Whenever you think about mortgages, you probably imagine that you need a seriously exceptional credit…
Considering getting a mortgage but you still have a loan or credit card debt to pay off? Your mortgage application may be affected by existing liabilities, such as current loans, credit card debts, and overdue payments on existing loans.
Read on to know how these can affect the chances of your application.
Credit Card Debt and Your Mortgage Application
Having outstanding credit card debt while you apply for a mortgage can affect your chances of getting approved. This is because credit card debt can be indicative of current financial troubles or additional financial responsibilities that can prevent you from paying on time. It can also show a history of delayed or non-payments that many creditors frown upon.
Existing Loans and a Mortgage Application
Having an existing loan is not automatic proof that you’re in a financial bind. If your loan payments are current and you are on track towards total repayment of your loan, then this might even support your mortgage application because it is an indicator of your ability to pay. If you have had previous loans in the past which you paid off on time, these could help boost your credit scores and make you an ideal borrower in the eyes of lenders.
The type of loan is also a factor. Lenders will look favorably on some types of credit than others. For example, good credit such as a business loan that you are still paying won’t make much of a negative impression, as opposed to a payday loan which many lenders consider a red flag.
However, most lenders do not look into the status of credit card debts alone. Aside from existing loans and debts, they will look at your sources of income, investments, other types of properties, as well as your expenses each month to determine your ability to make mortgage payments.
Lenders often look at your overall financial situation to determine if they can grant your mortgage application. In some cases, lenders can grant a mortgage application but with a lesser amount than you applied for. This is often one way for lenders to approve your loan even if you have existing loans or arrears on your credit record.
Is it better to have a loan or credit card debt when applying for a mortgage?
Credit card debts have a higher chance of affecting your mortgage application negatively, because they show lenders that you may have a history of non-payment of previous debts. They can also mean that you may face difficulties paying off your mortgage down the road.
However, in some cases loans can also affect your mortgage application, especially if you were delinquent in loan payments and have accumulated a negative credit score due to delays in loan payments.
What’s your best option?
If you want to get the best mortgage rates from your lenders, it is best to smooth out any existing debts first, especially those that you have had trouble paying off. It is best to apply for a mortgage when you are debt-free. If not, apply for a mortgage when your existing loan payments are currently paid and you have no overdue loan payments to other creditors.