How to increase mortgage preapproval amount

Quick insights

• A higher credit score and lower debt-to-income ratio (DTI) can help increase your mortgage preapproval amount and improve your loan terms.
• Income is a significant factor to loan providers, so stability and increases in income can strengthen your loan application.
• Shopping around and getting preapproved by multiple lenders between 7-14 days can help you find the loan terms that suit your financial situation.

Buying a home is a major milestone, but before you start picturing backyard barbecues or picking out paint colors, you may want to get preapproved for a mortgage. Think of mortgage preapproval as your homebuying permission slip. It tells you how much a lender is willing to offer and helps you shop with confidence. But what determines your preapproval amount, can you increase it?

Understanding mortgage preapproval

The process of buying your first home can feel overwhelming, especially when it comes to securing a mortgage. A good first step is getting preapproved. This gives you a clear idea of how much a mortgage provider is willing to offer based on your financial profile. Certain factors impact your preapproval, and learning about them can prepare you to apply and potentially increase your preapproval amount.

Can you increase your preapproval amount?

Yes, it’s possible to increase your preapproval amount by improving key financial components that lenders evaluate. Your credit score, debt-to-income ratio (DTI), employment history and overall income play a role in determining how much you qualify for. By strategically enhancing these financial areas, you may be able to secure a higher loan amount, giving you more buying power in the housing market.

How to get preapproved for a higher mortgage loan

If your initial preapproval amount isn’t enough to buy the home you want, there are ways to boost it. Loan providers assess multiple financial elements; therefore, small improvements in the right areas can make notable differences. The following tips can help strengthen your application and potentially increase your preapproval amount.

Improve your credit score

A higher credit score signals to loan providers that you’re a reliable borrower. This can lead the lender to offer a larger loan amount and better interest rates. To improve your credit score, here are some steps you could take:

• Make timely payments: Pay all of your bills on time because payment history makes up 35% of your credit score.
• Reduce credit utilization: Aim to use less than 30% of your available credit limit to help improve your score.
• Check for errors: Review your credit report for mistakes or outdated information that could drag your score down. 

For example, increasing your credit score from 660 to 740 could possibly raise your loan approval amount by thousands of dollars. Since lenders tend to offer better terms to borrowers with higher scores, this could also mean lower monthly payments, saving you money in the long term.

Increase your income

Your income plays a significant role in determining your preapproval amount. A higher income could increase your borrowing power by improving your DTI ratio, making you a stronger candidate for a larger loan. Here are some tips to help boost your income before applying for a mortgage:

• Ask for a raise at your place of employment: If you’ve been at your job for a while and have strong performance reviews, negotiating a higher salary could increase your mortgage preapproval.
• Work overtime: If your job offers overtime pay, taking on extra hours can temporarily increase your income. Your recent financial information is reviewed. Lenders may take the most recent information into account if it’s documented consistently.
• Freelancing or consulting: If you have skills in writing, graphic design coding or marketing, taking on freelance projects can supplement your income without changing your primary job.
• Monetize a hobby: Turn a passion into extra income by selling handmade crafts, photography or digital products on various platforms.
• Start a side business: Whether its tutoring, pet sitting or an online store, a small side business can supplement your income while keeping your primary job intact.

Save for a larger down payment

A bigger down payment reduces the amount you need to borrow, which can help you qualify for a larger mortgage loan. Here’s why the down payment matters:

• Lowers your loan-to-value ratio: A lower loan-to-value (LTV) ratio means you’re borrowing less and making a larger down payment. It makes you less risky to loan providers, increasing your chances of approval.
• Reduces monthly payments: A larger down payment can lower your monthly mortgage costs, making homeownership more affordable.
• May eliminate private mortgage insurance (PMI): If you put down at least 20%, you can avoid private mortgage insurance, which saves you money in the long term.
• Shows financial responsibility: A strong savings history could reassure loan providers that you’re prepared for homeownership.

Pay down debt

Lenders use your DTI ratio to determine how much mortgage you can afford. This ratio compares your monthly debt obligations (like credit cards, student loans and car loans) to your income. A lower DTI ratio can make you eligible for a higher mortgage amount because it shows mortgage providers you have enough income to cover additional debt. Here's how to lower your DTI ratio:

• Pay off credit card debt: Reducing revolving debt can noticeably lower your DTI.
• Pay down loans: If possible, make extra payments on smaller debts or those with higher interest rates.
• Increase your income: Boosting earnings without taking on new debt can improve your ratio.

Get more than one quote

Mortgage providers have different qualification standards, so it may be a good idea to shop around. Doing so within a short time frame can minimize the impact on credit score. Getting preapproved with multiple lenders allows you to compare loan amounts, interest rates and terms. Some lenders may offer you a higher preapproval amount than others, simply because they have different lending criteria. Aim for at least three mortgage preapprovals to see where you stand and choose the option that works for you.

Consider a co-borrower or co-signer

If your preapproved amount is too low, adding a co-borrower or co-signer could help. A co-borrower, such as a spouse or family member, applies for the mortgage with you, combining both of your incomes to qualify for a higher amount. A co-signer doesn’t have ownership of the home but guarantees the loan, which can help if your credit or income isn’t strong enough on its own. Keep in mind that a co-signer is responsible for the mortgage loan if you fail to make payments.

Reapply for preapproval

If you’ve taken the necessary steps to improve your financial profile, it may be worth reapplying for preapproval to see if you now qualify for a higher loan amount. Here's how:

1. Wait at least a few months: Loan providers want to see sustained improvements, especially in income and credit score.
2. Gather updated financial documents: Submit recent pay stubs, tax returns and credit reports to reflect your changes.
3. Compare lenders again: Different mortgage lenders may have different preapproval amounts, so consider shopping around.
4. Avoid taking on new debt: New loans or credit card balances could hurt your DTI ratio.

While reapplying can lead to better loan terms, be mindful of hard credit inquiries. Hard credit inquiries can temporarily lower your credit score.

In summary

To potentially secure a higher preapproval amount, focus on improving your financial profile, such as boosting your credit score, lowering your DTI ratio or increasing your income. Taking these steps can enhance your mortgage application and potentially help you qualify for a larger mortgage loan. If you’re unsure where to start, a Home Lending Advisor can provide personalized guidance and help you navigate the preapproval process with confidence.