Credit Cards, Student Loans & Your Mortgage

So you have some credit card debt. And you have that huge student loan hovering around you, too. But you also want a mortgage. The problem is, with all that debt, you don’t think you’re ever going to get one. But now is not the time to despair. That could just leave you giving up altogether and going into defaulted debt, which will only damage your chances of getting a mortgage even further. Instead have hope, and start understanding that debt you’re carrying around with you.
First let’s look at student loans. Student loans, while they can often be pretty hefty, are considered to be installment loans by mortgage lenders. Installment loans are loans that have a pre-determined amount that you must pay every month. Lenders often look more favourably on installment loans than they do other types of debt, as long as you are paying them off every month. In fact, these types of loans can actually work for you when working with lenders. Installment loans that are in good standing (meaning you haven’t fallen behind on payments,) can actually show a lender that you can carry a loan; and more importantly, than you can and will pay it off. Student loans aren’t the only type of installment loan that might have you scared off of applying for a mortgage.
Car loans and personal loans are other types of installment loans that shouldn’t stop you from trying to get a mortgage. That being said, now is not the time to run out and get any kind of installment loan you can find. It’s still debt, and it will still show up on your credit report when applying for a mortgage. But as long as you’re paying them off every month, they won’t prevent you from owning your own home.
Credit cards, lines of credit, and retail credit cards are known as a different type of loan – these are revolving loans. Revolving loans differ from installment loans in that you control how much you pay. While you will be required to pay off a minimum balance every month, you can pay more than that if you want, paying your loan off even faster. These types of loans aren’t looked upon as favourably as installment loans, and they can hurt your credit significantly if you don’t pay them off regularly.
The worst thing that could happen with a revolving loan is that they get written off. Because the lender doesn’t have any recourse if you don’t pay it off, such as seizing your home or your car, they can only write them off and try to cut their losses. However, if that happens, it tells anyone that looks at your credit report that another lender simply gave up on the idea that you were ever going to pay them off. And that’s one of the worst things that could appear on your credit report.
Another important note about credit card debt is that it too can actually help you get a mortgage. If you have a credit card, or a few credit cards, with a very high credit limit, it shows lenders that other lenders considered you credit-worthiness enough to trust that you can pay off the high amount. If however, you have one (or several) cards that aren’t being paid regularly, the higher the balance you owe, the worse it’s going to look for you.
No one can tell you, especially without looking at your credit report, whether or not the debt you’re carrying will affect your chances of getting a mortgage. But understanding your debt and knowing what kind of debt it is, will be a huge help to you when it comes to determining whether or not it stands in your way of getting a home loan. Even more importantly, knowing what kind of debt you have might help you pay it off – the biggest step you’ll take on your way to getting a mortgage.