Need a Mortgage but Drowning in Debt? Here’s What You Can Do

 

Do you need a mortgage while struggling with debt payments? You are not alone. In April 2024, there was a total debt of £4232 per person in the UK. If this includes you, it’s high time to consider your finances. A mortgage is a long-term loan that requires stable finances. Individuals with high debts do not qualify because of uncertainty. The loan providers deem you as a risky borrower because of your past borrowing experiences.

So, yes, you need to bring down debts to get a mortgage cover. It is because debt affects how much you can borrow on a loan. For example, if you need a loan for a property costing £250,000 with £1,00,000 debt, you may get a low amount like £1,00,000 at high interest rates. Alternatively, if you apply for the same loan with just £10000 in debt, you may get instant approval at better interest rates.

What is classed as debt in simple terms?

Debt is a sum of money that you owe and must pay within a given time limit. It could be in the form of student loans, payday loans, a mortgage, etc. The higher the amount to pay, the more you pay overall. Delay in paying debt could cause penalties and a late payment fee. It could affect your finances and mental well-being, and invoke actions like CCJ. While some debts, like mortgages, student loans, and home renovations, are good for your credit history, you must pay them. Try to keep debts like credit cards, payday loans, overdrafts, low to maintain financial well-being.

Can you get a mortgage with debt?

Yes, you can qualify for a mortgage with pending debts. Not every loan provider cancels your mortgage loan application. However, it is better to optimise your credit history before applying for one.

 Cancelling out some pending payments from the credit report reduces your debt-to-income ratio. It is the critical factor in deciding the loan amount and the approval.  It helps you fetch better interest rates and reduces the overall cost of the loan. Moreover, paying off some debts improves your credit score. It is the crucial factor when applying for a mortgage.

If you cannot pay and need a mortgage, don’t worry. Explore the best mortgage lenders for people with bad credit in the UK. Identify the amount you can get for the property purchase. You may get a pre-qualified quote that lists the approximate amount and chances of loan approval. Compare the interest rates and choose the one with the lowest rate.

How to improve the chances of getting a mortgage with debts?

Yes, there are some ways that might help you get the mortgage instantly. It could be repairing your credit history for at least 6 months before applying. Ensuring regular payments on every debt is critical. Alternatively, try to avoid any instinctual purchases for some time. It could be getting additional credit cards or unnecessary expenses.  Here are other ways to get a mortgage with debt:

1)     Provide a high deposit

Identify the savings you have now. It could be in the form of investments, income from multiple streams, or other funds. Check how much you can pay for the deposit. Most individuals seeking a mortgage cover plan the deposit first. You generally need to provide 10% of the house’s value as a deposit on the loan. You can also provide more than that, if it does not hamper your financial well-being. It eventually reduces the total amount and interest cost you owe. It eventually helps you qualify for the loan.

2)     Consolidate your debts

It is one of the best ways to get rid of the pending debts quickly. You can consolidate the dues if you struggle to manage multiple payments separately. You can merge any pending payments like credit cards, overdrafts, payday loans, rent, etc. It reduces the overall liability you hold on debts. Instead, your credit score improves, and you may qualify for better interest rates and terms. Moreover, you can use the money you save on the payments to pay for the deposit.

3)     Pay off your student loan

Do student loans prove the greatest obstacle in getting a mortgage? Yes, it does affect your mortgage application. It is because student loans and mortgages both are long-term agreements with heavy monthly payments.

Managing both simultaneously is challenging unless you have a really good income (above £30000). Thus, check whether you can pay your student debt before seeking a mortgage. You can even seek forgiveness if you cannot pay.

 Alternatively, check whether you can pay more on student loans. It may help you cover the loan quickly. In case of short-term cash hiccups like a sudden car breakdown, check 100% guaranteed loans online. You may get instant approval if you can afford the loan payments. Here 100% guaranteed approval is only possible after mandatory credit checks. You can get instant cash to repair the car without affecting the student loan debt payments.

4)     Avoid applying for new credit

You should avoid seeking new credit at least 6 months before the mortgage loan application. Especially avoid credit cards, payment rollovers, and checking on overdrafts often. Instead, set up an emergency account or a separate savings account to maintain the payments.

 It is because applying for a new credit card affects your credit utilisation ratio. It reveals that you lack any further space to make mortgage payments. It is the reason debt consolidation proves helpful in clearing off the credit report and getting instant mortgage approval.

5)     Consult creditors for negotiation

It is helpful if you have been trying to pay off the dues for a long time but have failed. Address the issues which has been troubling you and proving the biggest obstacle. Check how much you can pay off debts and contact your creditors.

Provide an estimate of the amount you can afford to repay on the pending debt. Most creditors agree upon a lower amount as they want their money back. It makes clearing debts easy for you. Do this with every creditor and check how much you must pay to get debt-free.

Bottom line

These are some situations that may help you get a mortgage despite a bad credit score. It helps you understand what you can do to get a mortgage with debt. You can take the help of a mortgage advisor to understand the options well. Alternatively, plan the debt payment budget and pay before applying for the mortgage. It brings down the debt-to-income ratio, making you eligible for the mortgage.