Do you believe that all your decisions affect your future? Because each financial decision of today affects you tomorrow, and each of us makes a difficult decision today for a better tomorrow. Similarly, personal loans can affect your future financial abilities.
Will getting a personal loan affect getting a mortgage? The answer is yes. Read on to understand how this happens.
If paid on time, a personal loan will boost your credit score and help you achieve a mortgage at much lower interest rates. But if a personal loan burdens you and you delay its installments, it will hurt your mortgage application.
This blog details the everything you need to know about a personal loan while also taking a mortgage.
Will Getting a Personal Loan Affect Getting a Mortgage?
A mortgage application requires information about all of your debt. That is why a personal loan will affect your mortgage. Mortgage lenders prioritize your ability to pay your mortgage payment over your credit score or down payment.
Lenders will ensure you have a clean loan repayment history and no defaults before approving mortgage applications. In case of a default, the lender will either reject your application or increase the interest rates depending on your financial situation.
How a Personal Loan Can Affect Getting a Mortgage?
Personal loans can impact mortgage applications with both positive and negative implications. Your loan can show the complete picture of your financial history, which includes your debt repayment, credit score, and other aspects of your economic background.
Negative Effects
Lenders reviewing a mortgage application will note if an applicant needs to repay personal loans. Defaults on other debts, like individual loans, can hinder your ability to obtain a favorable mortgage rate and terms.
Positive Effects
The payment history of your loan proves that you regularly pay your loan on time if it is within your Debt-to-Income ratio. Paying down your debts consistently could indicate to a lender that you’d be a low-risk investment since you always make timely payments.
How Personal Loans Can Affect Getting a Mortgage?
No matter what type of mortgage you plan to get, taking on new credit during the application process can put your future loans at risk.
Credit Score
The most significant influencing factor is your payment history. Making all of your monthly payments on time positively impacts your FICO Score. Initially, the FICO score reduces when you apply for a personal loan. But with each installment, the score changes depending on your timely or delayed payments.
You can try Beem’s personal loan feature to get all the information you need on personalized rates and explore loan options ranging from $500 to $100,000 without impacting your credit score!
Payment History
Mortgage applications are directly affected by the payment history on your loan. Some lenders might reject applications with two or more delayed payments in the past. As long as you’ve made those payments on time for several months, you’re proving your ability to repay a mortgage.
Debt-to-Income Ratio
A debt-to-income ratio is a percentage measurement of how much debt you have compared to how much income you earn. A debt-to-income ratio is arrived at by dividing your debts by your income. The more debt you have, the harder it is to get a mortgage approval.
What if I’m Currently Paying Off a Personal Loan?
You can get a mortgage even if you are paying off your loans. Mortgage applications will benefit from a loan that improves your credit history without increasing your debt-to-income ratio.
People with a timely repayment history show the ability to repay loans on time and are considered trustworthy borrowers. But if you have lousy credit or defaults in your credit history, there is a high probability that your application might get rejected.
Conclusion
Will getting a personal loan affect getting a mortgage? Yes. Because your financial decisions today have a direct bearing on your credit score and plans.
A big step in life, such as home ownership, can be emotionally driven, and it is easy to get caught up in the excitement. Mortgage loans can become a burden if you commit to one before you’re financially prepared. By using Beem as your mortgage loan application, you’ll be more likely to be approved and able to make the monthly payments.
