Mortgage qualification is usually a straightforward process. The lender or lending agent looks at your income, your debt load, and your credit history to make a decision on whether or not you qualify for a home loan.
For most people, the primary source of income is their job. Paystubs and income-tax documents that verify someone’s regular pay is the main source of income information.
What if you want to purchase a larger or more luxurious home, but simply don’t have the income to qualify for a larger loan? If your income is not enough to qualify for more home, you might think that you need to earn more money in order to qualify.
But this is not the case.
As we’ll show, there are ways you can qualify using the income and resources you already have. You don’t need a massive income, as savings and investments can often be used to reach mortgage approval for a larger home.
How to Qualify for More Home Using Resource You Currently Have
If you have a significant amount of cash sitting in a savings account, it could be used to increase your potential loan amount. By having cash readily available, you are, statistically speaking, less likely to default on your loan.
Essentially, borrowers with cash reduce the risk to lenders. This makes sense, as someone with $100,000 in a bank account is less likely to be unable to make their payments compared to someone with only $2,000 in the bank. If our first example (a borrower with $100,000) experiences financial hardship, they can use their savings to make the loan payments. But if the same situation happens to someone with limited savings, they are more likely to default.
If you were approved for a smaller mortgage, but did not document your cash in the application, try again. The next time, however, make sure your lending professional has information about your large savings.
Investments can be used to increase your total borrowing power. Whether you are earning a return from your stock investments or they are an untouched asset, you may be able to apply these to your mortgage application and increase your total loan.
Company stocks are assets that can be used during your application. Restricted stock units, for example, are a common form of compensation for many companies, and this income or asset type can be documented in your application. If you own any type of investment stocks, talk to your lending professional to see how it can be applied to your application.
Stocks are not the only non-physical asset you can use on your mortgage application. Bonds can also be applied to your application to potentially increase your total loan, helping you purchase a larger house.
Bonds are essentially IOUs from borrowers such as governments and other organizations. They are generally considered a safe place to park your money, although they do not bring the higher potential for returns. They provide a predictable income stream, and could be useful when you are trying to get a larger loan. If you own bonds of any type, make sure they are included in your application.
When people retire, their income is usually reduced by a large amount. But this does not mean that they don’t earn an income. On the contrary, many retirees have retirement accounts that pay a large sum on a weekly or monthly basis; this income can still be used for your mortgage application.
Even if you are not receiving payments from retirement accounts, the lump-sum total could be used on your application. Retirement accounts are often invested in the stock market, which means they could be reduced if the market falls. Therefore, lenders usually use a percentage of the total and apply this to your income. (For example, they may use 80% of the account total instead of 100%.)
Use a Longer Mortgage Term
The longer you stretch out your mortgage terms, the lower your monthly payments. Assuming all other factors are the same, a 15-year mortgage will have higher payments than a 30-year mortgage. Most believe that 30 years is the maximum time for a mortgage, but there are now options available for 40-year mortgages, which helps you stretch out the loan and decrease how much you pay every month.
How much more could you add to your borrowing power? Using our mortgage calculator, we can see the general difference between a 30-year loan and a 40-year loan. (We should note that this is a simplified example only, and it won’t reflect the real differences in an actual mortgage application.)
Let’s assume you are approved for a mortgage payment of about $4,000. On a 30-year mortgage with 4% interest, this would allow for a loan of roughly $840,000.
*Note: This is for illustrative purposes only; actual interest rates, APRs, and payment amounts will vary
But what if we keep all other factors the same, but extend it to a 40-year loan? In this case, a $960,000 loan would bring a P&I payment of $4,012.21. Roughly speaking, by going from a 30-year mortgage to a 40-year mortgage, we have increased your borrowing potential by $120,000, all without increasing the mortgage payment.
Extending the loan term, however, will create a larger total cost. You should be aware that while extending the term reduces monthly payments, you will pay more in total. Also, you will build equity in the home much slower and, assuming you keep the mortgage, will have an additional decade of monthly payments. This needs to be considered, perhaps with the help of a financial advisor, before making the final decision. That said, if getting a larger loan is your priority, extending the term could help.
Apply all Your Assets to Reach the Loan You Deserve
We believe that you deserve the best chance at a top-quality mortgage. If you have applied for a mortgage but didn’t get the total you were hoping for, let us take a look at your situation.
With years of experience and a deep understanding of the mortgage industry, we can apply all of your available assets to the application, increasing your chances of a world-class mortgage loan.