Here's What Happens When You Apply for a Mortgage When You Already Have a Lot of Debt

There are different factors that mortgage lenders take into account when deciding whether to approve or deny a home loan application. One such factor is your credit score. The higher it is, the more likely you are to get approved for a mortgage. But a lower credit score could send the message that you're someone who struggles to pay bills on time, and that could hurt your chances of getting to borrow for a home.

Another factor that mortgage lenders look at is your existing level of debt relative to your income, otherwise known as your debt-to-income ratio. It may be that you have a fair amount of debt at the time you're applying for a mortgage. But if your income is high enough, that pile of debt may not be a problem.

It's all about this ratio

You might assume that if you're applying for a mortgage at a time when you also owe $15,000 on your credit cards and $20,000 on your car, then your chances of getting approved are going to be slim. But actually, whether $35,000 worth of debt stops you from getting a mortgage will depend on your income, plus other factors like your credit score.

Rocket Mortgage says that a debt-to-income ratio below 36% means you're likely to get approved for a home loan. So even if you are juggling multiple debts, if those monthly payments take up less than 36% of your income, you're in good shape.

Rocket also says that a debt-to-income ratio of 36% to 41% is quite reasonable. This means that you're still fairly likely to get approved to borrow for a home if you're in this range.

But once your debt-to-income ratio reaches 43%, Rocket says you might struggle to qualify for a mortgage. And if your debt-to-income ratio is over 50%, then your chances of getting to borrow for a home are pretty slim.

It's best to crunch your own mortgage numbers

A mortgage lender may decide that your level of debt relative to your income is such that you're still able to borrow for a home. But run the numbers and make sure that you feel comfortable taking on a monthly mortgage payment on top of the debts you're already paying off.

If the idea of having to juggle yet another debt payment is overwhelming, then you may want to hold off on buying a home and work on paying off some of your existing debt first.

Remember, you know your finances better than any lender. Lenders have formulas they use to determine who qualifies for a loan and who doesn't, but those formulas don't speak to your personal comfort level with debt.

So, let's say you're already on the hook for $1,000 in monthly debt payments and are paying $1,200 a month in rent for a home. Taking on a mortgage and the peripheral expenses of homeownership, like property taxes, might raise your housing costs to $1,800.

You may be able to afford $1,800 based on the paycheck you bring home every month. But spending that $1,800 on housing could make it so that you have zero wiggle room for surprise expenses, which might creep up on you at any time.

Or, it could make it so you have little to no spending money for leisure and entertainment. That may not be the lifestyle you want. So it's important to draw your own conclusion about the level of debt you can swing.

Consider paying down (or consolidating) debt first

You may be able to qualify for a mortgage even with a bunch of debt. But if you're worried at all about covering a mortgage when you owe money to other lenders, put off homeownership for a bit of time and work on whittling down your existing debts instead. That way, you can feel more confident in your ability to cover your costs.

You may find that consolidating your existing debt via a personal loan makes it easier to manage and chip away at. And also, having a single loan payment each month to grapple with might make you feel more comfortable with the idea of also taking on a mortgage.