The cost of living continues to rise (though at a slower rate than they were). As a result, many house buyers may require a larger mortgage than anticipated. As a Irvine house buyer, you’re undoubtedly interested in learning how to qualify for a larger mortgage loan. There are numerous options available to you, but some are significantly more effective than others. So, here are our top ideas for getting a bigger mortgage loan approved for Irvine house purchasers.
1. Improve Your Credit Score
Of course, improving one’s credit score is one of the most effective ways for Irvine home buyers to obtain approved for a larger mortgage loan. The main reason is that having a higher credit score allows you to get a cheaper mortgage rate, which allows you to borrow more money.
“The interest rate you receive on a loan,” experts say, “is tied to your credit score. You can get a cheaper mortgage rate by improving your credit score, which means you’ll be accepted for a larger loan amount. A half-percentage-point reduction in your loan rate could allow you to borrow hundreds of dollars more. Paying off credit card debt is one of the most common methods borrowers can improve their credit rating quickly. If you are carrying high credit card debt, your credit score is taking a big hit because your credit utilization ratio accounts for 30% of your overall score.”
Other things you can do to improve your credit score include:
- Not applying for additional credit – “Do not apply for any new credit cards or loans. Your credit score can be lowered if you make too many credit queries. You’re also accumulating debt on your credit report, which might lower your score.”
- Paying bills on time – Your payment history accounts for 35% of your overall credit score, so it’s imperative that you pay bills on time. A good way to ensure that you do is by setting up an auto-payment system.
- Disputing errors and inaccuracies – If you find errors/inaccuracies in your credit report you can dispute these. “You can immediately contact the credit bureaus to dispute accounts that you don’t believe are accurate. They’ll look into the account and have 30 days to either verify it or delete it.”
- Get added to another account as an authorized user – “If you know someone who has an excellent credit card with no negative account activity, ask them to add you as an authorised user to their account. Your credit profile will be updated with your whole account history, which may improve your credit score.”
2. Increase Your Maximum DTI Ratio
Increase your maximum debt-to-income (DTI) ratio to improve your chances of getting approved for a larger mortgage loan. Because it is an important aspect when lenders decide how much risk you present as a borrower, this ratio has a significant impact on how much you can borrow.
Your DTI ratio “is the factor that decides how much you are eligible to borrow. It’s the difference between your monthly gross pre-tax income and your monthly debt commitments, such as credit cards, student loans, and mortgage payments. Lenders typically have a maximum DTI ratio of 43 percent. If you have significant offsetting variables, lenders may be willing to accept a debt-to-income ratio of up to 50%.”
The important compensating factors you can improve to achieve a higher DTI ratio and so qualify for a higher mortgage loan include:
- Large cash reserves on hand
- High credit score
- Large (or larger) down payment
- More than 5 years with your current employer
3. Try for a Longer Mortgage Term
You can also apply for a longer mortgage term in order to get accepted for a larger loan. A longer mortgage term usually translates to reduced monthly mortgage payments, allowing you to purchase a larger home. An adjustable-rate mortgage and a longer fixed-term mortgage are two alternatives here.
“An adjustable-rate mortgage will have a very low interest rate and payment for the first term (typically five years). The interest rate and payment will increase annually after the initial five-year period. You can always refinance at a later date to lower your payment. This will result in the smallest mortgage payment, allowing you to qualify for a home that is more expensive.”
“Some lenders now provide fixed-rate loans with a term of 40 years. This will result in the lowest monthly payments, allowing you to qualify for a home that is more expensive. Again, you may always pay a little extra each month to reduce the time it takes to pay off the mortgage to less than 40 years.”
Keep in mind, though, that local market conditions and factors can also play a role in which option is best for you. You can contact a Irvine agent at (714) 701-8210 to find out more about this.
4. Show More Income and Increase Cash Reserves
Showing more income and/or increasing your cash reserves can also allow you to get a higher mortgage loan.
Showing more income doesn’t necessarily mean you have to go out and get a second job or push for a raise. Remember: we said to show more income, not make more money. You likely already have other sources of income that you can use to show more income. Consider using the following as “other sources of reliable income to qualify for more”:
- Rental income
- Interest/dividends from investments
- Alimony or child support
- Income from a side hustle
A good amount of cash reserves can also help Irvine home buyers get approved for a higher mortgage loan. Here’s why . . .
“While cash reserves aren’t required to qualify for a mortgage, having extra assets in the bank or elsewhere can help you qualify for a larger loan. You’ll be able to weather an unexpected expense and keep up with your mortgage payments if you have some money set aside. If you don’t, a single emergency could force you to fall behind on your payments, making a lender less willing to lend you more money.”
Bonus Tip: Work With an Experienced Irvine Agent
Working with a seasoned local realtor might also go a long way toward getting you accepted for a larger loan. Your Irvine agent, while not a financial advisor or loan officer, will have a thorough awareness of the conditions in the local market and the strategies that will help you borrow more. If you want to get authorized for a bigger mortgage loan, give us a call at (714) 701-8210.