Section 01

Buying a home with debt is more possible than most people think. Many buyers assume they must be completely debt-free before qualifying for a mortgage, but that is not how lenders evaluate applications.

We have seen buyers spend years paying down debt because they believed they had to be completely debt-free first. By the time they came back, home prices had changed, rates had changed, and they realized they could have qualified much earlier.

The reality is that lenders do not require you to be debt-free. They require your debt to fit within a specific ratio relative to your income. That is a very different standard, and for many buyers, it means they are already closer to qualifying than they think.

Here are the five myths that keep people waiting longer than they need to.

Section 02

Myth 1: You Need to Be Debt-Free Before You Can Qualify

When it comes to buying a home with debt, lenders focus on your debt-to-income ratio (DTI), not whether you are debt-free.

You do not need to be debt-free to buy a home.

Lenders focus on your debt-to-income ratio (DTI), not whether you have debt. Depending on the loan program and borrower profile, many buyers may still qualify with a back-end DTI of up to 45% to 50%.

For example, a buyer earning $6,500 a month with $750 in existing debt could still have about $2,175 available for housing.

That is why some people spend years paying off debt when they may have been closer to homeownership than they realized.

Illustrative examples only. Qualification requirements vary and approval is not guaranteed.

Monthly Gross Income	Max DTI (45%)	Existing Debts	Available for Housing
$5,000	$2,250	$500	$1,750
$6,500	$2,925	$750	$2,175
$8,000	$3,600	$1,000	$2,600
$10,000	$4,500	$1,200	$3,300

Illustrative examples only. DTI limits vary by loan program, lender, and individual borrower profile. Consult your loan officer for guidance specific to your situation.

Section 03

Myth 2: Student Loans Automatically Disqualify You

Student loan debt is one of the most misunderstood factors in mortgage underwriting.

Having student loans does not disqualify you. What matters is the monthly payment amount and how it affects your DTI. For buyers on income-driven repayment plans with low monthly payments, the impact on DTI can be minimal.

The calculation varies by loan program. Conventional loans typically use your actual monthly payment if you are actively repaying. FHA loans use either 1% of the outstanding balance or the actual payment, whichever is higher, in most cases. Finding the right program for you is important. It can really change how your student loans affect your qualifications.

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Myth 3: Carrying a Car Payment Makes Homeownership Impossible

A car payment affects your DTI, but it does not automatically make homeownership out of reach.

What it does is reduce the loan amount you qualify for, dollar for dollar, based on how that payment fits into your overall DTI calculation. A $400 car payment on a $7,000 gross monthly income uses 5.7% of your DTI allowance. That narrows the mortgage payment you can qualify for, but it does not eliminate the possibility of buying.

In some cases, if you have less than 10 months left on a car loan, it might not count in DTI calculations. This depends on the lender and the loan program. Choosing the right program is key. It can change how your student loans affect your eligibility.

Section 05

Myth 4: A Low Credit Score from Past Debt Means You Cannot Get a Mortgage

Credit score minimums are often lower than buyers expect.

FHA loans may allow financing with scores as low as 580 and a 3.5% down payment. Some lenders may offer options below that threshold with additional requirements. Conventional loans start at about 620. Higher scores can mean better prices.

A lower score may still qualify, but it can affect pricing, monthly payment, and available loan options.

Past financial difficulties are not permanent. Credit scores are forward-looking. Consistent on-time payments, lower credit utilization, and time can all help improve your profile.

Many buyers think past mistakes block them from credit. They often find out they can get financing options they didn’t expect.

Credit Score Range	Loan Options Available
740 and above	Conventional, FHA, VA, USDA — best pricing
700 to 739	Conventional, FHA, VA, USDA — good pricing
660 to 699	Conventional (higher rate), FHA, VA
620 to 659	FHA, VA, some conventional
580 to 619	FHA with 3.5% down, VA
Below 580	Limited options — focus on rebuilding first

Credit score requirements vary by lender and loan program. These ranges are for general reference only and do not guarantee approval. Lender overlays may apply.

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Myth 5: You Should Always Pay Off All Debt Before Applying

Sometimes paying down debt before applying makes sense. Sometimes it does not.

Paying off a high-interest credit card that is hurting both your DTI and your credit utilization may be a smart move.

Aggressively paying down a low-interest student loan while your rent continues to rise and home prices in your market are increasing may not be.

Consider this example:

A renter paying $2,000 per month who waits two years to eliminate a low-interest student loan could spend nearly $50,000 on housing during that period. Depending on market conditions, they may also face higher home prices and different interest rates by the time they are ready to buy.

Past performance does not guarantee future appreciation, and every market behaves differently. However, waiting has costs too.

The question is not whether you have debt.

The question is whether the math works today or whether a targeted adjustment over the next few months can get you there sooner than you think.

The biggest mistake many buyers make is assuming they are not ready without ever running the numbers.

Some people spend years trying to become the “perfect” buyer, only to discover they could have qualified much sooner.

Sometimes the difference between buying this year and waiting another three years is simply understanding how lenders actually look at your situation.

Sometimes, buying a home with debt is still the better financial move compared to waiting years to become debt-free.

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Frequently Asked Questions

Can I buy a house if I am currently in a debt repayment or consolidation program?

Possibly. Eligibility depends on the type of program and your payment history. Some buyers in a debt management plan may qualify after a period of on-time payments, while debt settlement programs can have a greater impact on qualification. It is worth speaking with a loan officer before assuming you do not qualify.

Does paying off a debt right before applying always help my application?

Not always. Paying off a credit card can improve your credit profile, but paying off other debts or closing accounts may not help immediately and can sometimes have unintended effects. The type and timing of the payoff matters.

If I have debt, should I put less down to keep more cash reserves?

It depends. Some buyers benefit from keeping more cash after closing, while others benefit from a larger down payment that lowers their loan amount or removes PMI. The right approach depends on your DTI, reserves, credit profile, and loan program.

Section 08

If debt has been the reason you keep telling yourself, “Maybe next year,” it may be worth finding out whether next year actually needs to be next year.

Sometimes a 20-minute conversation with a loan officer and a review of your numbers can completely change the timeline you have been assuming.

Reach out to learn where you stand today and what options may be available to you.

All figures, program details, and examples in this article are for illustrative purposes only and do not constitute an offer of credit or financial advice. Loan program requirements, DTI limits, and credit score thresholds vary by lender and are subject to change. Consult your loan officer for guidance specific to your situation.