Buying the first house is quite close to taking a ride that brings you up and up, without ever getting down. The euphoria is going to be huge, but the fear of understanding how much debt one still has is going to come along as well. It might seem like borrowing some money via personal loan would help to get rid of that debt fast, but in reality, this is far from magic – yet, a good broom that will clean everything just nicely.
Debt to income ratio is what the lender watches as he/she is looking for any flaws in your financial picture – like an eagle hunting a field mouse. Maxed out credit cards mean that debt to income ratio is yelling that you are risky borrower – and no mortgage is going to be given in such conditions. Borrowing money via personal loan will reduce the ratio and make it look better to the lender. In addition, the credit score will be improved just a little bit and this will please every lender.
Nevertheless, one should be cautious while borrowing money since not all personal loans are created the same. What one has to pay attention to is fixed interest rate and lack of prepayment penalty. In general, both SoFi and LightStream will offer pretty good rates to someone with acceptable credit score, but comparison of options is always a good thing to do.
Timing is actually something that might be surprising – but, it matters. Borrowing money via personal loan and using it to pay off other debts right before applying for the mortgage can raise some doubts on the part of lenders. This means that one has to wait at least six months to see the results in credit report to prove that the behavior is stable – otherwise, it will be considered suspicious by the lender.
The bad news is that consolidation won’t help if you keep using the credit card again once the debt will be paid with the personal loan – it won’t work. Discipline is the only boring and efficient way to solve the problem, but nobody wants to use it, especially when it means stopping the same mistakes from happening again.
One can conclude that personal loan is indeed used for debt consolidation and it allows people to buy a house. It is far from being a cheat code and it requires efforts.