The impact of external debts on getting a home loan

“Just because a bank has told you that you don’t qualify for a bank loan, don’t just take this as an absolute NO or assume that other banks will also turn down your home loan application because there’s something wrong in your profile.” it should not be viewed as the end of the homeownership road. An experienced and competent mortgage broker like Global Finance can look upon it as an opportunity to reassess your financial profile and explore alternative avenues for securing financing.
Aseem Agarwal, Head of Mortgages at Global Finance says.

When trying to secure a home loan, don’t look at a rejection from one bank as a definitive verdict on your eligibility.

As Aseem advises, it pays to know where the shortcoming is in your home loan application. If you’ve been turned down by a bank, their team can work with you and help you understand the reasons behind such decisions. And more importantly, they can provide ways to improve your chances of approval. They can make sure the second application is on a much stronger footing, regardless of whether you’re applying to the same bank or a different bank.

Should I pay off my debts?

We asked Aseem whether paying off a debt will make you eligible for a bigger loan from a bank or help your chances if you have been turned down.

Drawing from years of experience and industry expertise, Aseem told us that yes, paying off external debts or reducing your external debts or even consolidating your external debts will help you chances of getting a mortgage.

External debts, such as credit card balances, hire purchases, buy now pay letter and personal loans, can significantly influence your loan eligibility. He stressed just how important it is that clients understand how these debts affect their financial standing when applying for a loan. He then went on to offer solutions on how to address the challenges that having these external debts pose.

The impact of external debts

“Often when someone applies for a mortgage, a home loan, or a top-up or a construction loan, and they have external debts, such as credit card debt or personal loans, these can create an issue in terms of being eligible for the amount of loan they are seeking.”

Strategies for improving loan eligibility

To lessen the impact of external debts on your loan eligibility, Aseem recommends proactive measures such as debt consolidation and leveraging existing assets:

“If you have been told you’re not eligible for a loan or only qualify for a lesser amount than you are asking for and one of the reasons the bank has given is that you have too many external debts, then it is always well worth paying attention to these external debts and seeing what impact they are having on their application.”

All debts into one

External debts such as high-interest car payments, credit card payments, or a loan against a business for capital expenditure, are quite often at an interest rate of around 10 to 12 percent. This is higher than a home loan rate and the tenure of these loans are also shorter than the typical 25-to-30-year lifespan of a mortgage.

Therefore, these external debts tend to pull down the amount of loan the customer will qualify for.

“Firstly, we suggest to clients that it might be worth looking into debt consolidation: rolling all debts into one. We often recommend they combine high-interest loans or debt into a more easily managed home loan.”

By consolidating high-interest debts into a home loan, you can streamline repayments and improve your overall financial health.

“By securing these loans against the home, clients will be able to lower the interest rate they are paying, and they will be able to extend the time to pay them back. This often raises the amount of loan the customer can then seek from the bank.”

Leveraging equity

If you have an existing home or property portfolio, the Global Finance team will review the equity you have and suggest leveraging it to pay off external debts. This can unlock additional financing opportunities. Aseem Agarwal explains:

“If the client has an existing home or property portfolio, then it would make sense to do a review of the equity currently held in those properties. Then we look to bring these external debts onto the secured home or commercial property so that they can lower the repayments on them and therefore make themselves eligible for a greater amount of loan.”

Smoothing the way to homeownership

Fully appreciating the intricacies of home financing requires a proactive approach and access to expert guidance. Global Finance provides comprehensive support and effective solutions.

As Aseem emphasizes: “If you don’t qualify for a home loan, it’s good to get into the nitty-gritty of understanding why your application was not approved and seeking qualified help to find out what you can do about it.”

Mortgage brokers exist to help people overcome obstacles and reach their homeownership goals. So, if you’re looking for experienced, qualified advice and guidance, get in touch with the team at Global Finance on 09 255 5500 or info@globalfinance.co.nz. They can help you unravel the complexities of home financing and move on up the property ladder.

The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.