How Does My Existing Debt Affect Getting a New Mortgage?
Carrying debt is a common problem that people have. Some of the most common types of debt include student loans, credit cards, and motor vehicles. When you are interested in buying a new home, you often think about whether your debt is going to hurt your chances of qualifying for a new mortgage.
Fortunately, you may still get a new home with that debt. There are several factors that may determine whether you qualify.
Your Debt-to-Income Ratio
The debt-to-income ratio is a major factor that the mortgage lender is going to consider when deciding whether or not you will qualify for a new mortgage. In general, the magic number is 43 percent. If your debt exceeds 43 percent of your total income, the lender will have a hard time giving you that new mortgage. For example, if you make $5,000 per month, you will want to have less than $2,150 in monthly debt payments. To make yourself a more attractive candidate for a mortgage, try paying off some of your existing debt.
Taking a Look at the Credit Score
The lender is also going to consider your credit score. The higher your credit score is, the more likely the lender will reward you with a loan. To keep your credit score high, make sure you manage your debt well.
Making your debt payments on time will keep your credit score high. Missing debt payments will lower your score. Manage your existing debt well and you will have a better chance of qualifying for a mortgage.
Making Sure You Can Handle a Mortgage
Finally, the lender is also going to look at whether you can take on the responsibilities of owning a home. The monthly mortgage payment isn't the only expense you will be taking on. Some of the other issues you will have to handle include property taxes, maintenance costs, and homeowners' insurance.
The bank or credit union will want to ensure you can handle these costs. To make these expenses easier to bear, it might be a good idea to pay off some of that existing debt.
Investing in a New Mortgage
Looking for a new home is exciting. You can purchase a house with existing debt if it is minimized and managed well. Think about these factors before investing in a mortgage. And as always, consult with a trusted mortgage advisor at Bond Street Mortgage for the best advice on your personal situation.
Frequently Asked Questions
Existing debt affects your mortgage qualification mainly through your debt-to-income ratio and credit score. High debt can lower your chances, but managing and reducing debt improves your eligibility.
Lenders generally look for a debt-to-income ratio below 43 percent. This means your monthly debt payments should be less than 43 percent of your total monthly income.
Your credit score reflects how well you manage debt; a higher score increases your chances of getting approved and securing better loan terms. Paying debts on time helps maintain a high credit score.
Lenders will also consider your ability to pay property taxes, maintenance costs, and homeowners' insurance to ensure you can handle all homeownership expenses.
To improve your chances, pay down some of your existing debt, make all payments on time to boost your credit score, and ensure your total debt-to-income ratio stays below 43 percent.
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