Debt is a hot topic in the news these days. Every time you look on the internet or glace at a newspaper, you’re sure to see an article about how many millions of Americans have massive amounts of credit card debt and/or student loan debt.
But in reality, not all debt is as horrible as the media tries to make people believe. There’s no doubt that having a lot of credit card or student loan debt is not a good idea. But a mortgage is also a type of debt. Is having a mortgage a negative thing? If a mortgage is handled correctly and payments are made on time, it can eventually lead to owning a piece of property outright.
What Do Mortgage Lenders Evaluate?
When you apply for a mortgage so that you can purchase a home, your prospective lender will evaluate your credit score and your debt-to-income ratio. The lender wants to predict whether or not you will likely be able to consistently afford your monthly mortgage obligation. While your debt-to-income ratio does not necessarily dictate your credit score, both factors will be used by a mortgage lender to determine if you are a good credit risk.
Your credit score is determined by evaluating the total amount of debt you owe – and the type of debt that you have. It’s important to remember that having some debt – and showing that you can make payments on time every month – can sometimes help boost your credit score higher than other people who are debt-free.
Following are some of the most common types of debt:
Unsecured debt. Student Loan Debt and Credit Card Debt are unsecured – which means there is no collateral that a lender can seize (in most cases) if you default on your loan. In many cases, people who have student loan debt have a LOT of it – possibly more than $100,000. Credit card debt can also reach very high levels. Unsecured debt will affect your debt-to-income ratio and your credit score.
Secured Debt. Car Loans and Mortgages are secured – which means a lender can repossess or foreclose if you don’t make payments. Making full payments on time and consistently month after month can help increase your credit score and can, in many situations, look favorable to lenders that are considering offering you a mortgage.
If you are hoping to obtain a mortgage so that you can purchase a house, it’s important to have a conversation with an experienced mortgage lender. Call The Home Loan Arranger today at 1-877-938-7501 for a free consultation and advice on how to proceed if you have secured and/or unsecured debt.