How to Increase Your Mortgage Preapproval Amount

Starting a home search with a mortgage preapproval in hand gives you more negotiating power and also gives you a realistic idea of how much you can afford.

If your preapproval amount is lower than you hoped for, you may be asking yourself, “How can I increase my mortgage preapproval?” This guide can help you with some practical strategies about how to get a higher preapproval amount without getting a second and third job!

What Is a Mortgage Preapproval?

When you talk to a lender before you go house hunting, they will estimate your mortgage preapproval amount based on:

• Your income.
• Your credit score and credit history.
• Your debt-to-income ratio.
• Your employment status.
• Your savings and down payment amount.

A mortgage preapproval is not a guarantee of a loan, but it is a strong indication of how much house you can afford. Your lender will give you a preapproval letter saying how much they’re willing to lend you. The letter is usually valid for 60 to 90 days.

Save for a Larger Down Payment

Home buyers typically save for a larger down payment to decrease the amount that they have to borrow. However, it can also increase your preapproval amount. Here is the underlying logic:

• If you have a larger down payment, the amount you ask your lender for will be less, all other things being equal.
• This has the effect of signaling your financial stability and reducing the lender’s risk, both of which make them more likely to preapprove you for a larger amount.
• Further, if you have a larger down payment, your debt-to-income ratio will be smaller. Lenders use this ratio to determine how much additional debt you can afford; they can use a lower debt-to-income ratio to justify increasing your preapproval amount.

As to the dollar amount of the down payment, aim for at least 20% of the purchase price to avoid having to pay private mortgage insurance (PMI)

Improve Your Credit Score

Lenders use your credit score to determine the amount of your mortgage preapproval. Boosting your credit score, therefore, gives you a better chance of getting a higher mortgage loan preapproval.

A higher credit score gives lenders more confidence in your financial stability, and it can also lower the mortgage rate they eventually offer you.

To improve your credit score:

• Monitor your score and dispute any errors on your credit report.
• Always pay your bills on time.
• Don’t run up your credit cards; remember that your credit limit is not a target!
• Avoid opening any new accounts until your mortgage has been approved.
• Be vigilant about identity theft, as this can severely damage your credit rating.

Increase Your Income

This one is a no-brainer, but improving your preapproval amount can give you the push you need to ask for a raise or start a side hustle. It could turn into something exciting for you, so use your preapproval goals as motivation!

Pay Down Existing Debt

Keep that debt-to-income ratio front-and-center. DTI is a key metric for lenders, so when you’re wondering how to increase your mortgage preapproval amount, pay off your credit cards and loans. Also, avoid taking out any new loans during the application process.

Add a Co-Borrower

You can increase your mortgage preapproval amount by adding a co-borrower such as a parent, sibling, or close friend. That allows you to benefit indirectly from their good credit and their income. Your co-borrower will be responsible for the mortgage loan along with you, so make sure they understand that before entering into the agreement.

Another option is buying a house with a friend or relative, a trend that’s becoming increasingly popular. Together, you’ll qualify for a larger mortgage preapproval than you would on your own.

Apply for a Longer Term

Weigh the costs and benefits of a 30-year mortgage rather than a shorter term. Although you’ll pay more interest over the life of the loan, your monthly payments will be lower. That means your DTI will be lower, and we know how important that is to lenders when they’re making mortgage preapproval decisions.

Consider Government Mortgage Loan Programs

Check to see if you qualify for one of the federal programs that allow smaller down payments and have lower credit rating requirements.

The main programs that can help you qualify for a larger mortgage preapproval amount are:

• FHA loans, which you can get with as little as 3.5% down.
• VA loans, which allow 0% down for eligible veterans, service members, and surviving spouses.
• USDA loans, which also allow you to get a mortgage with 0% down in qualifying rural areas.

Taking Out a Loan to Pay Off Debt

High-interest debt like credit card balances can damage your DTI. To increase your mortgage preapproval amount, you can consider a consolidation loan to pay off your credit cards. This strategy should be used with caution, so here are some guidelines:

• Steer the funds directly to your credit cards. You’ll suddenly have money in your bank account, but don’t get distracted from your goal!
• Don’t do this unless it lowers your DTI.
• Leave at least a few months between taking out your consolidation loan and applying for your preapproval.

How Can I Increase My Mortgage Preapproval?

When you’re hoping for a higher mortgage preapproval amount, focus on:

• Saving more
• Lowering your debt (especially debt that has a high interest rate or large monthly payments),
• Increasing your income or adding a co-borrower’s income to your application
• Strengthening your credit rating by:
  • Paying all your bills on time.
  • Using less than 30% of your available credit on each card and keeping your balances low.
  • Keeping older credit card accounts open even if you don’t use them.
  • Disputing any errors on your credit report.
  • Checking your credit report regularly.

With careful planning, good timing, and a little patience, you can qualify for the mortgage preapproval amount you’re hoping for. Consulting with a financial planner or experienced real estate agent can help you stay on track.