It’s no secret that getting a loan can be a huge financial undertaking.
And a question that many people ask when they’re considering taking out a loan – will it affect my ability to get a mortgage?
The answer, unfortunately, is yes.
When you take out any kind of instant loans – whether it’s for a car, furniture, or even school – your lender will look at your credit score.
And if your credit score is lower than it could be because of the number of loans you have taken out, you may find it difficult to get approved for a mortgage.
So to help you, we will discuss the relationship between loans and mortgages and whether or not getting one will impact your chances of securing the other.
We’ll also provide some tips on how to make sure you don’t disqualify yourself from getting a mortgage!
What is a mortgage and what is a loan?
Mortgage
A mortgage is a loan that helps you finance the purchase of a home. The house serves as collateral for the loan, which means that if you can’t make your payments, the lender can take possession of the property.
Mortgages typically have longer repayment terms than other types of loans – usually 15 or 30 years – which makes them more affordable for borrowers.
Mortgage loans are also generally much larger than other types of loans, which is why they’re often used to finance the purchase of a home.
Loan
A loan, on the other hand, is an amount of money that is borrowed and then paid with interest over time. It can be utilised for a variety of reasons, including debt consolidation, financing a significant purchase, and even vacation.
Frequently, loan periods are shorter than mortgage terms, ranging from two to five years, and interest rates are typically higher.
Now that we’ve defined both loans and mortgages, let’s take a look at how they can impact each other.
How can a loan affect my ability to get a mortgage?
Your credit score is one of the most critical parameters that lenders consider when you apply for a loan or a mortgage, as we said previously. And having several loans, especially high-interest loans, can have a detrimental effect on your credit score.
This, in turn, might make it difficult to obtain a mortgage since each time you take out a loan, your credit score is affected, and if you have many loans, the impact can be substantial.
When you apply for a mortgage, the lender will examine your credit score to determine your risk level. And if your credit score is worse than it may be due to the quantity of loans you have taken out, it may be challenging to obtain a mortgage.
So, if you’re considering taking out a loan, you should consider how it could affect your ability to obtain a mortgage.
And if you’re worried that a loan will impact your credit score and make it difficult to get approved for a mortgage, there are a few things you can do to help improve your chances.
Tips on how to avoid mortgage disqualification
- Make sure you keep up with your loan payments. If you miss even one payment, it could have a significant impact on your credit score.
- Pay off your loans as quickly as possible. The longer you have a loan, the more it will affect your credit score.
- Try to limit the number of loans you take out. If you can, avoid taking out multiple loans at the same time.
- Shop around for a mortgage before you apply. Not all lenders are the same. Talk to multiple lenders to see what kind of mortgage you qualify for and compare interest rates.
- Get a cosigner. If you have a friend or family member with good credit, they can cosign for your loan and help improve your chances of getting approved.
- Keep your credit utilisation low. This is the percentage of your credit limit that you’re using.
Final Thoughts
Taking out a loan can be a big financial decision – and it’s one that shouldn’t be taken lightly.
Before you take out a loan, make sure you understand how it could impact your ability to get a mortgage in the future.
And if you’re thinking about applying for a mortgage, talk to multiple lenders to see what kind of loan you qualify for.
This way, you can make the best decision for your financial future.