Can You Get a Mortgage With a Lot of Debt?

Getting a mortgage when you have a lot of debt can feel daunting However, it is possible depending on your overall financial situation. In this article, I’ll explain how lenders assess debt, steps you can take to improve your chances, and when it makes sense to speak with a mortgage adviser

How Lenders View Debt

When applying for a mortgage, lenders will thoroughly evaluate your debts to determine if you’re still eligible for a loan. Here are the key factors they consider:

Types of Debt

Not all debt is viewed equally when applying for a mortgage Here’s a quick rundown of how common debts are assessed

• Mortgages and student loans – Seen as “good” debts that indicate responsibility if payments are made on time.
• Credit cards – Can be good if used responsibly by keeping balances low and paying in full each month. Maxing out cards is a red flag.
• Car loans – Also considered manageable if paid regularly.
• Payday loans – Regarded very negatively as a sign of desperation or irresponsibility.

Credit Score

Your credit score provides a snapshot of your overall ability to manage debts and make payments on time Many lenders now require a minimum credit score between 600-650

Debt-to-Income (DTI) Ratio

Lenders calculate your DTI by adding up your monthly debt payments and dividing that by your gross monthly income. Most want to see your DTI below 36%. A higher ratio equates to higher risk for the lender.

Payment History

Evidence that you’ve paid all debts on time without any missed or late payments helps assure lenders you can handle a mortgage. Recent missed payments or defaults will hurt your chances.

Can You Get a Mortgage With High Debt?

The short answer is maybe. Having a high amount of debt does not automatically disqualify you from getting a mortgage. Here are some key considerations:

• Your overall income – A large, stable income can offset high debts if you still have sufficient monthly cash flow.

• Down payment amount – The ability to make a sizable down payment signals you can manage debts responsibly while saving money.

• Debt structure – “Good” debts like a mortgage you’ve paid diligently are better than lots of maxed out credit cards.

• Your DTI – Keeping your DTI at 36% or lower will help overcome high debts.

While possible, expect to pay a higher interest rate and mortgage insurance premiums if your application demonstrates high risk due to substantial debts.

Steps to Improve Your Mortgage Chances

If your debts currently make getting a mortgage unlikely, taking the following steps can significantly improve your chances:

• Pay down balances – Reducing credit card and loan balances lowers your DTI.

• Pay all debts on time – Don’t miss any payments leading up to your application.

• Limit new credit applications – Applying for new credit before applying will hurt your chances.

• Build your credit – Responsibly using one credit card can raise your credit score over time.

• Increase your income – Boosting your stable income will help offset debts.

• Save for a larger down payment – Having 10-20% or more makes approval more likely.

• Wait to apply – Allowing more time to elapse after credit events or bankruptcy can help.

When to Speak With a Mortgage Adviser

Consulting an experienced mortgage adviser offers many benefits if you have substantial debts but still hope to get approved for a mortgage soon. Here’s how an adviser can help:

• Assess your unique situation – They’ll review your full financial profile and risk factors to gauge your true chances.

• Match you with suitable lenders – Advisers have relationships with lenders open to higher risk applicants if you meet certain conditions.

• Recommend steps to improve your odds – They can provide a game plan tailored to your needs to boost your eligibility.

• Find the optimal loan programs – Experienced advisers are aware of specialized mortgage products and debt consolidation options you likely don’t know about.

• Shorten the application process – Your adviser acts as liaison and guides you smoothly through underwriting.

The Bottom Line

While challenging, it is possible to get a mortgage even if you have substantial existing debts by demonstrating appropriate income, making a sizable down payment, having a solid credit history, and keeping your DTI ratio within limits.

If your current debts make getting approved unlikely in the short term, take proactive steps to pay down balances, increase savings, and build your credit. When you’re ready to move forward, connect with an experienced mortgage adviser. They have the expertise and lender relationships to help make your homebuying dreams a reality sooner than you may think.