Does debt consolidation affect getting mortgage approval? The answer to this question is yes – but probably not how you imagine.

If you have credit cards or personal loans and plan on trying for a mortgage soon, you might want to consider debt consolidation first. Read on to find out everything you need to know.

First, What Is Debt Consolidation?

Debt consolidation is the process of paying off multiple debts – such as credit cards and personal loans – by taking out new credit and having one new debt instead.

For example, if you have two personal loans, you might be able to get a third personal loan and use it to pay off the other two debts. This should only be done if you can get better repayment terms on the new loan. It should not be done for the sake of it, i.e., to package your debts neatly into one place. 

Credit card consolidations is also possible, but this is done by taking out a new credit card and transferring other credit card debts to the new credit card. It is also known as a credit card balance transfer. 

There is a third method of debt consolidation, which is a little more complex and less relevant in this post. It is known as remortgaging for debt consolidation and can be done by people who already have a mortgage. 

Does Debt Consolidation Affect Getting Mortgage Approval?

Debt consolidations does affect getting mortgage approval to some degree. How much it will affect your application will differ between people. But how it affects it is probably not how you imagine.

Debt consolidation may improve your chances of getting a mortgage. Find out why below…

Why Can Debt Consolidation Help Your Mortgage Application

The reason why debt consolidation can help your mortgage application is not because of what debt consolidation does, but rather, what it avoids. 

Debt consolidation is used as an early prevention strategy to stop people from getting into serious debts and help them not have to use debt solutions like Debt Management Plans, Individual Voluntary Arrangements and alike.

These debt solutions are really good for people who are already in debt, but they will leave a mark on your credit file for six years and decrease your credit rating. 

Mortgage providers carefully assess your credit file when making a decision, and even though these solutions may be your best option when in debt, they could hold you back when it comes to trying to buy a home.

Debt consolidation doesn’t have such a big impact on your credit file. If you consolidate without actually missing repayments first, then it will have no negative effect on your rating. 

How Else Debt Consolidation Affect Mortgage Applications?

The above explanation shows how debt consolidation can prevent bigger debts and the need to use services which harm your credit rating. But debt consolidation could help your mortgage in another sense.

Debt consolidation is used to make clearing any remaining credit you owe in a more affordable way. If mortgage providers see your outstanding debts, loans and credit cards as less risky – i.e., easier for you to pay off – you may have a better chance of getting an approval. 

However, the benefits of debt consolidation and applying for mortgages will differ between applicants. A mortgage application is a meticulous and personal process, making it hard to determine the blanket benefits of debt consolidation. 

Other Common Debtor FAQs 

Here are more common questions that people who have credit ask when wanting to get a mortgage.

How Many Debts Can I Consolidate?

There is no limit to the number of debts and credit you can consolidate. Although you will only be able to borrow so much when you already have outstanding credit cards and/or loans.

Can Anyone Get a Debt Consolidation Loan?

No, getting a loan to pay off your other debts will still require the lender to conduct a credit check on you. If they see that you have too much outstanding debt or have failed to pay back other debts on time, they could reject you.

Can Anyone Get a Balance Transfer Credit Card?

The same applies to a balance transfer credit card. You will only get the balance transfer credit card if you get accepted after a credit check. 

Should I Pay Off My Credit Card before Applying for a Mortgage?

Paying off your credit cards will reduce your debt when applying for a mortgage and could go towards helping you get approved. However, you might need to consider if paying a chunk of your debts will reduce the deposit you can put up. Reducing your deposit may prevent you from getting the mortgage too. 

I have debts, How Can I Still Get a Mortgage?

If you have debts getting a mortgage will be more difficult. But it is not impossible. There are things you can do to put the odds in your favour. 

First, you should check your credit file yourself to identify any mistakes. Sometimes errors can contribute to mortgage rejections. Another tip is to put down a bigger deposit. The more money you can save and put upfront, the more comfortable you will make a potential mortgage lender.

Where to Find More Help?

If you want more help, it may be worth speaking to a mortgage broker or mortgage advice company. Some mortgage advice companies will provide you with advice and information for free. They do this because they receive a payment from the mortgage lender if you get accepted. 

If you do look for a no-fee mortgage advice company, try to find one that promises to search the whole of the market. If they don’t, you might miss out on a better deal. 

And Stay in Touch with Money Nerd…

And don’t forget you can find more helpful debtor information on Money Nerd. We create free and easy-to-read articles on lots of debt topics. Find out more by checking back in with us regularly. 

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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