If you're turned down for a mortgage because of excess debt (such as on credit cards and auto loans), be grateful. Over the long term, such debt is a serious drag on your ability to save money and live within your income.
Should you have the cash available to pay off some or all of the debt, we urge you to do so. Mortgage lenders sometimes make this a condition of funding a mortgage, especially when you have significant debts or are on the margin of qualifying for the loan that you desire. If you lack sufficient cash to pay down the debt and buy the type of home you desire, choose among the following options:
- Set your sights more realistically: Buy a less expensive home for which you can qualify for a mortgage.
- Go on a financial diet: Your best bet for getting rid of consumer debt is to take a hard look at your spending and identify where you can make cuts. Use your savings to pay down the debt. Also explore boosting your employment income.
- Get family help: Another potential option is to have your family help you with your borrowing, either by cosigning your loan or by lending or giving you money to pay down your high-interest debt.