A personal loan can be good or bad when applying for a mortgage. However, apart from a personal loan, other debts, including students, auto loans, and credit cards, can affect what you can qualify for. If you want to buy your home soon, it would be a good idea not to borrow any loan as it can affect your credit score, especially if you have a problem with making the repayment on time, even just once. Also, lenders check the debt-to-income ratio and deny you the loan if it’s too high. Try not to have other debts when applying for a mortgage and make sure you have good credit to qualify for friendly interest rates.
About A Personal Loan
This is a loan in which a borrower is given a considerable amount of money and allowed to repay in instalments over a given repayment term. What makes the unique is that they are unsecured, and therefore, no collaterals are involved. Also, in most cases, the borrower has the freedom to use the money anything they wish to. It is the best option for anyone planning for a huge purchase financing an event or refinancing when home value decreases.
How Does A Personal Loan Affect Your Mortgage Application?
When applying for a mortgage, you should know that any loan list on your credit report will hinder the application. But that should not stop you from making your dream come true. You can still do something to enhance the chances of getting a mortgage with a personal loan. Always look for a reliable moneylender, and you will never regret it. The two main things that the lender will check are:
Debt management
It is essential to make your debt repayments on time when planning to apply for a mortgage. Buying a home means getting a loan that will be repaid for years, and it’s, therefore, a long-term commitment between the borrower and the lending institution. If you manage to pay all bills punctually, it will improve your credit score and elevate your chances of qualifying for a mortgage.
Debt-To-Income Ratio
Before you are given a mortgage loan, the lender will check your DTI or debt-to-income ratio. This refers to your gross income after you have paid off monthly debts. They will check how much you can spare after paying for your home expenses. Most lenders prefer a DTI below at least 36%, and if it goes beyond this and you have a personal loan, you may not qualify for a mortgage.
However, some times, a personal loan can affect your mortgage application positively. This happens if your repayments promptly. It increases your credit rating and shows how responsible you are as a borrower. Besides, if you are close to the loan repayment period and can repay off, the lender is likely to consider your application
How to Increase the Chances of Getting a Mortgage Loan
Having a personal loan should not lower your chances of getting mortgage approval. There different tips to use and increase your chances of getting one. The first thing you should always do is check what your credit reports say. Address anything highlighted and affecting your score before sending an application. Here are several ways to increase the possibility of qualifying for a mortgage loan.
Pay Off All the Small Debts
To lower your monthly repayments, start with repaying any small debts that you may have. These small debts increase your DTI, and most lenders are looking for borrowers with low DTI. Such debts include credit card loans; they may seem trivial, but eliminating them frees up your borrowing capacity.
Pay off the significant debts
Lenders will check for any non-housing loan expected to be cleared in more than ten months. This means for a car loan that has 15 more monthly payments can affect your mortgage qualification. You can pay the remaining balance by half before applying for a mortgage so that you increase your chances of getting a housing loan.
Refinance Debts
If you extend the time given to repay a particular debt, lowers monthly payments even though you have to meet the new interest costs. For example, a $5000 loan for two years at a 6% rate, when extended for three years with the same terms, you will about $70 every month. However, your total interest increases to about $158. While it’s not the best option, it helps if you cannot clear the debt immediately
Consolidate Your Loans
Use a personal loan to consolidate all your loans. It not only lowers your monthly repayments but also increases your chances of getting a mortgage loan. Besides, you can use to pay off small and significant investments, which reduces the cost of interest charged every month.
Increase the Down Payment
Increasing your home’s down payment is also an effective way to increase the chances of getting approved for a mortgage loan. Most lenders will be willing to finance you because you pose less risk to lenders.
What If You Are Paying Off Your Personal Loan?
If you already have a personal loan, the best way to deal with is to make timely payment consistently. You can pay it off to pay off and eliminate any debt if it’s not much. If it’s not possible, focus on prompt repayments to maintain a positive history.
The Bottom Line
Becoming a homeowner is exciting and a big step that anyone would want to achieve in life. However, it is advisable to take time and plan financially before you apply for a mortgage. Sometimes you qualify for a housing loan, but later it becomes a burden. Come up with a budget and know what you can afford every month.
Having a home but without money to meet other financial needs will make your life terrible. Additional costs that come with homeownership include insurance, property taxes, maintenance, repairs, and many others. If you use this approach when applying for a mortgage, your chances of qualifying for owned are enhanced, and you will be sure to make monthly payments without any problem. At all times, look for a reliable moneylender to deal with whom can lend you the bestpersonal loan.