For most people, the mortgage is their largest debt. Many people are concerned, however, that if they currently have debts, they may be unable to obtain a mortgage. As a result, Moolr has looked into a prevalent question. Just how difficult is it securing a mortgage with debt?
There Is No Simple Answer – Except A Tentative “Yes”.
To the initial query, the basic answer is yes. With debt, you can surely acquire a mortgage. Most people have debts at some point in their lives, and it is not a barrier to obtaining additional funds.
Mortgage lenders examine if a loan is truly affordable for the borrower in great detail. Lenders used to solely consider the size of your deposit, your credit score, and your salary a few years ago. Nowadays, the lender determines if you will be able to make your mortgage payments. Your debts have a significant role in this. Credit card payments, any bank loans, car financing payments, the size of your overdraft, and other expenses are included. The mortgage lender will put up a comprehensive picture of your financial situation, and your ability to make payments without defaulting.
Securing A Mortgage With Debt – Build Up A Nice Deposit
A bank or lender will be far more forgiving of any minor credit history issues you may have had in the past if you have a significant deposit. To secure a good mortgage deal with a modest deposit, everything else has to be looking excellent. The reasons are self-evident. Raising a deposit demonstrates your capacity to manage your finances and save money. Naturally, the larger the down payment, the lower the monthly mortgage payments will be. Of course, the smaller the overall amount owed, the better. Although a small deposit is not a deal-breaker, having a larger one is. However, do not take out a loan to increase your deposit. This is a false economy that will ultimately cost you more money.
Securing A Mortgage With Debt – Be Prepared When You Apply
As previously said, lenders will want to know a lot of information about your finances. So having done your homework and having all of your financial information ready to offer to a potential lender is a godsend. Lenders used to base their decisions solely on your income, but today they look at a variety of factors.
How Lenders Assess Debt
Of course, a bank or lender will check your credit report to see what debts you have. There will be less concern if your debts are low. Regular payments and a solid credit score will only serve to alleviate any potential concerns. You must continue to have a clean credit record until your home purchase is completed.
The mortgage lender will be aware if you are having difficulty making debt repayments. You’re not going to be able to secure a loan. You’ll have to work for a few years to pay off your obligations. Also, if you are enrolled in a debt management programme, getting a mortgage will be tough. Debts of a high value or previous troubles, such as an IVA or a Debt Relief Order (DRO), particularly in the previous six years, will extinguish any chance of securing a mortgage. So take a step back, work on your debts, and try again when time has elapsed. And when your financial situation is better.
Credit Ratings Matter
Making late payments has the opposite effect. Defaults like this can be found on your report for up to six years. If your credit score isn’t good enough to qualify for a mortgage, you’ll have to wait. Make timely payments, increase your credit score, and wait for any defaults to be removed from your credit record. And regularly check your report with a credit agency to ensure it is accurate.
