Last updated: May 2019
In deciding whether to approve a mortgage application, lenders will look at the client's credit score and their existing debt-to-income ratios. The later shows the client's existing monthly payment obligations on loans, credit cards, etc. relative to their gross household income and if you have too much monthly debt or a low credit score then your chances of getting a mortgage approved are reduced.
One of the fastest ways to build up your credit score is to clear up debt. And one of the quickest ways to clear up debt is to consolidate high interest credit card debt on to one easy to manage loan. If you stretch out the time frame over which you repay the debt consolidation loan, then your monthly payment obligation will go down and your debt-to-income ratio will improve along with your credit score, hence increasing the prospect of getting your mortgage approved.
Sounds like a magic pill, doesn't it! And it works, but...
Please keep in mind that debt consolidation might make you think you've done something about a debt problem and moved you closer to or into a mortgage, so in that regard that's a success. BUT the debt is still there, it's just been restructured. What about the habits that caused it - are they still there? Here is a great resource on money management and check out the Mr Money Mustache blog for some hardcore navel-gazing articles and suggestions.
Yes, a debt consolidation loan might help you manage your finances in such a fashion as to get approved for a mortgage. We can even show you how.
Why I am okay with debt consolidation loans is that most of us have to pay for accommodation one way or another - either as renters or home owners. When you are a homeowner, you are building financial security because you are paying down your mortgage and the home appreciates in value over time. So as you work to get your financial house in order, you may find that a debt consolidation loan is on your pathway to homeownership.
Let me know what you think about this strategy. Does it make sense or are you digging a deeper hole?
Any other questions, please contact me or check out this page, Can You Get a Mortgage?