Many people believe that they have no chance of getting approved for a home loan if they’re already in debt. But, that’s not usually the case. You have many financing options available when it comes to applying for a home loan even if you do have debt.
Credit Balances and Credit History
Credit is a hot topic no matter who you are talking to; thankfully when you’re talking to lenders, there are only 2 aspects of credit that are important. First, credit balances. A lender wants to know that you could reasonably pay off your credit cards. For most lenders, they want to see that your assets could cover your credit card balances.
This requirement doesn’t mean that you need to have a nest egg that would pay off your student loans. Lenders can help you dissect your credit card balances and identify your current assets. They will also account for your debt-to-income ratio here.
The second aspect that lenders care about when you’re applying for a home loan is your credit history. Do you have a long history of carrying large balances from month to month? That’s still not a problem. There is some complicated math behind credit scores, but essentially a good credit score is about managing your debt.
Cut Your Spending
Usually before applying for a home loan people will begin saving in the expectation that they’ll be able to supply a more substantial down payment. But, most often, when people hit their target savings goal, their spending habits return, and their credit cards reflect the spending activity.
It’s imperative that you not use your credit cards while you’re applying for a loan even if you believe that your credit score is excellent, and your debt is manageable.
Applying for a Loan to Invest
Unlike other prospective homeowners that might have years to watch the market, investors are looking to act now. If you’re in debt but looking to invest and build your wealth through real estate, you might consider multifamily financing.
Lenders can help you navigate this grey area of investing. Even though you have debt, investing in a multifamily property is closer to applying for a business loan rather than a standard home mortgage.
As an individual, a credit score of about 670 with reasonable or manageable debt and a steady income can get you started with this option. But, loans are more accessible if you’re with a corporation or part of a larger entity, even with debt.