Buying a house is the biggest purchase you’ll ever make and it’s one of the most important things you’ll ever do in your life.
However, it’s no secret that buying a house is expensive, and when you’re spending so much of your hard-earned money on something – you’ll want the best possible options available.
This is when your mortgage pre-approval amount comes into play. The more you’re approved for, the better choice of houses you’ll have available to you and you can be happy with your purchase.
So, how can you possibly increase your pre-approval amount? Well, we’re going to tell you.
This guide will explore the best methods of increasing your pre-approval figure for a mortgage and why this can be helpful. So, let’s get to it.
What Does A Pre-Approval Amount Mean?
When you’re buying a house, the chances are that you will not have the entire asking price available to you to buy the house outright. If you do though, fantastic!
So, to curtail this issue – because we all need a home! – banks and other lenders offer a special type of loan known as a mortgage.
Mortgages vary from lender to lender and from policy to policy, but the general way they work is as follows.
The lender will assess you (and possibly somebody you’re buying the house with) in terms of your finances, employment and crucially, your credit score.
From here, the amount of down-payment you have (otherwise known as a deposit) will determine a figure that the lender will give you, to put towards the cost of a property.
The pick of properties you will be able to afford will depend on the pre-approval amount that the lender offers you.
The likelihood is though that, if you’re in the housing market – you’ve probably already gone through this step and received a pre-approval letter.
A pre-approval letter will tell you how much the lender will be prepared to offer you.
It’s worth noting though that although a lender might be prepared to give you a particular figure, this does not necessarily mean that you can afford to borrow that amount.
So, Can I Increase My Pre-Approval Figure?
Absolutely. There are many ways that you can increase this figure, but you need to think carefully about your affordability to the property before you accept any offer.
It’s a good rule of thumb to only pay out about 30% of your income towards the monthly costs for the home.
This includes your mortgage payments, utilities and any HOA fees.
If you’ve considered all of these and you know you can afford more than your pre-approval figure, then here are some things you can do to change it.
Boost Your Down-Payment
The amount of down-payment that you can place onto a property initially will massively affect your pre-approval figure.
Essentially, you’re purchasing a larger stake in the property to begin with and lessening the length of time it will take to purchase the rest of it from the lender.
As a result, you may notice better terms in your mortgage and a higher chance of acceptance.
Not only this, there will not be the need for mortgage insurance, and this gives you more of your money to spend on the important things.
Boost Your Credit Score
Your credit score will have a massive impact on the lender’s decision to give you what you want.
Any credit agreement will initially examine someone’s credit score, because the score will indicate to a lender how responsible a person has been with their previous credit, regular payments or missed payments and other big factors.
The best ways to increase your credit score is to keep up with regular payments, remain at your address for a few years, keep a steady flow of income and have a good debt/income ratio.
Additionally, a better credit score will likely give you better rates with a lender for a mortgage – so it’s always worth doing it.
Clear Your Debts
One of the most important things to do before buying a house (or applying to buy a house) is to clear your debts. Buying a house is expensive to begin with, so you do not want to be in debt when you’re paying out so much already.
Debts will follow you around and you don’t want your new home to be tarnished with debts.
A poor debt/income ratio will be a red flag to a lender and they will either deny you a mortgage entirely, give you very poor rates or offer a very low pre-approval figure.
In this instance, having a larger down-payment would help, but not solve the issue.
It’s recommended that you try to chip away at your debts before you buy a home – but if your debts are particularly high and you’re struggling, consider getting independent debt advice first.
Get A Second Borrower
If you’re considering buying a house and moving in with your spouse or partner, it’s a very good idea to have a joint mortgage application.
Both of your circumstances will be taken into account and it makes the likelihood of a larger pre-approval figure much higher.
This is because your partner might have an especially good credit score, a large income along with yours, a steady job etc.
Increase Your Income
This might sound obvious, but the more money you have coming in, the bigger the figure that you’ll be approved for.
There are a few things to this that people overlook that we need to make you aware of.
Some streams of income including alimony payments, child support payments, stocks and investment payments and even regular money paid back to you that someone owes can be included into your application.
Consider speaking with your mortgage advisor about including these if you haven’t already.
The Bottom Line
Increasing your pre-approval amount for a mortgage is very important and will boost your chances of getting your dream home. Hopefully, these pointers will put you one step closer to it.