Home Loan with Debt? Here's How to Secure Approval

Are you dreaming of owning a home but worried that your existing debt might stand in the way? You're not alone. Many Australians find themselves balancing debt with the desire to step onto the property ladder. The good news is that securing a home loan with existing debt is possible, and understanding your options is key.

Understanding Home Loans with Existing Debt

When you're carrying debt, whether it's from credit cards, personal loans, or other liabilities, you might feel that a home loan is out of reach. However, lenders aren't just looking at the amount of debt you have. They consider a range of factors, including your income, credit score, and the type of debt. It's all about assessing your ability to manage additional repayments without financial strain.

Eligibility Criteria and Current Market Information

The Australian home loan market in 2026 remains competitive, with interest rates ranging from 6.49% to 12%. Lenders are more cautious, but they offer various options for borrowers with debt. Here's what you need to know:

Eligibility criteria can include:

• Debt-to-Income Ratio (DTI): Generally, a DTI of 36% or lower is favourable.
• Credit Score: A score above 620 is typically considered acceptable, but higher scores can secure better rates.
• Employment Stability: Lenders prefer borrowers with steady employment or a reliable source of income.

At Esteb and Co, we work with over 83 lenders, offering a diverse range of products to suit different financial situations, including those with existing debt.

Steps to Secure a Home Loan with Debt

Securing a home loan when you have existing debt involves careful planning and a strategic approach. Here's a step-by-step guide to help you navigate the process:

1. Assess Your Financial Situation: Calculate your total debt and income to determine your DTI ratio. This will give you an idea of your borrowing capacity.
2. Review Your Credit Report: Obtain a copy of your credit report and address any discrepancies or issues that could affect your score.
3. Reduce Existing Debt: Pay down high-interest debt where possible to improve your financial standing and DTI ratio.
4. Consult a Mortgage Broker: Engage with a mortgage broker, like those at Esteb and Co, to explore tailored loan options across our 83+ lender panel.
5. Gather Documentation: Prepare necessary documents such as proof of income, detailed debt statements, and identification.
6. Submit Your Application: With your broker's guidance, submit your loan application to suitable lenders.
7. Negotiate Terms: Once offers come through, work with your broker to negotiate favourable terms and conditions.

Expert Tips and Considerations

Here are some expert tips to keep in mind when applying for a home loan with existing debt:

• Consider Debt Consolidation: If you have multiple debts, consolidating them can simplify repayments and potentially reduce interest rates.
• Prioritise High-Interest Debt: Focus on paying off high-interest debt first to improve your financial profile.
• Build a Strong Savings Record: Demonstrating a pattern of saving can reassure lenders of your financial discipline.
• Seek Pre-Approval: Getting pre-approved for a home loan gives you a clearer picture of your borrowing capacity and can make you a more attractive buyer.
• Stay Informed: Keep up to date with changes in the lending market, as policies and interest rates can fluctuate.

Frequently Asked Questions

1. Can I get a home loan if I have a bad credit score?
   Yes, but it may come with higher interest rates. Consider improving your credit score before applying.
2. How does my DTI ratio affect my loan application?
   A lower DTI ratio is favourable as it indicates better financial health and repayment capability.
3. Will paying off my debt increase my chances of loan approval?
   Yes, reducing your debt can improve your DTI ratio and credit score, making you a more attractive borrower.
4. Is it possible to refinance existing debt into a home loan?
   Yes, refinancing can consolidate debts into your home loan, potentially lowering overall interest rates.
5. How much deposit do I need when I have existing debt?
   Generally, a deposit of 20% is ideal, but options exist for lower deposits with Lender’s Mortgage Insurance.
6. What if I’m self-employed?
   Self-employed individuals can apply through low doc loans, but they must provide proof of income and financial stability.
7. How can Esteb and Co help me secure a loan?
   With access to 83+ lenders, Esteb and Co can provide personalised advice and find a loan that suits your financial situation.