Harris KhanIf you’re shopping around for a new home, you might be dismayed to see the state of housing prices right now. They are rising and will continue to rise for the foreseeable future.
When shopping around for a new home, your potential lender will take an estimate of your maximum loan amount and offer you an In-Principle Approval (IPA). An IPA will give you an idea of how much you can borrow, and you can use it to start shopping around for homes. However, it’s only valid for 30 days, and we know how quick that can go in while you are looking for a forever home.
Once you’ve shortlisted homes, an IPA allows you to make an offer. A bigger IPA will allow for a more valuable home.
You can grow your IPA and maximum loan amount with a few simple moves to that will allow you to appear like a more stable investment. Take a look at these strategies to boost your mortgage borrowing power.
Show more income
You can land a bigger loan with more income, but luckily that doesn’t mean you have to look up negotiation for salary tactics just yet. Also, your location might provide some benefits, for example, Fort Lauderdale mortgage options are much different than the neighbors in Florida. That said, a new job or higher pay isn’t necessary, although no one is stopping you, and it could only help. But don’t panic, there are other means of income that are often overlooked.
You can show proof of interest or dividends from investments. Don’t have any investments? Do you gain rent from properties? Alimony or child support? Social security income? Or money earned from a side business or part time job? All these are proof of income, although a side business or part time job comes with the precondition that you have to have been earning from this endeavor for over the past two years.
Pay off debt
A lender offering you a mortgage will definitely look at your debt-to-income ratio (DTI ratio), which is the percentage of your monthly income going to your minimum monthly debt payments. A DTI ratio of under 36 per cent is considered ideal. Some do go higher if they are comfortable, but it’s unlikely.
If you can pay off your credit card debt in one go, or an installment loan, you should. It will make a big difference in your DTI ratio and is a quick and easy way of increasing how much of a loan you qualify for.
However, there are other options. You can also reduce it with a balance-transfer card or by refinancing an auto loan to lower your payment. Your debt can also be consolidated into an installment loan.
Raise your credit score
A higher credit score, to a certain extent, can help to obtain a lower interest rate and therefore a slightly larger loan. Your credit score can be raised a number of ways. You can check your credit reports, make sure to stay on top of your payments, avoid applying for new accounts too often, etc. These are all ways you can help raise your credit score. Self-reporting apps like Experian Boost and UltraFICO are also available so that you can add accounts with positive payment history, boosting your score.
Avoid PMI
A bigger loan can come if you don’t have to pay for private mortgage insurance (PMI) and to avoid PMI, you will need at least a 20 per cent down payment. PMI protects the lender if you stop paying your loan, which you don’t need to pay if you offer more than 20 per cent of your down payment when applying for a home loan.
Without this 20 per cent down payment, the PMI becomes a part of your monthly costs and will decrease the size of the loan you are eligible for. If possible, and you have the money, you can increase that 20 per cent up front and lower the rate of your interest.
Add a co-borrower
A co-borrower with a steady income and strong credit would go a long way to convincing a lender to offer you a larger loan. The coupling of your income and your co-borrower’s income will increase your overall total income which your lender can take into account and use to qualify you for a larger loan.
Spouses, domestic partners, friends, or relatives can all be co-borrowers, however it isn’t just a name on a piece of paper to do you a favor. Both parties must agree to put both their names on a property and share in the responsibilities of repaying the loan.
Shop around
You should keep an eye on comparison websites and visit other banks and lenders. You want various rate quotes and loan offers to present to your lender. This will pay off in a number of ways. Comparison shopping will gain you multiple preapprovals. You will gain various offers with various amounts which will allow you to choose a lender that is offering the largest preapproved loan.
Or you can use your lower offers as leverage with a lender that has preapproved you for an unsatisfying amount. They can reconsider if they know you have better options elsewhere. This will allow you to get the biggest mortgage for the lowest price.
