Will I Get a Mortgage If I'm Already in Debt?

By: , Contributor

Published on: Oct 11, 2019

The quick answer: It depends on how high that debt is and how you’re managing it.

Carrying debt is common. Many consumers have credit card debt, and if you went to college, chances are you left with a pile of student loans.

If you're in debt and looking to buy a home, you may be wondering whether your debt will hurt your chances of getting a mortgage. The good news is that you can get a home loan while already carrying debt -- but whether you qualify will depend on several factors.

How much debt do you have relative to your income?

One major factor that mortgage lenders look at when evaluating applicants is their debt-to-income ratio. This is the amount of debt you have relative to your income, and the higher it is, the lower your chances of getting approved.

Generally speaking, you won't get approved for a mortgage if your debt-to-income ratio is above 43%. If your gross monthly income (before taxes and other deductions) is $4,000 and you have more than $1,720 in monthly debt payments between student loans, car loans, credit cards, or other obligations, you're unlikely to get approved. On the other hand, if you only spend $1,000 a month on debt payments, your chances of getting a mortgage are higher.

If you're eager to buy a home soon but have an unfavorable debt-to-income ratio, your best bet is to pay down a chunk of your existing debt. If that's not possible, you can work on boosting your income -- whether by getting a new job or keeping your current one and taking on a side gig.

What does your credit score look like?

Another major factor in qualifying for a mortgage is your credit score -- that's where managing your debt responsibly comes into play. If you regularly make your debt payments on time, you'll have a strong payment history, which is the single most important factor in calculating your credit score. On the other hand, if you’re constantly missing payments or paying your debt late, your credit score will take a hit. And the lower it is, the less likely you are to get a mortgage.

There are steps you can take to improve your credit score, but know this: If it's low because you're struggling to keep up with your existing debt, taking on a mortgage probably isn't a good idea. Think about why your credit score is low and get your financial house in order before attempting to buy a house.

Make sure you can swing that mortgage

Being in debt won't automatically prevent you from getting a mortgage. But if you're already on the hook for other obligations, make sure you can really afford a mortgage -- as well as property taxes, homeowners insurance, and maintenance -- before attempting to buy a home.

If too much of your income is eaten up by debt, you might struggle to keep up with your housing costs, putting you at risk of foreclosure. You may be better off paying down some of that debt and then applying for a mortgage when you're in a stronger financial position.

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