What are the effects of outstanding business loans on my home mortgage application?

Deal Score0

I have debt from my old business and now I am a student. However we deligently paying monthly minimum payment. To purchase a home I am willing to put 5% down. With me and my spouse we have more than required income to pay monthly mortgage and other expenses.

What are the chances of obtaining mortgage loan in this situation? Is my application going to get rejected ? Does business loans have any impact on my personal home mortgage application?

2 Comments
  1. Reply
    liveinmd
    February 10, 2011 at 3:07 pm

    It will depend on whether the business loans were made to the company (usually done for corps) you, as the owner, made personal guarantees (usually done for sole proprietor companies). 5% is not a lot in this current market; most lenders want 20% unless you go FHA.

    If the business loans were done for a sole prop company, then they would be included in your ratios and the payment history will appear as part of your credit history.

  2. Reply
    Home Loan Guru
    February 10, 2011 at 3:36 pm

    This depends how the debt is structured (is it personal debt of yours or of your old company – was your company incorporated?)

    Even if it is personal debt, you might easily still qualify for a mortgage if your debt is under a certain percentage of your income. Mortgage companies use what’s called a Debt-to-Income Ratio (or DTI). This is simply comparing how much you owe to how much you make. Mortgage companies want to be sure that you’ll still be able to afford your mortgage payment after you pay your other monthly debts.

    So, as long as you have enough income, it doesn’t really matter how much debt you have.

    And 5% is enough to get a conventional loan in today’s market (though you will have to pay private mortgage insurance monthly). You can get an FHA with only 3.5%.

    Speak to a trusted mortgage professional and they’ll run your numbers and let you know if your debt is at a qualifying level.

    Good luck!

    Leave a reply

    Register New Account
    Reset Password