How can you increase your mortgage preapproval amount?
Quick insights
- You may increase your mortgage preapproval amount by raising your credit score, lowering your debt and increasing your monthly income or savings.
- Reducing debt often has the fastest impact on mortgage preapproval. Paying down credit cards, loans or other monthly debt obligations can help you lower your debt-to-income ratio and increase how much you qualify for.
- A larger down payment or stronger cash reserves can support a higher mortgage preapproval amount by reducing lender risk.
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, and can you increase it?
What is mortgage preapproval?
Mortgage preapproval, which is different from mortgage prequalification, 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.
Factors that affect your mortgage preapproval amount
Your mortgage preapproval amount is the maximum loan a mortgage lender is willing to offer based on your financial profile. Loan providers review various key factors to determine this number. It’s key to know this number to help you take steps to increase your approval and strengthen your buying power.
- Earnings and income stability: Higher and more stable income shows loan providers that you can manage mortgage payments. This includes salary, bonuses and other income streams like investments or side-business income.
- Credit health: Your credit score and history show how responsibly you’ve managed debt in the past. A higher credit score and solid credit report demonstrate low risk to mortgage lenders.
- Debt obligations: Mortgage lenders compare your monthly debt to your income. A lower debt-to-income ratio (DTI) indicates you have income to repay a home loan.
- Savings and down payment: The size of your down payment and available cash reserves are important to lenders. A larger down payment reduces the lender’s risk and may help you qualify for better loan terms.
- Work history: Predictable employment reassures mortgage lenders that your income is reliable. Frequent job changes or gaps in employment can limit the amount you’re approved for. Long-term positions in a consistent industry are viewed favorably.
- Loan and property type: Different types of loans and property can affect the preapproval amount. For example, conventional loans, FHA loans and VA loans all have different limits and requirements. Lenders have different criteria, as well. Investment properties and multifamily homes often come with stricter caps compared to primary residences.
Can you increase your preapproval amount?
Yes, it’s possible to get preapproved for a higher mortgage loan amount by improving key financial components that lenders evaluate. Your credit score, DTI ratio, 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 you may increase your preapproval amount
If your initial estimate isn’t enough to buy the home you want, there may be ways to get preapproved for a higher loan. Lenders assess multiple financial elements; therefore, small improvements in the right areas can make notable differences. The following tips may help strengthen your application and potentially increase your preapproval amount.
Improving 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 help 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. 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.
Increasing 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.
Saving for a larger down payment
A bigger down payment reduces the amount you need to borrow, which may 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 may save you money in the long term.
- Shows financial responsibility: A strong savings history could reassure loan providers that you’re prepared for homeownership.
Paying 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.
Getting 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.
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.
Reapplying 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:
- Wait at least a few months: Loan providers want to see sustained improvements, especially in income and credit score.
- Gather updated financial documents: Submit recent pay stubs, tax returns and credit reports to reflect your changes.
- Compare lenders again: Different mortgage lenders may have different preapproval amounts, so consider shopping around.
- 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
Raising your credit score, lowering your debt-to-income ratio and increasing your monthly income can help you qualify for a higher mortgage preapproval. Taking these steps may give you more buying power and confidence when house hunting. To explore your options, visit the Chase Mortgage Preapproval page and connect with a Home Lending Advisor.
