How to Increase Your Mortgage Pre-Approval Amount

Securing a pre-approval mortgage is the golden ticket that provides insights into your borrowing capacity and sets the stage for your house-hunting adventure. But what if you aspire to reach for a more substantial pre-approval amount, one that can unlock the door to your dream home? Whether you’re a first-time buyer looking to maximize your budget or a seasoned homeowner eyeing a larger investment, there are strategies you can use to take control of your financial profile and elevate your homebuying potential.

What is a Mortgage Pre-Approval?

A mortgage pre-approval is a preliminary assessment a lender provides to a potential homebuyer. It signifies the lender’s willingness to lend the homebuyer a specific amount of money for purchasing a home, pending final approval once a particular property is chosen. A mortgage pre-approval helps you understand how much money you can borrow based on your financial situation, including your income, credit history, and debt-to-income ratio. This ensures you only look at homes that are within your financial means. Once you find a home you want to purchase, having a pre-approval in place can expedite the mortgage application process, potentially reducing the time it takes to close the deal.

Save for a Larger Down Payment

Saving for a larger down payment is the most effective way to increase your mortgage pre-approval amount. Calculate the down payment amount you aim to save, which will be any amount upwards of 5 percent of your desired mortgage amount. Arrange for automatic transfers from your checking account to a dedicated savings account or a separate down payment fund. Automating your savings ensures consistency and discipline. Apply unexpected financial windfalls, such as tax refunds, work bonuses, or monetary gifts, toward your down payment fund. These lump sums can significantly boost your savings.

Boost Your Credit Score

Request a free copy of your credit report from each major credit bureau. Review them carefully for errors, inaccuracies, or discrepancies. Ensure you consistently make on-time payments for all your financial obligations, including credit cards, loans, utilities, and rent. Avoid opening new credit accounts or applying for additional loans before applying for a mortgage. Multiple credit inquiries in a short time can temporarily lower your credit score. Keep older, well-managed credit accounts open, as they can contribute positively to your credit history and score. Use your credit accounts responsibly by keeping balances low and paying off debts rather than simply transferring them between cards.

Increase Your Income

Evaluate your performance, skills, and contributions to your current job. If you believe you’re due for a raise, approach your employer with a well-prepared case demonstrating your value to the company. Consider taking on a side hustle or part-time job that aligns with your skills and interests. This supplementary income can be dedicated to savings for a down payment or debt reduction. If you possess marketable skills, explore freelancing opportunities in your field. Freelance work can provide a flexible source of income. Explore online platforms that offer options for remote work, consulting, or selling products or services.

Reduce Your Debt

Compile a list of all your outstanding debts, including credit cards, personal loans, student loans, and auto loans. Determine which debts have the highest interest rates or the largest balances. These should be your top priorities for repayment. Develop a comprehensive budget that outlines your monthly income and expenses. Identify areas where you can allocate more funds toward debt repayment. Review your discretionary spending, such as dining out or entertainment, and reduce these expenses to free up more money for debt reduction.

Add a Co-Borrower

Adding a co-borrower, often a spouse, family member, or trusted individual, can boost your combined income and creditworthiness, potentially increasing your pre-approval amount. Co-borrowers with strong credit scores and stable incomes can enhance your application’s overall strength, making it more attractive to lenders. Keep in mind that both you and your co-borrower share equal responsibility for repaying the mortgage.

Negotiate Longer Mortgage Terms

Longer mortgage terms, such as 30 years instead of 15, result in lower monthly mortgage payments. Lower payments can help you qualify for a larger mortgage by reducing your debt-to-income ratio. Longer terms can provide financial flexibility by reducing your immediate financial burden. However, you can always make extra payments to pay down the principal faster if your financial situation improves.

Use a Government Mortgage Assistance Program

Canada offers various government programs and initiatives to support homebuyers. For example, the First-Time Home Buyer Incentive allows eligible buyers to finance a portion of their home purchase through a shared equity mortgage with the government. Some provinces and territories also have their own homebuyer programs, such as down payment assistance or tax credits, that can further increase your borrowing capacity.

With determination and the right strategies, you can take meaningful steps toward realizing your dream of owning a home that meets both your needs and your aspirations. Strategically managing your finances, boosting your income, and reducing debt can empower you to secure a larger mortgage pre-approval, expanding your options in the housing market.