If you are considering buying a house, you will likely need a home loan. If you already owe on previous advances, whether higher education debt, credit card debt, or personal loan debt, it could impact your home loan application.

So, how does debt affect you when applying for a home loan? Here is a brief look at the most common type of debt and their possible effects.

Higher education debt
It is common for Australians to have student debt under the HECS-HELP. When applying for a home loan, lenders will see these numbers and may make decisions accordingly. Because your salary will be reduced to make student loan payments, that means you’ll have less borrowing power. This could have negative impacts on your loan application, especially if you have other forms of debt on top of it.

Credit card debt
Somewhat surprisingly, credit card debt makes up only a small percentage of the average household debt. This is largely because mortgages and investment debts are going to be much higher numbers than what you’ve accumulated through credit card purchases.

Nonetheless, credit card debt can have a big impact on your credit report. If you have a lot, and don’t have a large income, this can look bad to lenders. In addition, if you have made late payments on a credit card or have defaulted, this is a big red flag.

Personal loans
Just like credit card debt, if you owe a lot of money in personal loans, applying for a home loan may be difficult. If you are making big payments each month to pay off a personal loan, lenders may think you’re unable to afford a large home loan payment.

It will look much better to lenders if you have been able to pay off personal loans in the past. Consider trying to pay down personal loans before applying for a home, and you’ll have a much better chance of getting approved.

If you have questions about debt or loan applications, contact our team today.