Can Debt Affect Your Ability to Qualify for a Mortgage?

Debt is a hot topic in the news these days. Every time you look on the internet or glace at a newspaper, you’re sure to see an article about how many millions of Americans have massive amounts of credit card debt and/or student loan debt.

But in reality, not all debt is as horrible as the media tries to make people believe. There’s no doubt that having a lot of credit card or student loan debt is not a good idea. But a mortgage is also a type of debt. Is having a mortgage a negative thing? If a mortgage is handled correctly and payments are made on time, it can eventually lead to owning a piece of property outright.

What Do Mortgage Lenders Evaluate?
When you apply for a mortgage so that you can purchase a home, your prospective lender will evaluate your credit score and your debt-to-income ratio. The lender wants to predict whether or not you will likely be able to consistently afford your monthly mortgage obligation. While your debt-to-income ratio does not necessarily dictate your credit score, both factors will be used by a mortgage lender to determine if you are a good credit risk.

Your credit score is determined by evaluating the total amount of debt you owe – and the type of debt that you have. It’s important to remember that having some debt – and showing that you can make payments on time every month – can sometimes help boost your credit score higher than other people who are debt-free.

Following are some of the most common types of debt:

Unsecured debt. Student Loan Debt and Credit Card Debt are unsecured – which means there is no collateral that a lender can seize (in most cases) if you default on your loan. In many cases, people who have student loan debt have a LOT of it – possibly more than $100,000. Credit card debt can also reach very high levels. Unsecured debt will affect your debt-to-income ratio and your credit score.

Secured Debt. Car Loans and Mortgages are secured – which means a lender can repossess or foreclose if you don’t make payments. Making full payments on time and consistently¬† month after month can help increase your credit score and can, in many situations, look favorable to lenders that are considering offering you a mortgage.

If you are hoping to obtain a mortgage so that you can purchase a house, it’s important to have a conversation with an experienced mortgage lender. Call The Home Loan Arranger today at 1-877-938-7501 for a free consultation and advice on how to proceed if you have secured and/or unsecured debt.

 

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