10 Ways to Increase the Amount of Your Mortgage Approval
When shopping for a home your buying power is determined by the pre-approval letter your lender gives you. Sometimes the pre-approval amount doesn’t match your taste in homes for sale. Fortunately you can change that. Here are 10 Tricks to Increase your credit score.
Know Your Debt Ratio
The amount of home you qualify for is primarily determined by your debt ratio. Your debt ratio is the amount of monthly payments you make vs your income expressed as a percentage. To improve your debt ratio and increase your preapproval amount you can take the following steps;
1. Pay Off a Loan or Credit Card
This is easier than it sounds. I’m some cases you might have a loan with a low balance but a high payment. An example would be a car loan towards the end of your term. If you only have a few payments left but you can easily pay off the account and remove the monthly payment from your debt ratio. In most cases this will increase your preapproval amount considerably.
2. Pay Down Your Credit Card Balances
3. Shop For Homeowners Insurance
Your homeowners insurance is considered part of your new monthly housing payment. The higher the insurance amount, the higher your monthly payment and debt ratio. Don’t settle on the first quote you receive. You might be able to lower your insurance premium and increase your preapproval amount.
4. Document Tax Exempt Income
Some income is tax free. A lender will let you increase your income by the tax rate to lower your debt ratio. A great example of this is child support. In most cases, child support is considered tax exempt and can be grossed up. The average is an increase of 15% of your income. If you receive $500 a month the bank will utilize $575 a month to qualify. This will reduce your debt ratio and result in a higher pre-approval amount.
5. Buy in an Area With Lower Tax Rates
Just like homeowners insurance, taxes are considered part of your new monthly housing payment. If your taxes are higher, you will be able to afford less house. By shopping in an area with a lower tax rate you will increase your preapproval amount and reduce your overall monthly payment.
6. Get Paid Rent
This might not be for everyone but you might be best served in buying a multi unit home. You can live in one unit and rent out the other. The potential rental income is added to your income. This reduces your debt ratio and allows you to purchase a more expensive home. Also, this is a great investment. Buying an income producing property can set you up for retirement and help you save money by receiving more income.
7. Make More Money
This seems obvious and might not be realistic for most people but seriously. Make more money. We are all striving to be in the best situation possible and by finding a better paying job you can increase the amount of house that you can purchase. Don’t be shy about your needs. Talk to your boss and see what you can do to earn more money.
8. Add a Coborrower
Buying a home by yourself can be difficult. If you are thinking about buying maybe you should buy with a partner or spouse. In some cases only one spouse can qualify due to credit issues. Don’t worry. Go right back to the beginning of this post and pay down some debt. This will improve your credit score and allow you to purchase more house.
9. Put More Money Down
Not only does a larger down payment reduce your monthly mortgage payment but most loan programs allow a higher debt ratio for borrowers that have a larger down payment. Not only with you increase your approval with a better debt ratio but you are allowed a higher debt ratio too.
10. Talk To Your Lender
Your lender should provide you with a plan to increase your preapproval. Sometimes one trick might work better than another for your unique situation. Have an open conversation with your lender and make a plan of attack to qualify for a higher loan amount. In many cases an applicant avoids the conversation and never finds the perfect home for them.
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