Getting A Mortgage When In Debt
If you have debt but wan't a mortgage, see how a dedicated Mortgage Broker can help you secure the best possible rate
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In this article, we’ll explain how to get a mortgage when in debt, what level of debt is acceptable and why using the services of a mortgage broker with experience in this area can help boost your chances of success.
In this article:
- Can you get a mortgage with debt?
- How much debt is acceptable?
- Does the kind of debt you have matter?
- Is it better to pay your debts off before applying for a mortgage?
- How to get a mortgage with outstanding debt
- Best mortgage lenders for high debt to income ratio
- Remortgaging with outstanding debt
- Speak to a broker
Can you get a mortgage with debt?
The short answer is yes. It is unrealistic for lenders to demand that every one of their borrowers is without any kind of debt before they’re willing to grant them a mortgage. Such is the fabric of modern-day financial norms and necessities, very few people would be able to get on the property ladder if they had to be completely debt-free first.
Lenders realise that people have student loans to pay off, car financing commitments, credit card bills to settle and various other personal loans over their heads they may have needed in the past, so luckily they don’t have a blanket approach to debt.
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How much debt is acceptable?
How much debt and how you’re managing it will be key to how successful you are in securing a new mortgage. The lower your debt-to-income (DTI) ratio (how much your loan repayments are compared to your wage or other income every month), the better position you’ll be in.
Similarly, if you can prove you’re managing those repayments well, and if you’re coping financially to the point that there is plenty of leeway in your cashflow for another debt on top of that – your mortgage – without any perceived risk, then your application will be far stronger.
A good mortgage broker, like the ones we work with, can help you to look at your personal circumstances in greater detail, but as a general rule of thumb, if your DTI is less than 20%, you will face fewer hurdles and probably secure a better deal than if it was 50%.
Work out your debt-to-income ratio
Understanding whether your DTI would be considered low, medium or high will help you get prepared before you go ahead with a mortgage application. Input your details into our calculator to get a better idea of how lenders might assess you.
Debt to Income Ratio Calculator
You can use our debt-to-income (DTI) ratio calculator to work out how much of your income is going towards your fixed outgoings, expressed as a percentage. Based on that percentage, this tool will tell you whether mortgage lenders will class your DTI as low, medium or high.
Your Debt to Income Ratio is %
Good news! Most mortgage lenders will class your debt-to-income ratio as low. You’re unlikely to be declined for a mortgage based on your outgoings, but speaking to a mortgage broker before applying is still recommended as they can improve your chances of getting the best deal.
Most mortgage lenders will class your debt-to-income ratio as moderate, which means some of them might view your application with caution. Some lenders are much more strict than others when it comes to affordability and debt, so it’s important for you to find a lender who’s more lenient. You should speak to a mortgage broker before you apply to ensure you’re matched with a lender whose criteria you fit.
Most mortgage lenders will class your debt-to-income ratio as high. But that’s where we can help! With so much of your monthly income going towards debt repayments, you could struggle to get approved for a mortgage without the help of a mortgage broker. We can help you find a lender who’s more lenient on debt and affordability, and could still secure a mortgage approval.
Does the kind of debt you have matter?
Yes, the nature of your arrears could have a bearing on how lenders consider your application, and there is certainly a perspective of ‘good’ and ‘bad’ debt. For example, student and car loans are usually perceived as everyday-type financing, whereas stacked-up store and credit cards or payday loans are often viewed negatively. In fact, some lenders will insist that any payday loans must have been cleared before they’ll consider your mortgage application.
Buying our first home had been a…
Buying our first home had been a priority for us for a while, but my partners debt and history of bad credit prevented is form getting approved on the high street. We've now got our three-bed semi-detached house and couldn't of done it without the continued support of Online Mortgage Advisor
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After a quick online form within a short space of time Patrick was on the phone to review the situation. Due to past experiences with previous mortgage advisors, I was very cautious and explained all this to him, he was very understanding.
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Is it better to pay your debts off before applying for a mortgage?
It goes without saying that being financially stable is always the best course of action when it comes to taking on a mortgage, and you’ll likely have a better credit score if you don’t have debts, therefore will be considered a more attractive borrower and may be rewarded. However, as long as you are proving you are staying on top of your financial commitments, it’s not necessarily crucial that you pay off your debts first.
How long should you wait to apply?
This depends wholly on what kind of debt it is and how much it is. Your broker will be able to advise you further on this, but if you find your debts are an obstacle to getting your mortgage approved, generally, your credit report might only take a month or so to update once you’ve settled a debt, with the improvement you need in your credit score showing to lenders too.
How to get a mortgage with outstanding debt
If you’re applying for a mortgage with outstanding debt, make an enquiry with us so we can match you with a mortgage broker who specialises in helping customers in this exact situation. The advisor we handpick for you will guide you through the following steps to full application…
- Downloading and optimising your credit files. This will allow you time to remove any inaccurate or outdated information that could further hinder your application
- Gathering your paperwork and preparing the documents you’ll need. Any proof of income – payslips or certified accounts if you’re self-employed, bank statements and proof of I.D. required
- Finding the right mortgage lender. Your broker will be able to identify lenders who look more favourably on applications from someone who has some outstanding debt
How to improve your chances of getting a mortgage
In addition to the steps outlined above, there’s a number of other actions you can take, such as:
- Reviewing all of your outgoings and removing anything that’s not necessary, reducing your overall debt-to-income ratio
- Using any savings you have (outside the amount needed for a deposit) to reduce your current debt level
- Review your credit records on a regular basis to make sure all the information held is accurate
- Make sure all your debt commitments are paid on time and don’t fall into arrears.
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Best lenders for high debt-to-income ratio
There are mortgage lenders who won’t accept anyone with a DTI that’s above 25%, such as Beverley Building Society, 35% (e.g. Progressive Building Society), 40% (e.g. United Trust Bank) or 50% (e.g. Norton Home Loans, HSBC), however, the majority do not stipulate an upper limit.
Instead, they simply outline that each application will be considered on an individual basis when assessing affordability and level of debt.
Those with no upper limits range from big high street names, such as Nationwide, NatWest, Santander, Metro Bank, Halifax and TSB, to more niche lenders such as Teachers Building Society, Pepper Money, Accord Mortgages and Precise Mortgages.
Remortgaging with outstanding debt
The same rules apply when remortgaging as it does if you were applying for one initially. That is, you are not immediately discounted for a mortgage if you have debts. Instead, lenders will take into account the level and nature of debt involved, your DTI and how you manage the repayments.
It might be worth speaking to your broker about considering a debt consolidation remortgage, which can be an option so long as loan-to-value ratios are not exceeded and whether it falls within a lender’s approval criteria for how the debt was accrued.
We had two mortgage deals to choose from!
“I didn’t have to lift a finger and, before I knew it, was offered two mortgage lenders to choose from.”
Speak to a broker experienced in dealing with debt and mortgages
All is not lost when it comes to getting approved for a mortgage, even though you have debts still to repay. There are options and, crucially, lenders mostly operate an individualistic approach to applicants, which means the stronger your application, the better position you’ll be in.
The specialist brokers in our network offer an impartial, expert and supportive hand to clients who are ready to start the process of making an application to finance a house purchase. With unparalleled contacts and experience, they can work with you to ensure the very best outcome. Call us on 0808 189 2301 for a free initial consultation, or make an online enquiry for details.
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