How to Increase Your Borrowing Power

You want to buy a home, what an exciting time! You may be disappointed to find out how much loan you can afford though. As you work your way through the process, you may wonder how you will find a home that fits within your budget.

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Fortunately, there are simple ways that you can increase your borrowing power before you apply for a loan. Keep reading to learn how you can implement this into your life.

Check Your Credit Score

Do you know your credit score? If not, it’s time to check it. You can get access to it through your bank or credit card companies. Most financial institutions offer free access to your credit score. While this won’t be the exact scores lenders see, you’ll have a good estimate. If your score seems low, you may need to take action.

We recommend pulling your actual credit report from You have access to all three credit bureau’s reports once a year free of charge. Go through the report and look for:

  • Late payments
  • Overextended credit lines
  • Collections

Take the time to correct any negative information. Bring late payments current, pay down over-extended debts, and make good on your collections. Over time, this will help your credit score increase. The higher credit score that you have, the more borrowing power you will have. A low credit score tells lenders that you don’t pay your bills on time or you overextend yourself. Put those doubts at ease with a higher credit score.

Eliminate Debts

Lenders look closely at your debt-to-income ratio. This compares your gross monthly income to your monthly debts. If you are already in over your head, lenders are either going to decline your mortgage application or limit how much you can borrow.

Before you apply, see how many debts you can pay off or pay down. Paying debts off completely is ideal because it wipes the payment off the board. You don’t have to figure it into your debt-to-income ratio. If you can’t pay the debts off, and you have credit cards, try paying them down to a manageable level. The lower your minimum monthly payment is, the lower your debt ratio becomes. A lower debt ratio leaves more room for a higher mortgage payment, which means more borrowing power.

Have Money Saved

Start saving money as soon as you can. You’ll need money for the down payment as well as mortgage reserves. Even though most mortgage programs don’t specifically require mortgage reserves, having assets on hand can only help your borrowing power.

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Lenders count reserves by the number of months of mortgage payments it covers. If your mortgage payment will be $1,000 and you have $5,000 saved, you have five months of mortgage reserves. Letting lenders know that you have the money set aside to cover your mortgage no matter what can help them feel better about lending you more money.

Make More Income

It sounds difficult, but there are simple ways you can increase your income. Even if you can’t get a raise at your current job or you can’t get a new job that pays more consider some of the following ways to make more money:

  • Take up a part-time job
  • Freelance online
  • Sell belongings you no longer need

While you may not be able to use the money for qualifying purposes directly, the more money you have on hand, though, will increase your borrowing power indirectly.

Extend the Mortgage Term

While you might not want to think of borrowing money for as long as 30 years, it can increase your borrowing power. The longer your term, the more money you can typically borrower. Longer-term loans provide lower payments.

While you should exercise caution when extending the term, it can help you afford more home. Just make sure you look at the big picture. Know how much interest the loan will cost you over its lifetime. One trick many borrowers use is to take the 30-year loan to get the loan they need. Once they are more secure, they refinance out of the 30-year loan and into a shorter term in order to save money on the interest and own the home faster.

Get a Co-Borrower or Cosigner

If all else fails, try bringing someone else onto your loan. Choose this person wisely, though. Lenders take the lowest middle credit score between all borrowers for qualification. For example, if your middle credit score is 670 and your co-borrower’s is 570, lenders will use your co-borrower’s score for qualifying purposes. In other words, it may be hard to get a loan – the co-borrower doesn’t help.

If, however, the co-borrower had a higher credit score than you, he or she could help your case. The lender will use his or her credit score as well as his or her income for qualifying purposes. Increasing the income may increase your borrowing power. You have to watch how many debts the co-borrower has, though. If the co-borrower brings a lot of debt to the table, you may find yourself in a worse position. But, if the co-borrower has few debts, good income, and a good credit score, it could help you borrow more than you could qualify for on your own.

Increasing your borrowing power means thinking outside the box. Start early in your efforts to make your application look as attractive as possible. The more positive factors you have to show a lender, the more money they’ll be comfortable lending you.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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