Millions of people are affected by debt, but can you get a mortgage if you owe money to other people or institutions? The short answer is yes, you technically can get a mortgage while in debt. It largely depends on the type of debt you’re in and how much you owe, but it’s entirely possible to get your hands on a home loan and jump on the property ladder.
Whether or not you should get a mortgage while in debt is another question entirely. We’ll touch on this towards the end of the post, but first, what do you need to know about applying for mortgages while in debt?
When will lenders approve a mortgage application if you’re in debt?
Lenders will approve your mortgage application if your debt isn’t too big or it doesn’t have a significant impact on your financial situation.
For example, you’re paying off your student loan. That’s a type of debt, but if you’re still able to pay your bills and have enough money to cover mortgage repayments, the lender won’t see much of an issue.
It’s a similar story if you have another personal loan; as long as it isn’t affecting your credit score too badly, the lender will turn a blind eye. Working with a mortgage broker is often advised when you’re in debt as they’ll have access to lenders who look favourably on people with existing debts. Not only can they help you find reputable mortgage lenders, but they also may help you get better interest rates.
Overall, the bottom line is this: lenders will let you take out a mortgage if your debts aren’t overly significant and you still prove yourself as creditworthy.
When are lenders likely to deny a mortgage application if you’re in debt?
It should be obvious, but lenders will deny your mortgage application if your debt is very significant. Those of you who are missing payments left, right and centre are unlikely to be approved for a mortgage loan.
Why? Banks and other lenders see your debt, and they see it’s hurting your finances. If you can’t afford to repay these other loans, why would they give you another one on top of them?
There is a possibility that mortgages can be denied even if your debt isn’t that big. It’s in rare cases where you already have a loan with a lender and they don’t want to give you another one. In their eyes, they’d rather you repay that debt before taking another one.
Should you apply for a mortgage while in debt?
That depends; are you in control of other debts? Some debt is good debt, so if you’re on top of this there’s no reason you can’t apply for a mortgage and see a successful outcome.
On the other hand, if you’re overwhelmed by debt and keep missing repayments, it’s wise to focus on getting out of debt first. The chances are your mortgage application will be denied anyway, but clearing debt will help you get better interest rates on your home loan in the future.
Hopefully, this clears everything up: you can get a mortgage while in debt, though circumstances dictate if this is possible or wise.