Before you start shopping for a house, you should get preapproved for a mortgage. A lender will tell you how much it’s willing to give you to put toward a home purchase.
Having a specific number can help you focus on properties in the right price range. If you think you can realistically afford a more expensive property, you might be able to get a lender to preapprove you for a higher amount.
Improve Your Credit
Lenders base their decisions heavily on applicants’ credit scores. Check your credit reports for errors. If you find any, dispute them.
Make all your required payments on time and pay down debt balances. That can raise your credit scores and help you get preapproved for a higher mortgage amount, as well as a lower interest rate.
Reduce Your Debt
Lenders look at debt-to-income ratio, or the percentage of gross monthly income that’s used to pay debts, such as credit cards and installment loans. If you have a high DTI ratio, a lender won’t preapprove you for a large mortgage since you might not be able to manage the combined payments. Reducing your current debt load can make you less risky in the eyes of a lender and help you get preapproved for a larger mortgage.
Increase Your Income
The other part of the DTI ratio is income. Increasing your earnings can help you reduce your DTI ratio and get preapproved for a larger home loan. Working overtime, getting a part-time job and pursuing a side hustle are all ways to boost your income.
Sometimes people don’t realize that they can include disability benefits, child support, alimony and other sources of income when applying for mortgage preapproval. If you didn’t count all allowable income in your initial application, you can submit a revised application and possibly get preapproved for an amount that will let you buy your dream home.
Get a Cosigner
Another option is to have someone, such as a family member or friend, cosign your mortgage application. A lender will count that person’s income, as well as yours, when evaluating your application.
That’s a risky proposition for a cosigner. If you don’t keep up with your mortgage payments, your cosigner will be on the hook.
Don’t ask someone to cosign your mortgage application unless you’re certain that you’ll be able to afford the payments. If a loved one gets stuck paying your mortgage, that can cause irreversible harm to your relationship.
Make a Bigger Down Payment
If you take out a conventional loan and put down less than 20%, you’ll have to purchase private mortgage insurance. That might cost hundreds of dollars per month. A lender will take that into account when deciding how much of a loan to preapprove you for.
If you put down more than 20%, you won’t have to pay for PMI. Since you’ll have more money available to put toward principal and interest, a lender will be able to preapprove you for a larger amount.
