If you have a great deal of personal loans, they can actually harm your chances of getting a mortgage. So if you are ready to make that leap to buying a home, you should consider paying off your personal loans, as debt–even personal loans between family members–can be counted against you. As mortgages are harder and harder to get, the restrictions are getting tighter. You need to have a good credit record and low amounts of debt to qualify. Here are some ways to consider paying off your personal loans:
Begin with Small Loans First
Begin by paying your smallest debts first. You can choose to pay off the debts that carry the lowest rate of interest, as some financial experts recommend. Or you can begin by paying of the smallest debt in terms of money owed, as other financial experts recommend. The key is to choose a method that will allow you to experience a positive financial impact quickly, motivating you to keep going. This will help free up money for the down payment on your home and will help you pay down your personal debt ratio. Both will allow you to get a better interest rate on your mortgage when you submit your application.
Be Honest About Your Debt History
Once you begin paying off your personal loans, you may be tempted to leave a few off your credit report when you apply for a mortgage. But even if you owe money to a family member or a friend, you need to make sure your lender is aware of it. Failure to report all personal loans is a crime–it’s called fraud, and it can get you in a lot of trouble. Make sure that you accurately and truthfully report your credit history to your lender and you will be spared a lot of heartache in the long run.
Check Your Credit Report
Before you apply for any kind of loan, be it a personal line of credit or a mortgage, it’s a good idea to check your credit history. Credit bureaus are notorious for posting inaccurate and outdated information to consumers’ files, so it is worthwhile to check yours for mistakes before your lender gets a copy of it. If you do find mistakes, there is a 30-day window for the items to be corrected, so keep that time frame in mind when planning for your loan application. By cleaning up your credit and being truthful about your financial history, you have a much better chance of getting the funds you need.