One of the initial steps in purchasing a home is obtaining a mortgage preapproval. This document confirms that a mortgage lender is prepared to offer you a defined amount of financing for a home purchase. If you require a larger mortgage, you may need to take certain measures to obtain a new preapproval for a higher loan amount. Here’s how you can proceed.

A mortgage preapproval is when a lender conditionally approves you for a loan based on your creditworthiness and financial situation. This process includes a credit check and an assessment of your income, assets, and debts. The preapproval results in an official document that specifies the loan amount and the applicable interest rate. While not a guarantee of financing, it serves as a strong indicator and is crucial when making offers on homes.

Your mortgage preapproval amount might be insufficient for your needs or the market where you intend to buy. If you can demonstrate that you can afford a higher mortgage amount, you may be able to increase your preapproval.

To get a higher mortgage loan amount, there are a few things you can do:

A higher credit score generally results in a lower mortgage interest rate, reducing your monthly payment and potentially improving your debt-to-income (DTI) ratio, allowing for a larger loan qualification.

According to Matt Hackett, operations manager at Equity Now, a New York-based mortgage lender, “Having a higher credit score may enable you to qualify for a larger mortgage amount, but there are limits.”

Here are effective strategies to enhance your credit score:

  • Ensure all bills are paid on time.
  • Regularly review your credit report and dispute any errors.
  • Use credit cards conservatively, ideally staying below 30% of your credit limit.
  • Minimize new credit applications, including loans.
  • Request increases in credit card limits.
  • Report your rent payments to credit bureaus when possible.

Your income directly influences the amount you can borrow. Higher monthly earnings provide more funds available to allocate towards a loan.

The good news is that boosting your income doesn’t always require a significant salary increase or promotion. In addition to regular salary or wages, you may be able to use other reliable sources of income to qualify, such as:

  • Interest or dividends from investments
  • Rental property income
  • Alimony or child support payments
  • Earnings from a part-time job or side business (assuming consistent income over the past two years)
  • Income from pensions, retirement accounts, or Social Security benefits

For instance, Denise Supplee, co-founder of Spark Rental, a Pennsylvania-based platform for rental property investors, needed additional income to refinance. She successfully included her live-in mother’s Social Security income in the refinancing process, which helped meet the requirements.

When applying for a mortgage, lenders assess your Debt-to-Income (DTI) ratio, which represents the percentage of your monthly income allocated to debt repayment. A DTI ratio of 36 percent or lower can enhance your chances of qualifying for a larger loan.

According to Jennifer Beeston, senior vice president of Mortgage Lending at Guaranteed Rate in San Francisco, California, “Paying off a credit card or installment loan can significantly impact this ratio.” She explains, “I often see credit reports showing a $2,000 balance with a $300 monthly payment. Clearing this debt can quickly increase your qualifying amount.”

There are various ways to potentially reduce your DTI ratio, such as:

  • Lowering credit card balances using a balance transfer card with a lower APR or zero-interest introductory period.
  • Refinancing an auto loan to reduce monthly payments.
  • Consolidating debt into an installment loan.

To secure the best mortgage rate, it’s wise to obtain at least three quotes. Another advantage of doing so is that one or more lenders might preapprove you for a higher loan amount.

If you have extra cash available, you can opt to pay points to reduce your interest rate. This action lowers your monthly payments, potentially increasing the mortgage amount you qualify for.

According to Casey Fleming, a mortgage advisor and author of “The Loan Guide: How to Get the Best Possible Mortgage,” “Paying points not only helps you qualify for a larger loan amount but also saves you thousands of dollars over the long term.”

Including a co-borrower on your mortgage, particularly someone with a solid credit history and stable income, can potentially boost your mortgage preapproval amount. The combined income of both borrowers increases the total income that lenders can consider when qualifying you for a loan.

However, it’s important to note that a co-borrower also brings their financial obligations and assets into the equation. If the co-borrower has significant debt or poor credit, adding them to the application could potentially harm your chances rather than improve them.

While cash reserves are not always a requirement for mortgage qualification, having additional assets in savings or other forms can enhance your eligibility for a larger loan.

Determining your preapproval amount is not based on a single formula. Mortgage underwriters analyze numerous data points about your financial situation to decide whether to issue a preapproval and the size of the loan.

To increase your chances of receiving a higher preapproval amount, focus on maintaining a strong credit profile, minimal debt, and a consistent high income. Borrowers with lower credit scores, irregular income, or significant debt are typically preapproved for smaller amounts.