How To Increase Your Mortgage Preapproval Amount

Increase your down payment

Basically, it’s a win-win if you can manage to put down a larger down payment. For lenders, a larger down payment will eliminate the extra cost of private mortgage insurance (PMI). If you put down at least 20%, you won’t have to pay for PMI, and you’ll free up funds to make larger monthly mortgage payments. As a bonus, because of your increased borrowing power, you may get a loan with a better interest rate and better terms.

Boost your credit score

Depending on the lender, different loans will have different credit score requirements. But, in general, your credit score has a big impact on how much you can borrow, what type of home loan you can get and what terms you’ll be offered. 

Lenders will typically pull your credit score for a preapproval to help assess your creditworthiness. So, before you apply for a mortgage loan preapproval, review your credit report and look for opportunities to improve your score. Some ways to boost or maintain your credit score include:

• Paying your bills on time
• Paying down credit card debt
• Disputing inaccurate items
• Not applying for new credit accounts
• Getting added as an authorized user on a credit card holder’s account

Some home loans help home buyers with bad credit scores enter the real estate market. Federal Housing Administration (FHA) mortgages, Department of Veterans Affairs (VA) mortgages and U.S. Department of Agriculture (USDA) loans typically have more lenient credit requirements and, in some cases, don’t require a down payment. 

Add a co-signer

It’s a big ask, but you might be able to increase your preapproval amount by getting someone you trust to co-sign the loan. If the co-signer has good credit and a steady income, lenders might increase your preapproval limit based on your combined income.

But co-signing does come with some risks. The co-signer is legally responsible to repay the loan if you can’t. The loan and its payment history are recorded on the co-signer’s credit report.

Generate more income

One way to afford a larger mortgage is to boost your income. That might look like a raise at work, overtime or a higher-paying job. They’re all viable options, but many of them are easier said than done for most of us.

There are other ways to generate more income, including:

• Income from rental properties 
• Interest or dividends from investments
• Income from alimony or child support
• Income earned from a part-time job or side hustle (Etsy, anyone?)

Get a longer-term loan

While the idea of paying off your mortgage in 10 or 15 years has some appeal, the monthly mortgage payment for shorter-term loans might not work for your budget. By getting a longer loan term, such as 30 years, you can stretch your mortgage payments and likely end up with more affordable monthly payments.

Lenders want to make sure you can keep up with your payments, so lower monthly payments over a longer term may help increase your preapproval amount. You should be aware that longer-term loans generally have higher interest rates. In the end, you’ll likely pay more for your mortgage than you would with a shorter-term loan. 

You might also want to consider refinancing your loan once you’re in a better financial position.

It’s also possible to offset a higher mortgage rate and reduce your overall costs by making larger or extra payments over the life of your home loan. 

Pro tip: Check your loan agreement before you start making larger or extra payments. Some mortgages come with prepayment penalties.

Find a different lender

You might find slight differences in underwriting standards across lenders. If you’re not satisfied with the mortgage preapproval from one lender, you can shop around with multiple lenders to see which one will give you a better preapproval amount and terms.

Lower your house buying budget

If you can’t increase your mortgage preapproval or aren’t prepared to go through the process of optimizing your finances, you may have to start looking for a more affordable house. You can still become a homeowner, you’ll just need to find your dream home in a more affordable price range.

Search for more affordable properties and revisit your house must-haves list. Were all those amenities must-haves? Can you live in a different area, would a smaller yard be the end of the world, are there a few condo amenities you can live without? There are plenty of ways to make homeownership affordable while finding a home that meets your needs.

Don’t Bite Off More Than You Can Chew

You can increase your mortgage loan preapproval amount if you can improve your credit score, bring your debt down or generate more income. 

Sometimes it might make more sense to lower your house buying budget or push pause on homeownership rather than push for a higher preapproval amount. If you push too hard, you could end up with a higher loan amount that derails your monthly budget. 

A good personal finance rule of thumb is to have no more than 30% of your gross monthly income go toward your mortgage payments. That should leave enough cash left over to afford your lifestyle and cover your other expenses.