When starting out on your home buying journey, especially when you’re looking to purchase your first home, it’s important to figure out how much of a mortgage you can comfortably afford

A great way to do that is by getting pre-approved. This will help you get a concrete idea of how much money you can borrow to buy your home. You’ll also be able to see which loan programs are the best options for your financial situation. 

But what if your pre-approval amount doesn’t get you into the home you’ve been hoping for? In this blog post, we’ll guide you through understanding the basics of the pre-approval process, what it entails, and give you the steps you can take to increase your mortgage pre-approval amount. 

What is Mortgage Pre-Approval? 

The pre-approval process allows a lender to review your financial profile, including your income, assets, and credit score, to provide an estimated amount of how much you are likely to qualify to borrow. 

To get pre-approved, you’ll complete a loan application with a loan officer. Then, they will review your income, debts, expenses, credit history, and other information to verify your eligibility for a mortgage. If you qualify, your lender will provide a pre-approval letter, which becomes a valuable resource in your search for a home. 

The pre-approval letter will include an estimate of the loan amount you’re qualified for, empowering you to house hunt within your budget. 

A Pre-Approval Letter Can Help You Win Out Against Other Buyers

Sellers prefer working with pre-approved buyers since it indicates a higher level of commitment and financial readiness. A pre-approval will also typically expedite the loan process once you find your dream home. It’s for these reasons that buyers with a pre-approval are much more likely to win the deal compared to other potential buyers trying to purchase the same home.

Factors That Affect Your Mortgage Pre-Approval 

Calculating the loan amount you are pre-approved for involves several factors. 

  1. Income: Your loan officer will evaluate your income to ensure you have a steady source of pay to cover mortgage payments.  
  1. Credit Score: Your credit score is a crucial element all lenders use to issue pre-approvals. This is because it’s part of the qualification criteria for all loan programs. Typically, a higher credit score indicates a lower risk of default. That, in turn, usually results in a higher pre-approval amount.  
  1. Debt-to-Income Ratio (DTI): Lenders use the DTI calculation to gauge your ability to manage your new mortgage payment when paired with any other outstanding debts you may have.  
  1. Down Payment: The amount you’re planning to put as a down payment also factors in your pre-approval amount. This is because the qualification criteria for each loan program are different, and you may qualify for other loan programs with more favorable terms if you have a larger down payment. 
  1. Employment History: Lenders value stable employment history because it provides reassurance of a steady, reliable income. This means it’s less likely that you would default and not be able to make your mortgage payments. 

Steps You Can Take to Increase Your Mortgage Pre-Approval Amount 

So, perhaps you’ve gotten that pre-approval letter, but it doesn’t quite get you to the loan amount that you need for that house you have your heart set on. 

Here are some steps you can take to increase your pre-approval amount. 

  1. Improve Your Credit Score: Your credit score has a major impact on your pre-approval amount. You can work on improving it by monitoring your credit report regularly and disputing any inaccuracies. The biggest factor in your score is going to be your ability to pay your bills on time. The second most important is to reduce your credit utilization. If you need more guidance on improving your credit score, you might consider consulting with a credit counselor. 
  1. Generate More Income: Your income is also going to play a key role in which loan programs you can qualify for and how much credit a lender can extend to you. You can maximize your earnings by exploring avenues to boost your income, such as taking on part-time work, monetizing a hobby or skill, or getting a raise or promotion at work. 
  1. Pay Down Other Debts: Many loan programs have qualification criteria based on your DTI ratio, so if you aim to keep your DTI below 43%, you can help improve your pre-approval amount. You can help increase that amount by paying off other outstanding debts, such as credit cards, student loans, or car loans, which will lower your DTI ratio.  
  1. Add a Co-Borrower: Consider adding a trusted family member or spouse as a co-borrower to combine your incomes and increase your pre-approval amount. Of course, all parties involved should thoroughly understand the financial implications and responsibilities of being a co-borrower on the loan. 
  1. Save extra down payment funds or explore down payment assistance programs: Saving for a larger down payment can help increase your pre-approval amount because you might be able to take advantage of more favorable loan terms or qualify for a loan program you wouldn’t have been able to with a lower down payment amount. 
  1. Look into Different Loan Programs or Terms: Be sure to ask your loan officer to check into all of the loan programs you might qualify to use. This could include FHA, VA, and USDA loans. Sometimes by switching to another loan program, you can qualify with your current credit score, cutting down on the time you would have had to wait to improve your pre-approval amount. 

How Long Does It Take to Increase Your Pre-Approval?  

The time it takes to increase your pre-approval amount ultimately varies based on your individual circumstances. 

If you’re able to add a co-borrower and get to the pre-approval amount you need to buy that house that’s your dream home, for example, then it could be very quick.  

On the other hand, if you need to increase your income, save up more for a down payment, improve your credit score, or pay down other debts you have, it may take longer. 

We encourage you to evaluate your loan options based on your current financial situation and what changes are both realistic and will provide you with the best opportunity to qualify for the loan program that will fit your needs.  

Then, you should create a plan of action to get you there. That way, even if it does take longer, you will know that you’re on the right course, and you’ll have the timeline to keep you motivated on your journey. 

Talking to a loan officer for a free consultation is the best way to understand how much you can get pre-approved for right now. 

Our team of expert loan officers can also help you create a game plan to help you focus on the right factors that you personally need to improve to help you get to your goal pre-approval amount if you’re not there already. 

Get in touch with our team today to get started for free. 

The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 05/18/2023.