Will a Personal Loan Affect a Mortgage Application?
Updated
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When you apply for a mortgage, any debts you have -- auto loans, credit cards, and personal loans -- can affect how much you can borrow, and whether you can qualify for a home loan in the first place.
When lenders look at your mortgage loan application, the first consideration isn't necessarily your credit score or down payment, but whether you can afford the mortgage payment. To that end, your monthly payments on any non-mortgage debts are a vital piece of the puzzle. Read on to better understand how a personal loan might affect a mortgage application.
Taking out new credit while trying to get a mortgage loan can potentially risk your future home purchase, no matter what kind it is. Personal loans can affect your mortgage application in a few different ways, including the following.
Having any loan affects your credit score. The biggest influencing factor is your payment history. Making all of your monthly payments on time has a positive impact on your FICO® Score. To a lesser extent, your credit score benefits from diversity in the types of credit products you've had (called your credit mix). A personal loan is an installment loan, which is different from revolving credit (credit cards). Also, your credit score is meant to get better with age. Having very old accounts of any type can improve your score.
However, if you've just applied, and been accepted for, a personal loan, it can hurt your FICO® Score initially. There's always a hard credit inquiry required with any kind of lending, which can reduce your credit score and the newness of the credit line can also reduce the average age of your credit lines.
The payment history on your personal loan can directly affect your mortgage application. Some mortgage lenders reject your application, for example, if you have two late payments within the past six months, or one account that is 90 days past due, no matter your credit score. So, if you've not been making those payments faithfully, that personal loan is an anchor around your financial neck.
On the other hand, if you have been making those payments on time for more than a few months, this could further help to demonstrate that you're capable of paying a mortgage.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
| Lender | APR Range | Loan Amount | Min. Credit Score | Next Steps |
|---|---|---|---|---|
Apply Now for Discover Personal Loan
Powered by Credible
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
7.99% - 24.99%
|
$2,500 - $40,000
|
660
|
Apply Now for Discover Personal Loan
Powered by Credible |
Rating image, 4.0 out of 5 stars.
4.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
8.99% - 19.49%**
|
$2,000 - $30,000
|
740
|
|
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
6.70% - 35.99%³
|
$1,000 - $50,000¹
|
300
|
Your debt-to-income ratio is a number that describes your debt relative to how much money you earn, expressed as a percentage. It's calculated by dividing your debts by your income. The more debt you have, the less housing expense you can afford.
Mortgage underwriting standards vary by bank and program. Many mortgage programs simply evaluate your overall debt-to-income ratio, and others, like FHA, look more specifically at the front-end DTI and the back-end DTI
For an FHA loan, your front-end DTI ratio is the percentage of your monthly gross income that you spend on housing expenses. In general, it's best to keep this under 31%.
Your back-end DTI ratio is the percentage of your monthly income that you spend on housing expenses plus all debts combined. FHA considers 43% an optimum back-end ratio limit. With conventional loans, this overall debt-to-income ratio may be allowed to reach upward of 50%
To calculate your DTI and the mortgage payment you qualify for, your lender pulls your credit report from each of the three major credit agencies (Equifax, Experian, and TransUnion). It uses those reports to compare your monthly debt obligations to all of the income that you can (and choose to) document. The underwriter considers:
The lender does not consider monthly bills that are not debts, even if you are under contract with the provider (phone bill, utilities, groceries, subscriptions, etc.).
DTI is somewhat fluid in relation to the other parts of your mortgage application. Generally, your application stands on three legs: your credit score, your DTI, and your down payment. If you make a strong showing in two of these, the lender may be more flexible on the third.
Your housing expenses include monthly payments for principal, interest, taxes, and insurance, plus homeowners association dues if applicable (collectively known as "PITIA").
If your annual household income is $120,000 per year, your monthly gross income is $10,000. You could satisfy the front-end DTI limit for an FHA mortgage with a total monthly housing payment (PITIA) of up to $3,100 per month ($10,000 x 31% = $3,100).
To meet the back-end limit, you would also have to spend less than 43% of your gross income on all your debts. At $10,000 per month, you could spend up to $4,300 on your monthly debts including your housing payment.
| DTI | Gross Monthly Income | DTI Limit | Max Monthly Payments |
|---|---|---|---|
| Front-end ratio (housing costs only) | $10,000 | 31% | $3,100 |
| Back-end ratio (all debt) | $10,000 | 43% | $4,300 |
In this example, if you have more than $1,200 per month in other debt payments, you would not qualify for the full $3,100 housing payment. But you could opt for a smaller mortgage, or a house with lower taxes or fewer association fees, and still make it work.
You can calculate your DTI very simply by adding all the minimum monthly payments that will appear on a credit report, plus any alimony or child support and housing costs, then dividing by your income. In the above example, if your car payment is $500 monthly and your credit card debt is $250 monthly and you have a personal loan with a $250 monthly payment, your debts are $1,000. If you want to buy a house with a $3,000 per month payment, your general debt-to-income ratio will be that $4,000 divided by your household $10,000, or 40%. Your front-end ratio will still be within acceptable limits and your overall ratio should still qualify you for either an FHA (your back-end is under 43%) or a conventional loan (your overall DTI is under 50%).
You can qualify for a bigger mortgage by tinkering with your debts to get a more favorable debt-to-income ratio:
A personal loan can help you qualify for a mortgage in some cases, such as when it improves your DTI. But it won't be an overnight solution.
Because a personal loan is an installment loan, your credit score might improve if you move your credit card debt to a personal loan and thereby lower your credit utilization ratio. Lowering your debt cost could help you pay down your debt faster and be ready to buy a home sooner. Using a personal loan to refinance higher-interest debts can save or cost you money over time, depending on the loan term.
Using a personal loan to cover the down payment usually doesn't work. In theory, you could get a personal loan, put the cash in a high-yield savings account, and later use it for the down payment on your mortgage. In practice, though, it's typical for lenders to look at your credit applications in the past three, six, or even 12 months. If you applied for a personal loan six months ago and your bank account ballooned around that time, it's likely they'll rule out using that money as a down payment.
The best time to prepare to buy a home is at least six to 12 months before you apply. That gives you time to consider whether a personal loan can help you get a mortgage, or if there are other ways to put yourself in a better position to qualify.
It really depends on where your credit score is today, and how far away you are from applying for a mortgage. In theory, any positive credit line that you're paying on time should help improve your credit score, but a new credit line can also hurt you by reducing the age of your average credit accounts, as well as the small immediate hit to your credit that results from applying. However, if you're not in a hurry to buy a home, many personal loans can be a net benefit to credit, so be sure to discuss your financial goals with your lender before applying.
Many mortgage lenders will caution you about applying for additional credit when you're trying to qualify for a home loan, or while you have a home under contract, because applying for a loan can affect your application in two ways.
First, it causes a small negative ding to your credit in the immediate aftermath, which may affect your mortgage loan when the underwriters re-check your qualifications in the days before closing. Secondly, a new credit line can change your debt-to-income ratio, which is particularly hazardous if you're already stretching to qualify for a home. Once you're too far outside of range, the best lender in the world can't get you back inside. Only time can do that.
Because mortgage applicants are qualified for their mortgages near the beginning of the process and again just prior to closing, if anything changes substantially, you may no longer be able to meet the requirements of the specific program under which your loan was underwritten, and you may be unable to close at all.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
Citi® Personal Loan Disclosure
**Terms, conditions, and fees for accounts, products, programs and services are subject to change at any time. You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Existing Citi deposit and credit card customers who have been a Citi customer for less than 12 months are not eligible for a Citi® Personal Loan.
If you apply online, you must agree to receive the loan note and all other account disclosures provided with your loan origination in an electronic format and provide your signature electronically.
Rates as of 06-03-2025. Your APR may be as low as 8.99% or as high as 19.49% for the term of your loan. The lowest rate quoted assumes excellent credit, a loan term of 24 or 36 months, and includes a 0.5% APR discount for enrollment in automatic payments at the time of loan origination. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. Citi offers personal loans with a period of repayment between 12 and 60-month terms. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
Existing Citigold and Citi Priority customers will receive an additional 0.25% discount to the APR. If you are in default, your APR may increase by 2.00%. Rates subject to change without notice.
To check for offers you may qualify for, Citi conducts a soft credit inquiry. If you are presented with an offer and choose to proceed with the application process, Citi will conduct a hard credit inquiry which may have an impact on your credit score.
Citi® Personal Loan proceeds cannot be used to pay for post-secondary education expenses or for business purposes. Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
If you are approved for a personal loan with Citi, you can get your funds the same day with a Citi deposit account, or up to 2 business days for a non-Citi account when using direct deposit. Or, you can select to receive a check by mail in approximately 5 business days.
Personal loans are made available by Citibank, N.A., Equal Housing lender
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
Citi® Personal Loan Disclosure
**Terms, conditions, and fees for accounts, products, programs and services are subject to change at any time. You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Existing Citi deposit and credit card customers who have been a Citi customer for less than 12 months are not eligible for a Citi® Personal Loan.
If you apply online, you must agree to receive the loan note and all other account disclosures provided with your loan origination in an electronic format and provide your signature electronically.
Rates as of 06-03-2025. Your APR may be as low as 8.99% or as high as 19.49% for the term of your loan. The lowest rate quoted assumes excellent credit, a loan term of 24 or 36 months, and includes a 0.5% APR discount for enrollment in automatic payments at the time of loan origination. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. Citi offers personal loans with a period of repayment between 12 and 60-month terms. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
Existing Citigold and Citi Priority customers will receive an additional 0.25% discount to the APR. If you are in default, your APR may increase by 2.00%. Rates subject to change without notice.
To check for offers you may qualify for, Citi conducts a soft credit inquiry. If you are presented with an offer and choose to proceed with the application process, Citi will conduct a hard credit inquiry which may have an impact on your credit score.
Citi® Personal Loan proceeds cannot be used to pay for post-secondary education expenses or for business purposes. Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
If you are approved for a personal loan with Citi, you can get your funds the same day with a Citi deposit account, or up to 2 business days for a non-Citi account when using direct deposit. Or, you can select to receive a check by mail in approximately 5 business days.
Personal loans are made available by Citibank, N.A., Equal Housing lender
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
