Say
you started the home buying process backwards and started LOOKING at homes before
you pre-qualified yourself for a loan. Now you’ve found that none of the homes
in your price range will measure up. What do you do? Short of robbing a bank,
there are 6 things that you can do to qualify for a bigger mortgage.
1. Reduce
long-term debt
The
first thing that lenders look at is your income to expense ratio. They compare how
much money you have coming in against how much money you have going out every month.
We
all know that a dollar will only go so far – and lenders know this particularly
well. So, if you can pay off car loans, credit cards, or any other obligations
against your income, you’ll have more money to spend on a loan – and a lender will
let you borrow more money.
2. Wait
until you get more income
Another
way to look at the income-expense ratio is from the income side. If you have
more money coming in, you can borrow more money. If you’re expecting a raise
within the next year, maybe you should wait until that comes through, before asking
to borrow money for a new home.
3. Add someone
else to the loan
Another
way to demonstrate to a lender that he will be repaid is by having someone
(with a good income and stable job) co-sign on the loan. This way, the lender
is looking at MORE income available to repay the loan. Family members Bank
of Dad) are the typical source of someone willing to co-sign.
4. Use
financing that requires lower down payments
The
basic idea is this… the more money that you have available to spend, the more money
that a lender will let you borrow. You’re trading off having the money
available NOW or later. If you put a large down payment on a home now, that
means you may have less income available to repay a loan later.
By
the same token, if you make a smaller down payment, then you’ll have more money
available to repay a loan – and the lender is likely to let you borrow more.
5. Wait
for interest rates to drop
Interest
rates are the price that lenders charge for the use of their money. So, when
interest rates are high, it’s because lenders are charging you more to use
their money right now.
Again,
it’s a trade-off between now and later. Lenders are only going to give you so much
money to use over the next 15-30 years (the life of your mortgage). They work backwards
from that figure using interest rates. If you have a higher interest rate, you
have less money to spend now. If you have a lower interest rate, you have more
money to spend now.
So, if you can wait for a lower interest rate, you’ll be able to get more money to spend on the home you want.
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