How To Increase Your Mortgage Preapproval Amount
UPDATED: Jan 25, 2024
Home prices remain historically high in many areas of the country, but a few simple shifts in strategy and approach can help you gain access to additional funding for a house. One way to get additional funds is to increase your mortgage preapproval amount.
As a borrower, you’ll need to carefully consider your financial situation by imagining how mortgage lenders will view your credit score. Your credit score will have a huge impact on the interest rate, loan amount and monthly mortgage payment you ultimately land. If you get preapproved for a mortgage, you’ll have a better idea of how much home you can afford.
Once you’re preapproved, or you receive initial mortgage approval from your lender, it’s possible to adjust your preapproval amount. Let’s take a look at how to increase the mortgage amount you’re initially approved for when buying a house, along with how the preapproval process works.
10 Ways To Get A Higher Mortgage Preapproval
Here’s a quick overview of the steps you can take to get the highest possible mortgage preapproval amount. Later, we’ll closely examine the details of each step.
- Include All Sources Of Income
- Make A 20% Down Payment
- Increase Your Credit Score
- Pay Off Existing Debt
- Consider A Longer Loan Term
- Add A Co-Borrower/Co-Signer
- Save Up
- Compare Lenders And Loan Types
- Ask The Lender To Reconsider Your Preapproval Amount
- Pick A Good Time To Get Preapproval
How Mortgage Preapproval Works
When you’re buying a new home, a lender’s preapproval is paramount to a successful home purchase that starts with making an offer on a house and the seller accepting it. To preapprove you for a mortgage, the lender reviews your credit score, debts, assets and income. With this information, they’ll provide a home loan amount you should be able to pay back.
Securing a preapproval shows the seller and your real estate agent that you’re a serious buyer who’s likely to receive final approval for lender financing. Being preapproved also helps you set your home-buying budget because your preapproval letter will state what size of a mortgage you can expect.
Keep in mind, though, that preapproval requires a hard credit check that can temporarily reduce your credit score by a few points. Prequalification is another way to gain an idea of how much home you can afford, but it typically doesn’t require any documentation from the buyer. As a result, it isn’t as accurate as a preapproval and doesn’t carry as much weight with sellers.
What Is Verified Approval?
A Verified Approval Letter (VAL) from Rocket Mortgage® takes preapproval a step further. An underwriter manually reviews an applicant’s information and verifies that their finances are solid and they will qualify for a mortgage at the amount listed on the letter (assuming nothing changes between verified approval and closing). With the approval of a trusted brand such as Rocket, home buyers may stand out in a seller’s market.
Can You Increase Your Mortgage Preapproval Amount?
Yes, it’s entirely possible to increase your mortgage preapproval amount, or the sum a lender determines you’re eligible to borrow for a home mortgage loan. In some cases, it’s even advantageous to see if you can increase your initial mortgage approval amount. For example, maybe you’ve found a dream home with a higher asking price than you’ve originally qualified for, or maybe you’re house hunting in a particularly competitive area.
Likewise, you might consider increasing your initial mortgage approval amount if you want to expand the range of properties and destinations you’re exploring as part of the home purchase process.
How To Get Preapproved For A Larger Loan: 10 Helpful Tips
Loan terms and offers will vary from one lender to another, but you can take several steps to increase the mortgage amount a lender is willing to let you borrow. Please note that some of these tactics will take longer than others to impact your finances. Also, make sure you understand how long your preapproval letter will remain valid.
1. Include All Sources Of Income
To maximize the mortgage amount you’re approved for as a home buyer, it’s important to share all sources of income with your lender. The more money you earn, the more likely you are to be able to handle your monthly mortgage payments.
Your wages from full- or part-time employment don’t always tell the full story about your finances. Unless you actively point out all of your income streams to your mortgage lender, these streams may go under the radar. Examples of income you should be sure to mention include:
- Child support payments
- Alimony
- Passive income from a rental property
- Interest or dividends produced by your investments
- Funds earned from a part-time job, second gig or side hustle
2. Make A 20% Down Payment
Saving up to make a 20% down payment on a property can also help you secure a higher loan amount when preapproved. Putting 20% down shows your lender that you’re statistically more likely to be a reliable, low-risk borrower. Making a down payment of 20% or more also means you won’t need to pay private mortgage insurance (PMI) as part of your monthly payments on a conventional loan.
3. Increase Your Credit Score
A higher credit score can also help increase the mortgage amount you’re initially approved for – and it could qualify you for a lower interest rate. For those whose credit history may be lacking, it’s very possible to raise your credit score. For example, you can apply for credit-building cards and loans that help you establish a history of dependable and timely payments. You also might consider clearing up any errors in your credit reports or using your credit line to make rent and utility bill payments.
Keep in mind that it’s crucial to pay your credit card bills on time. Not only can it help you improve your credit score, but you’ll also avoid late fees and other potential interest charges. Additionally, it’s a good idea to maintain a low credit utilization ratio, which is a measure of your available credit.
4. Pay Off Existing Debt
A major factor that affects a lender’s willingness to offer initial mortgage approval – and one of your preferred amount – is your debt-to-income ratio (DTI), which compares your gross monthly income to the total you spend on your monthly debt payments. Expressed as a percentage, your DTI generally must be 43% or lower for you to obtain a fairly large home loan.
In effect, actively paying off debt and lowering your DTI can show lenders that you’re a responsible borrower and may help you secure a higher estimate for your initial mortgage approval. This may mean paying off a credit card or car loan, consolidating and refinancing debt, or paying down a personal loan.
5. Consider A Longer Loan Term
Taking out a longer-term loan, such as a 30-year mortgage, can also lead to a larger initial approval amount than a lender would allow with a shorter term of perhaps 15 years. That’s because a longer term allows you to spread your loan amount out over more monthly payments, which results in having to pay significantly less on your mortgage each month. It’s not uncommon to see a lender extend a larger initial approval to a home buyer if the buyer is willing to increase the length of the term over which a loan is serviced.
6. Add A Co-Borrower/Co-Signer
Adding a co-borrower to your home loan application can increase your total household income, helping you get initially approved for a larger mortgage than you otherwise would. You may instead wish to include a co-signer with strong credit, a reliable payment history and a steady income.
7. Save Up
Building up your savings and showing lenders you have cash reserves can also raise your initial mortgage approval amount. When a lender sees a higher savings, they can be more confident in your ability to make reliable and timely payments.
8. Compare Lenders And Loan Types
There’s no shortage of mortgage lenders ready to preapprove home buyers. Connect with different lenders and see what preapproval amount you can get from each of them.
You can also compare fixed-rate mortgages to adjustable-rate mortgages (ARMs) as well as check out government-backed mortgage loan programs. Options such as a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan, as opposed to a conventional loan not backed by the government, can provide the flexibility you need in eligibility requirements to boost your original preapproval amount.
9. Ask The Lender To Reconsider Your Preapproval Amount
If your personal finances are strong and you think the preapproval amount is too low, you might simply ask the lender if they’re willing to take another look. Emphasize positive points of the paperwork you submitted during the preapproval process, such as bank statements and your credit score.
10. Pick A Good Time To Get Preapproval
Consider your overall financial situation when you apply for a mortgage. If you’ve recently paid off a large debt, for example, you might wait until that information is included in your credit history. The bank might provide a higher preapproval amount if your credit report shows you paid off a major debt.
Avoid Borrowing More Than You Can Afford When You Increase Your Mortgage
While it’s often helpful to increase the size of your initial mortgage approval, it’s also best to not seek a larger home loan than you can afford, comfortably. As you go about planning your budget, it may help to follow the 28% rule. Put simply: You’ll want to avoid spending more than 28% of your gross monthly income on your mortgage payment. This will provide an extra cushion for other expenses such as food, transportation and emergencies.
FAQs About Increasing Your Mortgage Preapproval Amount
How do I increase my preapproval amount?
You can take various steps to increase your preapproval amount. These include making a higher down payment, getting a longer loan term, finding a co-signer and, perhaps, becoming preapproved by multiple lenders. It’s also best to start the home buying process in a position of financial strength. So be sure your credit score is more than solid and that you have a history of paying debts on time.
Can I offer more than my preapproval amount for a house?
Yes, it’s possible to make a bid for a home that’s priced above your preapproval amount. You’ll need to consider how you’ll make up the difference, though. You might have to cover the additional expense out-of-pocket.
If my preapproval seems low, can I ask for a higher amount?
It’s worth asking for a higher preapproval amount, especially if you’re in a strong financial position. If you’ve had a recent increase in income, for example, be sure to point that out to the mortgage lender.
Is preapproval the same as prequalification?
Both preapproval and prequalification provide a measure of how much home you can afford. But prequalification doesn’t typically involve documentation while preapproval requires a hard credit check and you sharing financial statements with your lender. Preapproval can send a stronger signal to sellers that you’re a home buyer with the resources to follow through on a home purchase offer.
The Bottom Line: It’s Possible To Increase Your Mortgage Preapproval
Strengthening your financial profile and increasing your initial mortgage approval amount don’t have to be particularly difficult or time-consuming. From raising the amount of your down payment to boosting your credit score to adding a co-borrower to your mortgage application, several strategies will likely allow you to increase the amount your lender initially approves for a mortgage.
Having a global view of your financial situation is a smart way to maximize your preapproval amount. Download the Rocket MoneySM app to track your debts, income and savings all in one place.
Victoria Araj
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