If you have tried to apply for a more significant loan amount and got a rejection, you might not have met the lender’s criteria. Some of the factors that can affect the approval of your loan are your credit score, your income, and your debt-and-income ratio. Before you submit your next loan application, making sure that everything is in order can help you get the loan amount that you need. Here are also some ways to qualify for a bigger loan.
- Raise your credit score
A high credit score will make it easy for you to get loan approval for more significant amounts at a low-interest rate. People with excellent credit ratings can quickly get a lender’s approval and qualify for higher loans. With a reduced price per annum, your lo proceeds can increase by several thousands more.
Another thing that you should think about is your credit card balances. Pay your debts in full if you can because this will raise your credit score several points. If you cannot pay in full, make sure that your balances must be lower than your credit limit by 15%. Expect your credit score to go up so that you can get loan approval fast.
- Make a down payment of 20%
When you get a high loan for a home, the lender would require a PMI or private mortgage insurance that can cost 1% of the amount that you borrowed per year. If you borrowed $500,000, the PMI could be $5,000 per year. The PMI can cost much if your loan is payable within 20 years.
Making a 20% down payment would reduce the amount you borrowed and translate into a smaller annual percentage rate. You would be able to buy a more expensive home because you can enjoy a lower percentage price.
- Offer compensating factors that improve your debt-to-income ratio
Another way to qualify for a more significant loan amount is to offer compensating factors to prove that you can pay back the loan. Most lenders would ask you why he must loan you a large amount of money. Contributing the compensating factors you have can make approval possible. Your compensating factors include your high credit rating, a stable and high paying job, and a flourishing business. You can show the lender your income statement, cash reserves in banks, and other assets.
- Get an adjustable payment rate
During the first five years of the repayment term, you will have a meager fixed payment. After the 5th year, the monthly dues will increase, making it faster to pay off your loan. To prevent your monthly dues from growing, refinance your loan before the 5th year. One advantage of refinancing is that you can have a minimal mortgage payment, and you can enjoy substantial loan proceeds.
For a home loan, some lenders offer a repayment term of 40 years with a fixed rate. Because you can pay your debt within 480 months, your payment due will be lower than when you have to pay within 25 years. You can afford to pay the monthly amortization even if you borrow more.
- List down all income sources
To get a higher loan amount, you must show that aside from your regular income, you have other sources to have the money to pay for your loan. Ask your loan officer what revenues are eligible for the credit you want to take. Generally, additional income includes alimony and child support, mortgage income, dividends, foreign income, car allowance, capital gains, disability income, royalty payments, trust income, social security income, unemployment benefits, mortgage credit certificates, and car allowance. Including your earnings from other sources can improve your debt-to-income data and increase your chances of getting a higher loan.
- Have a co-borrower
If your income does not meet the requirement of the lender, you can find a co-borrower. Your co-borrower will let you include his income to improve your debt-to-income ratio. In case you default, the co-borrower will pay back the amount you have borrowed. This is a risky arrangement on the part of your co-borrower. Ask someone very close to you to be your co-signer because other people might refuse to take the risk.
- Do some shopping
Checking the loan offers of several lending companies can provide you with several options. Comparing the loan amount, annual percentage rate, repayment options, and criteria for borrowers will help you find a lending company that gives you the best offer.
With the information you got from several lenders, you can negotiate the rates and other fees, as well as the repayment terms. If you are a good negotiator, you can get a higher loan at a minimal cost.
If you need a more substantial amount to make significant purchases such as a house, consider these tips to qualify for a higher loan and make your dream a reality.