It is a truth universally acknowledged, that unfortunately, house prices are rising. And it looks like they will continue to rise for the foreseeable future, so is the predicament we’re in. With this in mind, knowing a few moves in order to gain a bigger mortgage. If you’re thinking about buying a home, there are things you can do to convince your bank or lender that you deserve more borrowing power. Read on to see our strategies for getting a bigger mortgage.
Show any additional income
If you have any proof of additional income, it can go a long way to getting you a bigger loan, since you are proving you can repay them. But before you go storming into the boss’s office for a raise or to quit for a higher-paying job, calm down. These tactics can be helpful, but if you don’t fancy that, there are other things that are considered additional income.
You can show proof of interest or dividends from investments, income from rental properties, alimony or child support, social security income, and money earned from a part-time job or a side business. These are all considered reliable income; however, the latter comes with the stipulation that you have to have earned enough from your job or side business over the past two years.
So, if you’re planning to take out a mortgage after two years or more, it’s best to establish your additional source of income as early as now. For example, you should start investing or working as part-time freelance work as soon as possible. That way, you’ll have the necessary documents to prove that you’re earning extra income from sources other than your regular job. As a result, your lender won’t treat you as a high-risk borrower, allowing you to apply for a bigger mortgage with flexible interest rates.
Pay off any debt
Any debt clogging up your account will hinder the size of the loan you’re looking for. When you apply for a mortgage, a lender will look at your debt-to-income (or DTI) ratio, which is the percentage of your monthly income that you are dedicating to your minimum monthly debt payments. A DTI ratio of less than 36 per cent is usually considered ideal but some lenders are comfortable with going higher. Without debt, lenders will be more comfortable lending you, knowing that you can repay and that you haven’t got other loan priorities.
Credit card debt or an installment loan getting paid off can make a big difference in your DTI figure. If you have the money handy it can be a quick and easy way to increase how much of a mortgage you qualify for. If you can’t pay it all off in one go, you can reduce it with a balance transfer card or you can refinance an auto loan to lower your payments. There is also the option of consolidating your debt into an installment loan.
For example, if you’re using super annuation for home loans, it’s important to know that you can refinance your outstanding Self-Managed Super Fund loan to secure a more suitable loan with lower interest. Generally, a Self-Managed Super Fund (SMSF) refers to a superannuation fund that lets you manage your investments for your retirement. Hence, if you want to purchase a property, you can apply for an SMSF loan. But if the loan is causing you to pay higher interest rates and other fees, then refinancing it may be the best way to go. That way, you can reduce your debt and eventually pay it off in no time.
Indeed, all these ways can help lower outstanding monetary obligations. Thus, when you’re debt-free when you apply for a new home loan, you can have better chances of saving money on your mortgage. Your lender also won’t hesitate to approve a bigger loan amount because of your ability to manage and pay your debts on time.
Raise your credit score
A slightly larger loan can be obtained with a lower interest rate, and you can get a lower interest rate by getting a higher credit score – but only to a certain extent.
There are a number of ways to raise your credit score. Check your credit reports and stay on top of your payments. Avoid applying for new accounts if you can. These can all help you in raising your credit score. There are also self-reporting mobile apps you can take advantage of like Experian Boost and UltraFICO. You should add accounts with positive payment history to the app, boosting your score.
Put down at least 20 percent
Most banks and lenders will add private mortgage insurance (or PMI) to your loan, which you can bypass to get a bigger loan with a large enough down payment. PMI protects the lender if you stop paying your loan.
So, if you’re applying for a home loan like a DBS Housing Loan and your down payment is over 20 percent of the house’s price, the PMI will be waived and you won’t need to pay it. Without at least 20 percent in down payment, the PMI will become part of your monthly costs and will decrease the size of the loan available to you. If you have the cash after your 20 percent, you can pay a little more to your lender to lower the rate of your interest which will help with monthly repayments.
Add a co-borrower
One thing that can go a long way to convincing a lender that you deserve a bigger loan is a co-borrower. A co-borrower with strong credit and a steady income will reassure the lender that there are various incomes contributing to the mortgage and therefore a backup if something were to fall through. You and your co-borrower’s income will increase the total income that a lender can use to qualify you for a loan.
Co-borrowers can be spouses, domestic partners, friends, or relatives, but they should all be warned it is not just a name on a piece of paper, but a financial agreement. It is for people of both parties to get their name on a property and to agree that they will share the responsibilities of paying back the loan.
