How To Increase Your Mortgage Preapproval Amount?
If you’re planning to buy a home in Canada, you’ve probably come across the term “mortgage preapproval.” It’s a thorough look at your finances to see if you’re eligible for a home loan and how much you can get. This helps you know your financing limit before house hunting. Being preapproved signals to sellers that you’re a committed buyer with a strong chance of securing a mortgage, easing their concerns about your financing falling through.
But what if your preapproved mortgage falls below your expected amount? Don’t worry; preapprovals are temporary. After approval, you typically have about 60–130 days to finalize a home purchase and sign a mortgage agreement. If you’re not happy with the preapproval amount and prefer to wait before house hunting to increase it in your next application, here are a few tips to consider:
Tips To Boost Your Preapproval Amount
- Increase Your Down Payment Savings
One key factor in getting approved for a mortgage is the initial amount you’re putting down. In Canada, you need a 5% to 20% cash down payment for any property purchase. If you aim for a pricier home, the minimum down payment will be higher. Although saving a significant amount upfront can be challenging, it’s a task you can control. You can do it at your own pace and fit it into your budget.
- Settle as much of your current debt as possible
Your mortgage lender checks your debt-to-income ratio to determine the mortgage amount you can manage with your current finances. If you owe a lot to other lenders (like loans or credit cards), it leaves less for mortgage payments and increases the lender’s risk. To qualify for a bigger mortgage, allocate some of your budget to repay debts. This way, when you reapply, your debt-to-income ratio will be lower.
- Boost your credit score
Start by understanding your credit score—it’s the first move to enhance it. This score greatly influences your mortgage journey. A low credit score means higher mortgage rates from lenders. Before you begin searching for a house, take the time to grasp how your credit score impacts your mortgage. If necessary, take steps to boost your credit score, giving you access to better rates. You can read this article about 5 strategies to fix or re-stablish your credit score in Canada.
- Enhance your income
In addition to reducing debt to having more money available regularly, increasing your income can open doors to a larger mortgage. Whether you request a raise, explore higher-paying job options, seek extra income through side jobs, or monetize a hobby, the crucial part is demonstrating the stability and reliability of your income sources.
- Look for a lower mortgage rate
Securing the best mortgage rate can lead to lower monthly payments, reducing your overall homeownership costs. To make sure you get the best rates, follow the steps mentioned earlier. Compare offers from various lenders, and feel free to shop around before settling on a preapproval. Also, consider the terms and conditions of each mortgage, as the type you choose (closed, open, fixed/variable rate) affects your long-term expenses.
- Consider getting a co-signer
Although not the best choice, having a co-signer—especially one with a high income—can increase your preapproval amount. If you’re considering this, it’s crucial to know the co-signers’ roles and what you’re asking of them before approaching them about this option.
- Look for longer loan terms
If you extend your mortgage term, your loan balance gets spread out over more time. This lowers your monthly payments and eases the financial load. Talk to your lender about extending the term and see if it helps them lend you more money for a mortgage.
- Have a realistic budget
Understanding what you can afford is crucial before starting the preapproval process. Just because you can be preapproved for a certain amount doesn’t guarantee your personal budget can handle it. Your credit report may not include all your expenses. Take time to list your monthly fixed and variable costs, and figure out how much you need to set aside beyond the main mortgage expenses.
What is The Maximum Amount I Can Get Preapproved For?
Loan amounts vary, and there’s no fixed amount for everyone. To get preapproved for a mortgage, meet with your broker or lender. Give them documents about your income, debt, assets, and more. This helps them evaluate the amount you can handle based on your current financial situation.
How Is The Preapproval Amount Determined?
To get preapproved for a mortgage, show proof of income, assets, employment, and other necessary documents the lender needs. This might include recent bank statements and your latest tax assessment. Keep in mind that your approval amount is determined by all these documents and your credit score, which significantly affects mortgage eligibility. If your credit score isn’t good, lenders might reject your mortgage application. In Canada, the required credit score for mortgage approval ranges from 300 to 900, but most major banks typically need a minimum score of 600 to 700.
Knowing the factors that lenders consider for your mortgage preapproval amount will also guide you on what to avoid when applying for a mortgage.
How Much Monthly Mortgage Payment Can I Afford?
Your affordable monthly mortgage payment is based on your personal finances. Mortgage preapproval helps both lenders and borrowers figure out the right house budget by considering all the essential factors.
Before talking to a lender, you can use our free calculators to find out how much you can afford to spend on your monthly mortgage.
Boosting your preapproval amount might appear challenging, but with informed steps, you can harness the outcomes for success. When gearing up for a mortgage preapproval, assess your finances thoroughly to make the most of it. Curious about mortgage options or preapprovals? Our team is here to provide answers and assistance!