With home prices on the rise, and only expected to go higher this year, you might be wondering how to get a bigger mortgage.
After all, you might need one if the purchase price is above than your original estimate, or if you’re short on down payment funds.
These days, bidding wars are the norm, and it’s likely you’ll have competition when making an offer on a property.
The good news is mortgage rates remain super low, despite some recent headwinds due to inflation concerns.
This means you can borrow more for relatively cheap, which is a good thing. And enjoy a low fixed rate for 30 years or longer.
1. Improve Your Credit Scores
Want a bigger mortgage? Improve your credit scores so you can qualify for a mortgage at a lower interest rate.
A lower rate equates to a smaller monthly payment, which will increase your purchasing power.
For example, if your three FICO scores average 660, your rate might be a half point higher than someone with a 740 FICO.
That could save you more than $100 per month on a $500,000 home purchase with 20% down.
As a result, you’ll be able to borrow more at the lower interest rate. You’ll also save money in the process by paying less interest.
You should always aim for high credit scores whether affordability is an issue or not.
2. Shop Around for a Lower Rate
To that same end, anything you can do to lower the mortgage rate you receive will up your purchasing power.
If you take the time to shop with several lenders, instead of just one, you may increase your chances of finding a lower rate.
With that lower rate, you’ll be able to borrow more based on your income and debt-to-income (DTI) ratio restraints.
Surveys prove that those who comparison shop save money, with even one additional quote producing savings between $966 and $2,086 over the loan term.
While you’re at it, you can consider alternative loan programs like a 7/1 ARM that could come with a lower rate and thus increase affordability/max loan amount.
3. Pay Off Debt
While it’s not always practical to make more money, especially on the fly, you can make whatever income you earn go further.
How? By paying off any debt you have, which will lower your DTI ratio.
When a mortgage lender pre-approves you, they’ll pull your credit report and tally up your monthly liabilities.
The more liabilities and costlier they are, the less purchasing power you’ll have.
For example, if you have a $500 car lease and $1,000 in aggregate minimum credit card payments, you’ve just eaten into a good chunk of income.
To rectify this, pay down/off those debts before you apply for a home loan. Just make sure you have money left over for the down payment and reserves to cover a few monthly mortgage payments.
Imagine you make $75,000 a year, or $6,250 per month gross. That might allow you to borrow roughly $2,700 per month for a mortgage.
But once we factor in the $1,500 in monthly liabilities, you’re down to $2,100 or so per month.
In other words, two people making the same amount of money could have vastly different degrees of purchasing power.
Tip: Pay off charge cards (like American Express cards) in full to avoid a high monthly payment being assigned as underwriters will often use the full balance as the minimum payment.
4. Make More Money
Yes, I said this wasn’t easy, or something you could do overnight, but it’s a consideration if you want a bigger mortgage.
And these days, it’s actually getting easier thanks to the gig economy. Lots of people are moonlighting and taking on side hustles to bring in more dough.
The caveat is that in order to use this income, it needs to be relatively stable and expected to continue into the future.
So you can’t work for GoPuff for a month and try to add that income to your mortgage application.
But if you worked a gig economy job for the past 12 months, or better off two years, you should be good to go.
And now that there are so many gig economy type jobs, you might even be able to piece together different roles to create a consistent employment history.
For example, if you worked for Uber for a year, then GoPuff the next year, it could be considered the same line of work and enough to satisfy any seasoning requirements.
5. Add a Co-Signer to Borrow More
If money is a little tight, or a bidding war drove the purchase price higher than you expected, a co-signer could also be helpful.
You could look to the Bank of Mom and Dad for some assistance, or simply add your spouse if it’s beneficial to do so.
This also hammers home the importance of all potential borrowers taking good care of their credit and keeping debt low.
That way any additional borrowers will only bring good to a loan application, without any baggage that could jeopardize approval.
A co-signer could also make your offer stronger to a home seller if they see that Mom or Dad have a lot of money and really want to make the deal work for their beloved child.
6. Get a Loan That Requires Little or Nothing Down
Maybe you have the income, but not the assets. If that’s the case, you’ll want a home loan with a smaller down payment. Or no down payment at all.
Some common choices are VA loans and USDA loans, both of which allow 100% financing if you’re military or buying in a rural area, respectively.
There’s also the FHA loan, which requires just 3.5% down, or a 97% LTV loan from Fannie Mae or Freddie Mac, which require just 3% down.
You should know the many options available to you beforehand so you can budget accordingly and shop for homes in your actual price range.
It’s also possible to get a grant from a state housing finance agency where little or nothing down is required.
7. Seek Out a Jumbo Loan Lender
Some types of mortgages have maximum loan limits you can borrow, such as conforming loans backed by Fannie Mae and Freddie Mac, and FHA loans.
If you want a larger mortgage than they allow, you’ll need to find a jumbo loan lender.
The good news is many banks, mortgage lenders, and mortgage brokers offer jumbo loans too.
These limits will range from company to company, and can be $5-10 million dollars or even more, depending on the institution in question.
Assuming a lender can’t or isn’t willing to give you what you want, shop around and find a lender that offers higher loan amounts.
Along these same lines, find a lender that is willing to accept a higher DTI ratio if affordability is an issue. Not all lenders have the same risk appetites.
8. Come in with a 20% Down Payment
While this might sound counterintuitive, it’s possible to increase purchasing power by putting down at least 20%.
You may have heard that you’re required to put down 20% when buying a home, or that it’s the typical down payment. While it’s certainly not compulsory, it can be beneficial for several reasons.
By putting down 20%, you will avoid private mortgage insurance (PMI) on conventional loans, which can be a big monthly cost.
For example, it could add $200-$300 or more onto your monthly PITI payment, deceasing your affordability significantly in the process.
Additionally, you will qualify for a lower mortgage rate in most cases, which as explained above, will allow you borrow more.
Lastly, your offer will be that much stronger to the home seller, especially if other offers are on the table.
They’ll want the 20% down offer versus the 3% or 3.5% down offers every day of the week.
Note that lender-paid mortgage insurance could also work to keep costs lower and let you borrow more.
9. Pay Discount Points
If you have the assets, but not the income, you can also pay discount points to obtain a lower mortgage rate.
These are a form of prepaid interest that are paid along with your other closing costs when you fund your loan.
If affordability is tight at the higher loan amount you desire, paying these points could get you the approval you’re looking for.
For example, if the par rate on your loan is 3.625%, but your desired loan amount is pushing you beyond the allowable DTI, simply buy down your rate.
You may need to pay a couple points at closing, which may not be cheap, but it could send your rate down to say 3.125% instead.
And that lower rate and monthly payment could be enough to qualify. You’ll also save money each month via lower interest.
Just make sure you hang onto the loan long enough to hit the breakeven period and reap the rewards.
10. Use a Mortgage Broker
Want the largest loan amount possible. Consider using a mortgage broker, an individual who can shop your loan scenario with dozens of wholesale lenders at once.
Aside from potentially finding you a lower interest rate, they may also have partners with more flexible underwriting guidelines.
For example, they might be able to place your loan with a lender that allows a higher max DTI ratio, or one that only requires one year of tax returns, instead of two.
So if you had a better year in 2020, that could increase your borrowing capacity versus averaging income from 2019 and 2020.
At the same time, they might have additional options like a 40-year mortgage or a cheaper ARM, or an interest-only loan.
Ultimately, you’ll have greater choice with a broker over a captive loan officer, and that may allow you to borrow more.