Use debt consolidation to qualify for a mortgage carefully
Consider the use of debt consolidation to qualify for a mortgage very, very carefully. Follow these tips to avoid being one of the 85 percent who fails debt consolidation.
Debt consolidation can lower your debt payments, allowing you to qualify for a larger mortgage
- Debt consolidation can be a home equity loan, debt management plan, or unsecured financings like personal loans or balance transfer credit cards
- Consolidating your debts can extend your repayment and increase your costs
- Debt consolidation works for a small percentage (about 15%) of those who try it. Be careful out there.
Lenders are very concerned about debt. Typical guidelines say that as much as 43% of your gross income can be used to repay monthly debts like your housing, credit card, and auto payments.
Dividing these bills by your monthly income determines your debt-to-income ratio or DTI. If you have a household income of $7,000 a month, 43% equals $3,010. That’s your limit for housing plus other account payments. But not living expenses like food and utilities.
If you have two car loans at $500 each, $400 a month in student debt, and $200 for credit cards, that’s $1,600 a month, leaving just $1,410 a month for mortgage principal, mortgage interest, property taxes, and property insurance.
In a lot of markets, that leaves less than $1,000 a month for the mortgage itself. At 4.5% over 30 years, a borrower qualifies for about $200,000 in financing.
How debt consolidation works
If you already own a home, a home equity loan for debt consolidation is probably […]