What does personal debt do to my home loan application?

When applying for a home loan, there are a number of factors that the lender will look at to determine your borrowing capacity. These include your income, type of loan you are applying for and current debts.

If you have any debt, including personal loans and credit cards, these will be taken into account when your home loan application is accessed. The amount of personal debt you have is an important consideration to the home loan lender, as they want to be certain you have the capacity to re-pay the home loan without over extending yourself financially. If your debt level exceeds a certain percentage of your income, your home loan application may be rejected.

What can you do?

If you have any personal debt, including credit cards, it is advisable to pay off as much as you can before submitting your home loan application. In regards to credit cards, ask your credit provider to lower your limit. If you have unused credit cards, cancel them. Even if you regularly make payments to your credit card, home loan lenders consider them as a possible future liability, so following the steps above will improve your chances of the loan being approved.

Engaging the services of a Mortgage Broker can also be beneficial in regards to understanding how your current debt situation can affect your home loan application. They can provide advice on the best way of reducing your debt before applying for a home loan. A mortgage broker also has access to a wide range of loans and will work with you to find one that best suits your individual requirements.

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