Understanding How Debt Can Affect You When Applying for a Mortgage
Having debt doesn’t automatically disqualify you from buying a home. Plenty of buyers have student loans, car payments, or credit cards, and still close successfully.
What does derail transactions isn’t debt itself. It’s realizing halfway through the process that your buying power isn’t what you thought it was.
Understanding how debt affects your mortgage approval isn’t just helpful; it’s deal protection. Most buyers assume lenders only care about income and credit score. Debt is often treated like an afterthought.
But debt directly affects:
- How much house you qualify for
- What loan programs are available
- How competitive your offer can be
- Whether your deal survives underwriting
Here’s what buyers need to know before they fall in love with a house they can’t comfortably afford.
How Do Lenders Assess Debt When Applying for a Mortgage?
Your lender will look at your debt-to-income ratio (DTI) to determine your ability to manage monthly payments. DTI is the percentage of your gross monthly income that goes toward debt payments.
While buyers tend to focus on interest rates and purchase price, lenders are watching this number closely from the very first conversation through final underwriting.
What Do Lenders Consider to be Debt or Not?
When lenders talk about debt, they’re focused on monthly obligations. But not everything you pay monthly is considered debt for mortgage qualification purposes.
Debt includes:
- Auto loans
- Student loans (even deferred ones)
- Credit cards (minimum monthly payments)
- Personal loans
- Lines of credit
- Co-signed loans (yes, even if “someone else pays it”)
Commonly overlooked debts:
- Buy-now-pay-later plans
- Business debt that shows on personal credit
Everyday living expenses, such as utilities, groceries, phone bills, childcare, or regular savings contributions, aren’t considered debt by lenders and don’t factor into your mortgage approval.
However, just because these costs aren’t counted doesn’t mean they’re optional. From a real-world budgeting standpoint,
they matter a lot.
These expenses determine how comfortably you can live once the mortgage payment is added to the mix. Buyers who ignore them often find themselves feeling stretched, even if they technically qualify on paper.
How Debt Impacts How Much House You Can Comfortably Afford
Debt doesn’t just affect mortgage approval; it affects comfort.
Most buyers only hear “You’re approved up to X amount” and assume that number represents a comfortable, realistic budget. In reality, that figure often reflects the maximum a lender is willing to approve, not the amount that makes sense for your day-to-day life.
That maximum approval assumes nothing changes: no new debt, no rising living expenses, no unexpected costs. Even a small shift, such as a higher insurance quote or a slightly larger loan payment, can push the DTI ratio too high or to a level that is uncomfortable for buyers when all of your monthly obligations are factored in.
There’s a massive difference between being approved and being comfortably approved. The second one leads to better decisions.
Assess Debt Before You Start House Hunting
If you’re 3 - 6 months out from buying, review your debt to assess how it may affect your mortgage approval and get a better understanding of what you can comfortably afford.
Helpful steps to take include:
- Talk to a lender early, preferably before browsing listings
- Avoid new credit unless absolutely necessary
- Ask whether paying down debt actually improves your scenario
- Keep credit card balances low relative to limits
- Be honest about co-signed or shared obligations
A coordinated plan between buyer, lender, and agent almost always leads to a smoother experience.
How a Real Estate Agent Can Help You Navigate Debt During the Homebuying Process
Working with a knowledgeable Real Estate Agent can help manage expectations and keep transactions intact.
That includes:
- Working closely with lenders to align numbers and goals
- Setting realistic price ranges before showings
- Helping buyers understand trade-offs between price, debt, and comfort
- Keeping deals on track when financial questions arise mid-transaction
When everyone is on the same page early, surprises are rare, and closings are far less stressful.
The smartest homebuyers aren’t the ones with zero debt. They’re the ones who understand their numbers before the first showing.
If you’re thinking about buying, start with clarity, not listings. The right agent and lender will help you build a plan that works in the real world, not just on paper.
