortgage Pre-Approval Amount
Even though your pre-approval amount doesn’t guarantee you’ll still be eligible for that amount when you complete your final loan application, increasing your pre-approval amount can help your offer get accepted and potentially increase the amount you qualify for later on.
After getting your pre-approval letter, you might wonder, “How can I increase my mortgage pre-approval?”
Here are a few ways to increase your mortgage pre-approval amount and make your offer more appealing to sellers:
Improve Your Credit Score
Borrowers with higher credit scores get lower interest rates because they’ve demonstrated their ability to pay their debts on time, so lenders don’t have to worry about as much risk as borrowers with low credit scores.
Since the interest rate can affect your pre-approval amount, your main goal should be to increase your credit score to get the best rate possible. 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.
Increase Your Down Payment
The more you put down on a home, the less you have to borrow and the more you’ll qualify for. Therefore, if you need a home loan worth a certain amount, you may need to make a higher down payment.
While some loans, such as USDA and VA loans, allow you to purchase a home with zero money down, it’s usually best to put down as much as possible because it means borrowing less or being able to take out a larger loan. So, if you can, try to put together a good amount of money for a down payment. This may mean taking some time to save up for your down payment or getting gift funds from your parents or a close friend or family member. Note that if you do receive gift funds, you may have to submit a gift letter or letter of explanation to your lender.
Reduce Your Debt-To-Income Ratio
Lenders like to see borrowers with a DTI of 43% or below because it demonstrates less of your gross monthly income goes toward paying debt obligations. Paying off loans, credit cards, and other forms of debt can immediately lower your DTI ratio and make you look more appealing to lenders, allowing them to extend larger loan amounts.
Consider a Joint Application
If your mortgage pre-approval amount comes back lower than you thought it would, applying for a mortgage pre-approval with another borrower could help. If you have a spouse, partner, trusted friend, or family member who is willing to apply for the mortgage with you, their income and credit score will be considered along with yours, allowing you to get a larger loan amount.
Of course, this can also have the opposite effect if your cosigner or co-borrower has a low credit score.
Apply for a Longer Loan Term
The longer your loan term, the lower your monthly mortgage payments. With lower monthly payments, you can afford to pay more by spreading out the payments, which increases the mortgage pre-approval amount.
While many borrowers opt for 15 to 30-year loan terms, you can make your monthly payment even smaller by choosing a 40-year mortgage. Although you’ll build equity more slowly with a 40-year mortgage, this type of loan can help make homeownership more affordable.
Shop Around for Lenders
It’s recommended to apply for mortgage pre-approval with at least three lenders to compare their terms and find the one with the best rates and highest pre-approval amount. You should apply with those lenders within the same 45-day period to prevent multiple hard credit inquiries from affecting your credit score too much.
You may see a temporary dip in your credit score after applying for pre-approval, but regular on-time bill payments should bring your score back up over time.
See if You Qualify for Other Loans
A traditional mortgage is the most common way to finance a home, but other types of loan programs can help you buy a house and potentially qualify for a higher pre-approval amount. Some other loan options include:
- FHA loans: FHA loans allow you to qualify for a home loan with a down payment as low as 3.5% and have more flexible credit requirements.
- VA loans: VA loans allow eligible active duty service members, veterans, and surviving spouses to qualify for 100% financing with flexible credit requirements.
- Home equity loans: If you already own a home, a home equity loan (HELOAN) can help you tap into your existing equity and use it for other investments like purchasing another property.
Apply for a Mortgage Pre-Approval with Griffin Funding
Getting mortgage pre-approval can increase your negotiating power when shopping for your dream home. It will also help you remain on budget and set expectations early on by knowing what you can afford.
While learning how to increase your mortgage pre-approval amount can help you potentially qualify for a larger loan, there are many factors that can affect final approval and your final loan amount. Find out how much you might be eligible to borrow by applying for mortgage pre-approval with Griffin Funding.
Frequently Asked Questions
How does a pre-approval affect my credit score?
How long does a mortgage pre-approval last?
What documents do I need for a mortgage pre-approval?
- Social security card
- Pay stubs
- Bank statements
- Tax returns
- Investment and retirement account statements
- Gift letters
Can the pre-approval amount change after it has been issued?
Then, when you apply for final mortgage approval, your final amount may be different from your pre-approved amount because of this rate change. In addition, your final loan amount can change based on your personal financial circumstances, like a decrease in income or an increase in debts.
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