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How to increase pre-approval amount

Mortgage pre approval applicationGetting pre-approved for a mortgage is the first step in purchasing a property. Your annual income, credit history, and credit score will all be considered by the mortgage lender. Lenders calculate the ideal mortgage payment using a debt-to-income ratio. The debt-to-income ratio compares your monthly income to your monthly debt.

Following the submission of your financial information to the mortgage lender, the lender will determine which mortgage loan is best for you and provide you with an estimate of the highest possible sales price.

What does loan pre-approval mean?

Pre-approval involves an in-depth investigation of an applicant's finances, which includes documenting the home buyer's income, assets, and a credit report review.
The mortgage lender will request the home buyer's last 30 days' pay stubs, two months' bank statements, and a credit report from the three major credit bureaus.
The lender may ask to examine the past two years' income tax returns, depending on the type of job.

The pre-approval process mimics the mortgage application process. A solid pre-approval puts you through the wringer before looking for a property and allows you and the lender time to iron out any issues, such as pending judgements or collection accounts(s).

Even if you consistently pay your bills promptly, a late payment on your credit report is possible if your payment was not recorded to your account on time.
Creditors and computers make mistakes, and monthly payments are not always posted on time. Consider pre-approval to be a financial checkup.

TIP
Who approves your mortgage? Did you know that a computer makes the decision? Lenders use a software program called "automated underwriting" and it can be used for pre-approval. Read more


What is considered monthly debt when applying for a mortgage?

Little cartoon of a man carrying a debt signMonthly debt includes:

  • credit card payments,
  • auto loans,
  • alimony, and child support payments,
  • student loans,
  • obligations with less than 6 - 10 months (depending on the loan program) are typically ignored in the debt to income analysis.
  • bankruptcy, divorce, and child support settlement agreements will have to be provided to the lender (if applicable).

Income requirements for a mortgage

Determining the buyer’s monthly income can be more art than science. Some home buyers are paid monthly, semi-monthly, or weekly and earn the same amount each pay period, however, arriving at a monthly income when the number of hours changes from pay period to pay period can be challenging for the loan officer. If you have an irregular income or have multiple employers, you definitely need a complete pre-approval. Mortgage lenders want to see a continuous work history within the same line or work for 24 months.

All sources of income, including child support, alimony, pension, retirement distribution, and social security, may be considered in the pre-approval process, providing the source of income is expected to continue for at least three years.

Self-employed candidates undergo a comprehensive background check.
The applicant is the employer, and therefore has the power to alter earnings (and losses).
Without a doubt, the mortgage lender will want to view the previous two years' income tax returns, as well as a year-to-date profit and loss statement prepared by a qualified accountant.

Do you earn money from rentals? If this is the case, get your tax returns.
Lenders will deduct rental costs from rental revenue to assess if the rental properties generate a profit or a loss. Gross profits are deducted from rental losses.

Rotating question markPre-approval: Frequently Asked Questions (FAQ)

Q. Are pre-approvals guaranteed?
A. I doubt that you will find a lender who will "guarantee" a loan based on a pre -approval application, because the pre-approval is based on estimated real estate taxes and homeowner's insurance cost. And the interest rate could be higher when you find a house. Another concern is the possibility that your income could decrease or your monthly debt could increase. For all these reasons, lenders do not guarantee mortgage pre-approvals.

Q. Can I raise my credit score quickly?
A. Maybe. Some lenders utilize the rapid rescore program in conjunction with credit simulators to raise the applicant's credit score. Read more about rapid rescore

Q. Can the pre-approval amount change?
A. The pre-approval loan amount can increase or decrease due to the interest-rate fluctuations. If the interest-rate increase, the amount you can borrow will decrease. Changes to income and monthly debt obligations will also affect the loan amount.

Q. Do I qualify for a home loan?
A. Banks and mortgage companies require two-years of continuous employment, although there are some exceptions to the two-year (24 month) rule. Most mortgage lenders desire a credit score of 620 or greater, however, once again there are exceptions. For example, the FHA home loan will accept a 580 credit score. The mortgage programs require a balance between monthly income and monthly debt obligations. Lenders use a formula called debt to income to help determine the ideal loan amount and monthly mortgage payment. The only way to determine whether you will qualify for a mortgage is to speak to a mortgage loan officer to determine whether you qualify for a home loan.

Q. Does getting pre-approved hurt credit?
A.The credit inquiry will have a nominal impact, if any.

Q. Does a pre-approval letter guarantee a loan?
A. When a lender provides you with a pre-approval letter, he or she is basing the pre-approval on a hypothetical sale. The lender is estimating the sales price, real estate taxes, and homeowner's insurance based on your financial information; therefore, no pre-approval can be guaranteed.

Q. How long is a mortgage pre-approval good for?
A. Most lenders will tell you that their pre-approval is good for 60 days, but the pre -approval is dependent on maintaining the status quo for income, credit, and employment that was provided to the lender. Taking on more debt or reducing cash assets can nullify the pre-approval. Don't quit your job or make any changes to your employment. In short, the pre-approval can extend much further than 60 days provided no changes have occurred since approval.

Q. How long does mortgage pre-approval take?
A. Pre-approval can take as little as 30 minutes, but could stretch out weeks if you do not have all your information ready for the loan officer. The mortgage lender will want to see your most pay stub or ask you to recite the information on the pay stub. He or she may want to see (or hear) your W-2 earnings from last year. Are you receiving or paying child support or alimony? The lender needs all information relating to monthly income and monthly debt obligations. The self-employed, rental, and non-taxable income can slow down the pre-approval. Prior to speaking to a loan officer for pre-approval or pre-qualification, have your tax returns for the two previous years, your most recent pay stub and bank statements and any other savings account(s). Including, 401K and deferred retirement accounts.

Q. Is there a cost of pre-approval for a mortgage?
A. Lenders do not charge for mortgage pre-approval. They're hoping that you will finalize a mortgage application with them after you find a house.

Q. Is there a difference between pre-approval and pre-qualification for a home loan?
A. When you meet with a real estate agent, he or she will ask you if you have been pre-approved or pre-qualified. The reason of course is that the real estate agent does not want to spend time with an unqualified home buyer; and needs to know your price range.

Q. Is there a difference between pre-approval and pre-qualification?
A. There sure is. When a lender pre-qualifies a prospective home buyer, he or she will ask basic eligibility questions, like, “how much do you earn”, “how much do you pay out monthly and how much cash are you working with”. Pre-qualification is nothing more than a light discussion of the monthly income, monthly bills, and available assets. A pre-qualification interview expresses the “opinion” of the loan officer about the likelihood of obtaining a mortgage and the estimated price range. Pre-qualification does not mean pre-approval!