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Can you get a mortgage with debt?

Many people who are in debt automatically assume they won’t be eligible for a mortgage. This isn’t always the case and you should still have a chance to take out a mortgage if you have debts. However, if your existing or previous debt has had a negative impact on your credit rating, then it can affect your mortgage application. This can be anything from making late payments to paying into a DMP (Debt Management Plan).

Luckily, there are mortgage lenders who are understanding of people who have a less than perfect credit score. Rather than just taking into consideration your credit history, they will look at your current financial situation to assess whether you can afford the monthly payments.

How to apply for a mortgage with debt

Getting a mortgage with a bad credit score won’t be as easy as having good credit. It’s likely that you won’t be eligible for the same mortgage deals, as interest rates will be higher for bad credit customers. But there are still options available to you as long as you can afford to make the repayments.

Here we have provided some tips for getting a mortgage if you have any outstanding debt:

Work out your affordability

The most important thing that you should consider is whether you can afford the mortgage. The size of your deposit will make a difference on how affordable your mortgage is. Lenders are also unlikely to accept you at all if you don’t have a sizeable deposit to put down. In addition, if you do have a bad credit history then it’s often a requirement that you put down an even larger amount. This is typically between 15-30% of the total value of the property.

You should also work out if you can afford the monthly payments. If you know that they will be a stretch for you then there’s no point in applying as a lender will also be able to see that.

Check your credit score

Before submitting your mortgage application it’s a good idea to check your credit report. You can do this through a number of credit reference agencies including Experian and Check My File. Any information will remain on your credit file for 6 years so if you have any loan defaults, have been made bankrupt or been in an IVA then a lender will be able to see this information.

Knowing your credit score will give you a better indication of what rates and types of finance you can apply for. There might also be things that you can do to improve your credit score before submitting your mortgage application.

Organise your finances

Showing that you have your finances under control now will help with your mortgage application. If you can show that you have settled your debts then you have a much better chance of being approved than if it is still outstanding. A debt problem that has been solved is far better than one that is still ongoing. Make sure that you always make your payments on time and if possible, set direct debits so you don’t risk missing any.

Demonstrating good financial management is also especially important for first time buyers who have never had a mortgage before. You might not have borrowed much in the past and need to show that you are a responsible person to lend to.

Consider a mortgage broker

You should be aware, however, that some lenders will still reject applications even if you have settled your debts. Using a mortgage broker that specialises in bad credit mortgages can help to increase your chances of being approved.