Q. What happens when you change the mortgage loan amount after the loan application is with the mortgage lender?

A.  Generally this is not a big problem when the loan amount is altered by small amounts, but it will depend on a number of variables of which one may be significant.  Mortgage loans are almost entirely approved or denied based on automated underwriting systems or programs or AUS.  The two biggest are FNMA’s Desk Top Underwriter and FHLMC’s Loan Prospector program. 

Once a home loan application is preliminarily approved that is an indication it has been submitted through one of these programs.  The loan approval takes only minutes but the data entry and processing leading up to the approval may take an hour or more.  Once the home loan is submitted the automated system will generate an approval with conditions or findings that need to be satisfied for final loan approval.  The conditions usually involve items and procedures such as employment and income verification and supporting documents such as current paystubs or asset documentation.  The key is that the mortgage loan request is approved based on several numerical factors such as the applicants credit score, debt ratios, income and assets not subjective judgments performed by an individual.

Altering the loan amount after the initial input in these automated underwriting systems is relatively easy.  Once a mortgage loan request is entered into one of the automated underwriting programs the loan request can be altered multiple times without recourse.  Each alteration does not change the credit profile or cause another inquiry into the applicant’s credit report.  The credit score doesn’t change due to a higher loan amount nor does the applicants job or income.  If an increased loan amount is not accepted it does not invalidate the prior approval amount and conditions.

Raising the home loan amount is most often a minor change that impacts the debt ratio slightly as well as the LTV or loan to value.  It would also be easy to see that a loan increase of $3,000.00 on a $200,000.00 loan request is not going to raise the mortgage payment very much and therefore will have very little impact on the debt ratios.  This can be verified by running your own mortgage payment calculations on a mortgage calculator.  Therefore, unless the debt ratios are very tight the most significant factor in determining the outcome of increasing the loan amount is the loan to value.

This leads to the conclusion that for home loans that are already approved, raising the loan amount slightly should be relatively easy.  It requires some simple data entry changes into the original approval request with the automated underwriting system and viola, a new loan approval. 

However, if the loan request is for a home purchase, the loan amount change may very well be changing the down payment and the loan to value significantly.  A home loan for 180,000.00 on a $200,000.00 purchase that changes to a $182,500.00 loan amount involves a fairly measurable change to the LTV.  The original home loan request calls for a down payment of $20,000.00 or 10% of the purchase price which is equivalent to a 90% loan to value home loan.  By raising the loan amount by only $2,500.00 the loan to value is now over 90% (91% or $182,500.00 / $200,000.00).  Home loan requests that may alter the LTV above the minimum accepted level are likely not to be approved.

The first step to solving the question of whether your mortgage loan request can be increased is to run the loan figures on a mortgage calculator so you know how the loan amount changes are impacting the mortgage payment and debt ratio.  Next, speak to the loan officer or mortgage lender and ask for their input.  For a refinance it is fairly common for the loan amount to be changed.  Underwriting considerations may prevent the mortgage lender from raising the loan amount but there is no downside to asking.  If the credit, income and collateral allow room to change the mortgage loan amount, it should a fairly simple process.