It would depend on how the pattern is written... there are top down or bottom up patterns where the shoulders are part of the yoke and so there would only be decreases or increases. Some are drop shoulder patterns, which have you basically make two squares for front and back and two rectangles for sleeves and sew them together. Or those that are like blouses or coats with set in sleeves where you need to BO for the underarm and match the shaping and length for the `cap' of the sleeve.
Increasing the length before the underarm only makes the body of the sweater longer. Making the armhole (sometimes called the armscye) shorter will keep it from being too low and droopy. The bagginess might come from it being too wide.
If you can post a picture from the pattern book, it might help us figure out what you need to do. Or if you can post just part of the pattern from the armhole BO to the shoulder, that would be good.