Mortgage  Question?
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How does personal loan affect ability qualify mortgage?

We took out a personal loan to buy some property to build a home on. We are using the property value as a credit toward the down payment to buy the home from the builder when it is built. Will the personal loan impact our ability to qualify for a mortgage? Our debt-to-income ratio is less than 35% even with the loan.

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Based on the information you provided, the personal loan should not negatively impact your mortgage application. The monthly payment on the personal loan is included in your debt-to-income ratio when you apply for the mortgage so it impacts what size loan you qualify for but based on your low debt-to-income ratio this should not create an issue for you.

One point to highlight as you think about applying for your mortgage is that you should save all of the documentation for the personal loan and for your transaction with the builder. Lenders have relatively strict guidelines about the source of funds for the down payment to buy a home. They want to understand where the money for a down payment comes from and verify there is no additional debt on the property or borrower. As long as you have the documentation for the loan and your agreement with the builder in order, you should be good to go.

Finally, I always recommend that borrowers shop multiple lenders to ensure that you receive the best terms on your mortgage. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as comparing multiple lenders is the best way to save money on your mortgage.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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