4 Tips for Getting a Bigger Mortgage
Your interest rate and debt-to-income ratio can affect purchasing power when applying for a mortgage loan. This isn’t an issue if you’re able to find a house within your qualifying amount. But what if you want to buy a house that’s more than what you’re approved for?
Here’s a look at ways to get approved for a bigger mortgage.
1. Increase your credit score
Improving your credit score might be enough to help you qualify for a lower mortgage rate, which can increase your purchasing power.
Let’s say you’re approved to spend up to $1,500 a month on a mortgage payment. In such a scenario, the difference between a 4% and a 4.5% interest rate — with regard to purchasing power — is about $20,000.
Paying down high credit card balances is one way to quickly boost your credit rating. Too much credit card debt increases your credit utilization ratio, which is the amount of revolving debt you’re currently using. Utilizing more than 30% of your credit line can drive down your score. Paying off credit cards, however, can increase your score and help you qualify for a better mortgage rate.
Speak with us before paying off debt to ensure you’ll have enough cash in reserves to pay your mortgage-related costs such as your down payment and closing costs.
2. Put down a large down payment
You can get a mortgage with as little as 3% to 5% down. Keep in mind that a smaller down payment also means that you’re financing a larger amount. But if you’re able to increase your down payment to say 10% or 20%, thus reducing how much you borrow, you can possibly afford a more expensive home.
You'll also avoid private mortgage insurance (PMI) if you put down at least 20%. Eliminating this added cost can help you qualify for a bigger mortgage amount.
3. Add a co-borrower
Applying for a mortgage with another person might also help you qualify for more. This is because we use your combined income to determine the qualifying amount.
The other person can be a spouse or maybe a non-occupying co-borrower. To qualify, however, your co-borrower must meet the qualifications for a mortgage loan, which includes stable income and an acceptable credit score.
Understand that when two names appear on a mortgage application, we’ll use the lowest credit score of the two applicants to determine the mortgage rate. So make sure your co-borrower has good credit. Even if your co-borrower’s income helps you qualify for a larger mortgage, you could end up paying a higher interest rate due to their low credit score.
4. Provide compensating factors
Typically, you can spend up to 28% to 31% of your gross monthly income on a mortgage payment. This, however, is only a guideline. You might be able to borrow a greater percentage if you have compensating factors. These include an excellent credit score or a sizable cash reserve after closing on the mortgage.
Cherry Creek Mortgage offers an assortment of home loan products to make homeownership a reality for our clients. A mortgage is just a phone call away, so contact us today to discuss your options and learn how you can qualify for an affordable mortgage.