Ready to start your homebuying journey but worried your mortgage preapproval amount is too low? Don’t sweat it. While preapproval gives you an estimate of what you can borrow, you may be able to increase that amount with some strategic planning.
Let’s walk through what goes into your preapproval, when and why boosting it can help, plus safe ways to potentially get more purchasing power. With the right steps, you could get the keys to your dream home faster than you think!
What Is Mortgage Preapproval Anyway?
Before we dive into expansion tactics, let’s quickly cover what preapproval is in the first place.
Preapproval is when a mortgage lender reviews your finances—income, expenses, credit score, down payment funds, etc.—to estimate the maximum home loan amount you can qualify for.
You’ll get a preapproval letter stating the amount, and lenders often guarantee that rate for 60-90 days. This shows home sellers you’re a serious, qualified buyer so you can start making offers!
Preapproval isn’t a final loan approval, but it’s a critical first step. Now let’s look at how to potentially get more buying power.
Key Factors That Determine Your Preapproval Amount
Many elements go into calculating your eligible loan amount. Being aware of these can help you find the most impactful ways to give it a boost:
Your Income
Lenders want to see you have enough steady income to make payments. The more money you reliably earn, the more they may approve you for.
Your Credit Score
Higher scores signal you responsibly pay debts, meaning you’re less risky for lenders. Better credit equals better mortgage rates and amounts.
Your Debt-To-Income Ratio
Lenders calculate your DTI by adding up your monthly debts then dividing that by your gross monthly income. The lower your DTI, the more confident lenders are you can handle a higher mortgage.
Your Down Payment
The more you put down, the less you have to borrow. Big down payments show lenders you’re financially prepared and let them offer higher loan amounts.
Now that you know what goes into it, let’s explore tips for getting more purchasing power.
6 Ways To Potentially Increase Your Mortgage Preapproval
If your preapproval amount leaves you wanting more, there are a few strategic moves that could get you higher:
1. Improve Your Credit Score
Since your score significantly impacts your mortgage rate and amount, boosting it can lead to big benefits.
Shoot for at least a 740 FICO score. Here are a few ways to build yours:
- Pay all bills on time
- Lower credit card balances
- Limit hard credit inquiries
- Correct errors on your credit report
With diligent work, you may be able to improve your score within a few months.
2. Increase Your Income
More reliable income can mean qualifying for a higher amount. Some options to consider:
- Ask for a raise at your job
- Take on a side gig or freelance work
- Have your partner or spouse apply with you
Even an extra $200-500 per month can make a difference.
3. Lower Your Debt-To-Income Ratio
Recall that DTI compares your monthly debts to income. To lower yours:
- Pay down credit cards, loans, and other debts
- Negotiate lower interest rates to reduce minimum payments
- Have someone take over your car payment or other debts
Every percentage you can drop your DTI boosts your case for more financing.
4. Make a Larger Down Payment
While low down payment programs exist, putting more down shows lenders you’re financially prepared.
Some ways to boost your down payment:
- Save aggressively for the next few months
- Reduce spending to free up more cash
- Ask family for gift funds and document with a gift letter
- Take out a 401(k) loan if your plan allows
Aim for at least 10-20% down if possible. The more you put down, the lower your mortgage amount needs to be.
5. Get a Cosigner or Co-Borrower
Adding another financially stable applicant strengthens your case by accounting for their income and credit too. This can unlock a larger loan amount, but consider risks first.
6. Shop Around With Multiple Lenders
Each lender has their own formulas and criteria. Another bank may approve you for more, so apply with several lenders and compare. Just don’t apply haphazardly, as too many hard credit inquiries can ding your score.
Now that you know how to get more purchasing power, let’s talk about when boosting your preapproval amount can actually help.
When To Consider Increasing Your Preapproval
Here are two common situations when seeking a higher preapproval amount could benefit your home search:
If Your Dream Home Is Just Outside Your Budget
Maybe you’ve found your perfect house but it’s just beyond what you’re preapproved for. In this case, taking strategic steps to increase your amount could mean getting the keys to that ideal home.
If You Want More Negotiating Power
Preapprovals show sellers you’re qualified and serious. But a letter approving you for the full asking price or more can make your offer stand out. A higher amount looks more competitive.
However, take care not to overextend your budget just for negotiation purposes. You still have to be able to afford the monthly payments.
Be Mindful of Risks
While getting approved for more financing can be a great leverage tool, it also comes with risks to weigh:
- It’s essential you can still comfortably handle the higher monthly payment and aren’t overextending yourself just to win a bid.
- If you use a cosigner, remember they’re equally liable for the mortgage if you default. Don’t risk their financial health.
- Taking on more debt obligation than you can truly afford may hurt you down the road.
As you consider boosting your buying power, keep these hazards in mind and stay grounded in budget reality. Don’t compromise your financial stability simply to get more preapproval.
Alternatives To Increasing Your Preapproval
If you’ve exhausted all options but can’t get your preapproval amount higher, here are a few alternatives to consider before giving up on homeownership:
- Look at more affordable properties that better match your current preapproval amount. You may have to adjust your wishlist.
- Opt for a longer loan term like 30 years instead of 15 years. This lowers your monthly payment, meaning you may qualify for a higher loan amount.
- Make some compromises on your home must-haves to open up more options in your price range. Maybe one less bedroom or bathroom.
You may still be able to achieve homeownership on your current budget with a little flexibility. Don’t lose hope!
Get Started with Preapproval
If you’re ready to move forward, here are tips for getting started:
- Prepare all required documents – bank statements, tax returns, pay stubs, etc. Mortgage lenders will review them.
- Be honest and thorough on your application. Undisclosed debts may surface later and jeopardize approval.
- Shop and compare offers from 3+ lenders. But apply in a narrow 14-45 day window so credit checks don’t pile up.
- Once preapproved, get job changes, new debts or loans approved by your lender so you don’t lose your rate and amount.
With some savvy planning, it may be possible to increase your mortgage preapproval buying power. But always make responsible decisions that work for your unique situation. Homeownership should be financially sustainable.
You’ve got this! With the right home loan approach, you can make your first-time homebuyer dreams happen.