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How to Increase Your Mortgage Pre-Approval Amount

Last updated 05/26/2022 by

Jamela Adam

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Summary:
There are several ways you can increase your mortgage pre-approval amount. You can improve your credit score, pay off existing debts, or increase your current income. These methods can work, but there is no guarantee a lender will increase the mortgage pre-approval amount they offer.
Mortgage pre-approval is an important part of the home-buying process. By getting pre-approved, you know how much money you have to work with and can narrow down your search to properties that are within your budget. But what if buying your ideal home requires a high pre-approval amount and you’re worried that you won’t qualify?
Luckily, there are a few things you can do to increase your chances of getting a higher amount. For example, you can improve your credit score, pay a larger down payment, and compare loan offers from different lenders. In this article, we’ll explore the pre-approval process and the different ways that you can increase your mortgage pre-approval amount to finance your dream home.

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What is a mortgage pre-approval?

A mortgage pre-approval is a statement from a lender outlining the home mortgage amount you’re eligible to borrow. This is essential when you’re house hunting because you’ll know in advance what your budget is.
To receive a mortgage pre-approval, you’ll need to provide the lender with some financial information, including your income, debts, and assets. The mortgage lender will then pull your credit history to get a better idea of your financial health. Once everything has been reviewed, the lender will then give you a pre-approval letter.
It’s important to note that a mortgage pre-approval doesn’t necessarily mean that you’re 100% certain to receive the loan. It’s simply a promise, not a guarantee. When you’re ready to close on a home, the lender will do a final check on your finances to make sure your ability to repay the mortgage hasn’t changed.

Pro Tip

Failing to make payments on your mortgage loans can have serious consequences. Not only will you damage your credit score, but you could also lose your home. Before taking out a mortgage, use an affordability calculator to see how much house you can afford without overextending yourself.

7 ways to increase mortgage pre-approval amount

If your dream home is just slightly outside of your current budget, increasing your mortgage pre-approval amount might provide a way forward. Here are some tips to help you get approved for a higher mortgage loan.

1. Work on your credit score

Lenders use your credit score as a key indicator of your financial health and ability to make your mortgage payments. The higher the score, the lower the interest rates you’ll potentially receive. To boost your credit score, there are a few steps you can take:
  • Pay your bills on time. Falling behind on your bills can have a detrimental effect on your credit history, and even leave a stain on your report that’ll take years to come off. To grow your creditworthiness, the best thing you can do is pay bills on time each month. Also, make sure to set up automatic bill payments so that you’ll never unintentionally miss one.
  • Dispute credit report errors. Mistakes on credit reports happen more often than we think. According to a Consumer Reports investigation, 30% of volunteers who participated in the study found mistakes in their credit reports. If you see an error in your credit report that might be lowering your credit score, be sure to dispute it by contacting the credit bureau that generated the report.
  • Keep credit utilization under 30%. Most experts recommend keeping your credit utilization under 30% to maintain and build a good credit score. This is because a low credit utilization ratio indicates that you’re managing your credit responsibilities wisely.

Pro Tip

You can request a free copy of your credit report from the three credit reporting agencies — Experian, Equifax, and TransUnion — every month by visiting www.annualcreditreport.com.

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2. Make a down payment of at least 20%

Typically, if you contribute a larger down payment, you’ll receive a higher pre-approval amount. This is because a large down payment decreases your loan-to-value ratio (LTV), which compares the amount of your mortgage to the value of your potential home.
If you’re able to shell out at least 20% of the total home purchase price, you’ll also avoid paying private mortgage insurance (PMI). Without PMI adding to your monthly mortgage payment, the lender may approve you for an even higher loan amount.

3. Pay off outstanding debt

Your debt-to-income (DTI) ratio is another factor that lenders take into account when considering how much they’re willing to lend you. To make yourself a more attractive loan candidate and potentially increase the size of your pre-approval, work on paying down your debts until they’re under 43% of your gross monthly income.
Every payment you make reduces the amount of interest you’ll owe going forward. As your outstanding balances shrink, your credit score will likely improve as well.

Pro Tip

If you have a lot of outstanding high-interest debts, consider rolling them into one single payment with debt consolidation. This will reduce the cost of your interest and make debt repayment more manageable.

4. Opt for a longer mortgage term

If you’re hoping to increase the amount you’re pre-approved for, one option is to choose a longer mortgage term. Doing so could lower your monthly payments and stretch them over a longer repayment horizon. And lenders might be more willing to lend you a higher amount since the loan is set for a longer time frame.
Of course, it’s important to keep in mind if you choose a longer-term mortgage, you’ll ultimately end up paying more interest over the life of the loan.

5. Add other sources of income

Another effective way to increase your mortgage pre-approval amount is to show financial stability by adding other sources of income. Apart from your W-2 income, lenders also consider other types of earnings when looking at your application, such as rental income, disability or VA benefits, child support, or alimony.
By providing documentation of this additional income, you demonstrate that you have a consistent and reliable source of funds that can be used for mortgage repayment. This might lead the lender to increase your pre-approval amount, giving you more purchasing power when it’s time to house hunt.

6. Compare loan offers from different lenders

When you’re shopping for a home loan, it’s important to compare loan offers from different mortgage lenders. By doing so, you can make sure that you’re getting the best deal possible. Pre-approval amounts can vary quite a bit from one mortgage lender to another, so it pays to shop around.
To get the most accurate comparison, be sure to provide each lender with the same information. Once you’ve compared offers, you can choose the lender that offers the best terms and highest pre-approval amount.

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7. Consider a co-borrower

Another often overlooked way to increase the amount of your mortgage pre-approval is to consider a co-borrower. This can be a spouse or family member who will share in the responsibility of making monthly mortgage payments.
Having a co-borrower with good credit increases your household income and makes your overall application look better. This can help improve your chances of getting approved for a larger loan amount.

Pro Tip

When considering a co-borrower, make sure to have an honest discussion about your financial goals and objectives. This way, everyone can be on the same page and there won’t be as many surprises down the road.

FAQs

What determines the pre-approval amount?

Your pre-approval amount is determined by a number of factors, including your credit score, employment history, and income. Your credit score is a major factor in determining the pre-approval amount because it indicates to lenders how likely you are to repay the loan.
Employment history is another important factor because it provides lenders with information about your financial stability. Lastly, and obviously, your income matters as well. The more you earn each month, the more likely you are to afford your monthly loan payments.

Can your mortgage be denied after pre-approval?

Yes, there is still a chance that your mortgage could be denied. A pre-approval is simply a promise from the lender and not a guarantee. There are several factors that can cause a mortgage to be denied after pre-approval, for example:
  • The lenders have decided to tighten their lending conditions
  • Your credit score has lowered
  • You switched jobs
  • Your overall financial situation has changed
  • The property was appraised for less than its sales price
  • Your pre-approval was not accurate in the first place
  • The lender finds information that was not previously disclosed in the application

What not to do when getting pre-approved for a mortgage

There are a few things you should avoid doing when you’re getting pre-approved for a mortgage. First, do not apply for new credit cards or loans, as this can increase your debt-to-income ratio and make it difficult to get pre-approved for your ideal loan amount.
Second, do not change jobs. Lenders like to see stability in employment. Changing jobs right before you apply for a mortgage may make them hesitant to approve your loan.
Third, don’t miss payments on your existing debts. Lenders will pull your credit report when considering you for a loan, and missed payments can damage your creditworthiness.
Finally, don’t move large sums of money around in your accounts. Mortgage companies will need to verify your assets, and moving money around could make it more difficult for them to track down the information they need.

What’s the difference between prequalified and pre-approved?

Many use the terms “prequalification” and “pre-approval” interchangeably when it comes to applying for mortgages. However, there’s an important distinction between the two.
Mortgage prequalification is a quick estimate of how much you can afford to borrow based on an informal valuation of your finances. Mortgage pre-approval, on the other hand, is a more thorough estimate of how much you’ll be able to afford. This process requires you to provide proof of your income sources and financial history.
In a nutshell, a pre-approval from a lender holds more weight than a prequalification because it requires a formal application and includes a verification process.

Key Takeaways

  • Mortgage pre-approval gives you a clearer idea of how much you can borrow to purchase a property.
  • The pre-approval process involves providing your lender with financial information, such as your income, debts, and assets.
  • There are several ways to increase your mortgage pre-approval amount. You could improve your credit score, make a higher down payment, pay off debt, or opt for longer mortgage terms. You can also try increasing income sources, comparing different loan offers, and adding a co-borrower.
  • A mortgage pre-approval does not always translate into a mortgage. If your finances change or the property appraises for less than the sales value, lenders can break their promise to lend you the pre-approval amount.
  • Being prequalified for a home loan is not the same as being pre-approved. Prequalification is a relatively informal process, whereas pre-approval involves a much more thorough review of your financial history.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids. Learn more

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