An Easy Guide to Qualify for Real Estate Debt Consolidation

You will need to know about and follow the right approach for real estate debt consolidation to qualify for a mortgage. Though loan consolidation is the best way to get rid of your high interest loans, it is up to you to make it a successful venture for you. For this you will have to consider the use of debt consolidation very carefully so that you can qualify for a mortgage. Ideally a debt consolidation will help you in many ways such as:

  • It will lower your debt payments and therefore allow you to qualify for a larger mortgage
  • You can have a debt consolidation in many different forms such as a home equity loan, unsecured personal loan, a debt management plan, or balance transfer credit cards and
  • Consolidating your debts may extend your repayment term making it convenient for you to repay.

However, debt consolidation may increase your costs as the term will be extended and ideally it works well for a very small percentage of people trying it. Therefore you will need to be very careful to understand if debt relief is right for you.

sea pines house

There are few strategic steps to follow to avoid being one of those 85% people who fail in debt consolidation. If you do so, the mortgage lenders will be more than happy to lend you the money that you require though it is not an easy task to satisfy them who are known to be very strict and choosy.

Debt-to-income ratios

This is the first thing that you should consider very carefully in order to qualify for a mortgage or use your real estate to consolidate your loans. Usually, all lenders are very concerned about debts and will therefore follow the typical guidelines set. One of these guidelines is that as much as 43% percent of your gross income must be available to be used to repay your monthly bills of housing, credit card and other debts.

The process to calculate DTI ratio involves dividing all your bills by your monthly income. However, 43% of DTI is the limit for housing and other payments but that does not include your living expenses such as utilities and food.

The lenders will consider all debts such as car loans, student debt, credit cards, and others to determine the mortgage principal, interest, property taxes, and insurance to see whether a borrower qualifies for financing.

How it works

If you own a home you can use the home equity for debt consolidation as the cheapest form and most effective mean to finance your existing debts. However, if you are trying to buy a new home then home equity is probably not a feasible option for you. Ideally, you must follow golden rule in mortgage in debt consolidation: Either do it right, or do not do it at all. This principle applies in all situations whether you want to take out the loan from a traditional bank, a private money lender or other sources.


If you have monthly payments to make that are too high then you may not qualify for the mortgage loan you want to have. However, you may be able to stretch the ratios if and only if you make some changes in your lifestyle and lower your payments.

If you qualify then you will be better off. Suppose you have high balances in three of your credit cards that carry about 14% interest you will find it very difficult to continue making payments in all these cards every month without any fail. However, if you qualify for a mortgage debt consolidation loan to pay these off and in turn pay only 6% interest on a single loan, what else can be more sensible and reasonable than that?

This way you will pay much less each month and all your debts will disappear in less than five years. This is unlikely to happen if you continue making the minimum payments every month to your current debts.

Other options

It is true that for credit card debt consolidations you can consider zero balance credit cards and balance transfer option but that will have its consequences and requirements as well.

  • You will need to be disciplined and diligent
  • You should avoid taking on more debts and
  • You will be typically charged a 3% fee upfront as well.

However, if you can continue this for at least 12 to 18 months you can clear your debt and save a lot of interest as well. But you should not take this route if you cannot take and leave your zeroed accounts that way. This is where most of the debt consolidation efforts fail because borrowers start running their accounts again right back up.

Whether you use your zero balance credit cards or a mortgage loan to consolidate your debts, you will need to design and follow a debt management plan for it.

You may also choose to have a Debt Management Programs for that matter. This is the best approach if you find it to be really hard to manage your debts. Credit counseling from an expert and reputable non-profit agency may help you turn your finances around. In addition to their help in budgeting they will also intervene with your current creditors.

Factors to consider for mortgage

However, if you want to put your real estate on line for consolidating your existing debts, there are a few factors to consider and a few questions to ask and find the right answer.

Debt consolidation will require you to make a single payment to the creditor every month instead of tracking and paying multiple bills. Debt consolidation is not like debt settlement or credit repair but is a strategic process to escape the black hole of debt.

However, you will need to make sure that you do not fail to make the payments to your new loan because failing it may end you up in losing your home.

Always choose a less restrictive mortgage program that has a higher DTI limit. There are several such programs that you will find out there such as FHA that will allow even a 50% DTI. However, you must make sure that you can really afford such a loan.

Daniel Ng

Originally posted 2019-03-13 09:35:51. Republished by Blog Post Promoter

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