4 Types Of Existing Debt That Affect Getting A Mortgage

Different types of consumer debt can affect a borrower's mortgage worthiness in different ways

4 Types Of Existing Debt That Affect Getting A Mortgage
May 18, 2016

When a borrower applies for a mortgage, the lender looks at both secured and unsecured lines of credit. With secured credit, they are taking less of a gamble – they can seize the asset associated with the credit. Mortgages and auto loans are both secured, while debt such as credit card loans and student loans are not.

Here are four types of consumer debt that will affect a borrower’s mortgage worthiness:

1. Other mortgages. As long as these other mortgages have been paid on time, lenders are generally not too worried about them. Those looking to take out a second mortgage will have their debt-to-income ratio closely scrutinized to ensure they can pay for both loans. Since these are secured loans, lenders do know they can seize the property in lieu of payments. MoneyTips is happy to help you get free mortgage and refinance quotes from top lenders.

2. Auto Loans. Because these are also secured, lenders know they have collateral for non-paying borrowers. Auto loans are typically more difficult to secure than credit cards, which tells lenders that the borrower has enough credit that other financial institutions are willing to give them a loan.

3. Student loans. Even though they are unsecured, lenders are not typically concerned about student loan debt because borrowers have years to pay on them. They do, however, count towards a borrower’s debt-to-income ratio, which can hurt their chances of obtaining a mortgage.

4. Payday loans. While most lenders would consider payday loans unfavorable, the good news is that they generally do not appear on a credit report. However, missed payments or defaulting on a payday loan does.

If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.

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Sara | 05.18.16 @ 17:10
It is always best to of course pay on time as well as only take as much as you need when it comes to a loan. However, it is nice to see what can affect getting a mortgage.
Carla | 05.18.16 @ 17:10
I have never had a payday loan but I am surprised they don't show up on your credit report.
Erin | 05.18.16 @ 17:11
Good information. It's always good to know how other debt will affect your ability to take on a mortgage. This will be useful if we ever decide to go with another mortgage, thanks!
Jo Ann | 05.18.16 @ 17:11
Nice information to know. I am surprised though about student loan debt not really having an effect on getting a mortgage or not.
Steffanie | 05.18.16 @ 17:12
It's good to know these can be a factor. We make sure to pay our bills on time each month so it doesn't cause any issues.
Beverly | 05.18.16 @ 17:12
Payday loans are the worst to be in debt with. Thankfully we only have a small mortgage. We don't like having alot of debt. Too many loans and it's hard to get out from under them.
Sarah | 05.18.16 @ 17:13
this is good infor to know. having debt should make it harder to get yourself further in debt...
Nancy | 05.18.16 @ 17:13
These are all understandably taken into consideration while searching for a home loan. The key is to pay on time and don't overextend yourself.
Jo Ann | 05.18.16 @ 17:15
I re read the topic and totally missed the point of the student loan debt.. As I re read I see it does effect mortgages due to the debt to income ratio.
Heather | 05.18.16 @ 17:16
I'm surprised credit card debt didn't make this list. Of you have too much that will totally affect the outcome of you get the loan or not.
$commenter.renderDisplayableName() | 12.02.20 @ 02:52