How Debt Can Affect the Mortgage You Get

Buyers need to think about many things when considering the purchase of a home.

Financing, of course, is one of the most important items.

To determine whether you qualify for financing, lenders look at something called debt ratio.

The debt ratio often determines whether or not a buyer can qualify for a mortgage.

Calculating the debt you carry is based on a number of things.

There are different kinds of debt.

For conventional and Federal Housing Administration loans, lenders look at revolving and installment debt.

Revolving debt includes mostly credit cards and other types of debt, where monthly balances can fluctuate as they are paid down then increased as the line is accessed.

Home equity loans are calculated as if the balance is as high as it can go.

Installment debt includes any kind of fixed-payment obligation, such as an automobile loan, where the interest rate and payment amounts are fixed for the life of the loan, which has a specific end date.

Installment loans with fewer than 10 remaining payments will be excluded from debt ratios, so if you are close to having that car paid off, it need not be a factor in your debt calculations.

Items such as utility bills, food, clothing and gas for the car are excluded from debt ratios.

Student loans are another thing lenders consider.

Often, student loan payments are deferred until the student graduates.

Even when payments are showing as deferred on a credit report, lenders can and often do use them in the calculation of debt ratios.

This will help the lender get an accurate picture of what the debt profile will look like at some point in the future.