How to increase your Pre-Approval amount on a limited budget
So as we know the three main pillars of getting a Mortgage Pre-approval are your Credit score, Income and Debt. Your Credit score is pretty straight forward, you need above a 640 mid score for almost all loan programs. Your debt and income calculations or DTI is a calculation that we use to determine how much of a mortgage you can afford.How to Calculate your DTI
To calculate your DTI for mortgage approval purposes we add up your monthly expenses like your car payment, the Monthly Minimum payment on your credit card and your student loan payments. We then add in your proposed Mortgage Payment to that Number. Finally we divide that Number by your gross or Pre-tax income. This helps us calculate your DTI ratio, we use that ratio to determine how much home you can comfortably afford.
Now onto how to Get approved, or up your approval amount on a Limited income.
Step 1. Step 1 is to remember that you do not need 20% down to buy a house. Many people in Plattsburgh, NY and surrounding area’s put less than 5% down on their first home purchase. Many customers even opt for our No money down Home loan.
For informational purposes let’s say you have saved up a few thousand dollars in anticipation of purchasing your first home. Figure out how much Liquid assets you have and are willing to spend to up your Pre-approval amount or to finally get Pre-Approved for a Mortgage.
Step 2. Check out your Credit Karma or other credit monitoring site and figure out what all your remaining balances and payments are. Write this down on a separate piece of paper.
Step 3. Figure out which item on your credit report has the lowest balance with the Highest monthly payment. You must be able to afford to pay off the loan in full.
Step 4. Give us a call so we can double check that your calculations are correct before you pay off one of your loans.
But if you are adventurous and a big DIY’er , Follow the example below for a more in depth analysis of how this works.
We will use this credit profile below as an example. As they currently stand they should be able to get approved for right around $140,000.00 to $150,000.00 if they went with a USDA loan and made about $45,000.00 a year.
Their current DTI with the proposed mortgage payment would be right around a 41%. That would most likely get them approved for a top dollar amount of about $150,000.00
Now let’s say they have $3,000.00 in the bank that they can use to pay off debt. Let’s say they decided to pay off their Capital one and Discover card.
They would spend $2,250.00 and increase their Pre-Approval amount by about $5,000.00 to a total Pre-approval amount of about $155,000.00
Now instead of paying off those Credit cards let’s say they decided to pay off the Chevrolet Financing.The best choice, paying off the loan with the highest monthly payment and lowest balance.
Paying off this loan would increase their Pre-approval amount to around $175,000.00 with that same payoff of $2,250.00
So when deciding which loans to pay off it is important to take into consideration what loan impacts your DTI ratio the most and pay that loan off completely. If all of this confuses you no worries, that’s what the Mortgage Professional’s at Bank of England Mortgage – Plattsburgh are here for. Give us a call at (518)324-5544, Schedule a free consultation, or even Apply now to really get your very own American Dream started.
All information in this article is for educational purposes only, it should not be seen as a invitation to extend credit.