All loans do not lie in the same category. There are different types of loans and investments, such as home loans, mortgages, secured loans, personal loans, among others. To explain just two, home loans are loans given to facilitate a borrower in buying a new house or a flat. Personal loans, in turn, are those loans given to borrowers for them to use in their personal ways. These could be personal activities such as paying off credit cards and consolidating existing debts.
Therefore, personal loans are quite different from home loans. Each loan has a specific purpose. In most cases, personal loans cannot be used as home loans, and home loans cannot be used as personal loans. Another notable thing about these loans is that usually, a borrower is provided with just one option for a loan type. If a borrower decides to get a loan, they can only choose a personal loan and forego home loans. Or rather, if a borrower decides to go for a home loan, then they are forced to forego personal loans.
Can you get a home loan if you have a personal loan?
Even though it is quite difficult for one to get a home loan if they already have personal loans, there are chances of this happening. There is the possibility of one getting a home loan even if they already have private or personal loans. This article will show you how this is possible and how you can get a home loan with an already existing personal loan.
Hard as it might seem, it is quite simple for you to qualify for a home loan with an existing personal loan. All you must do to qualify is meet set eligibility criteria, which is outlined in the points below:
- The borrower must be working with a guaranteed salary; either employed or self-employed
- The age range for qualifying for a home loan while having a personal loan is 21 to 60 years
- The person is required to attach proof of income that is generated regularly as well as a stable career history
- The borrower’s credit score and credit history must be attractive; the borrower must have an account of timely loan payments.
- The person must have a good relationship and reputation with the bank; a relationship that has existed for quite a long time
It can, therefore, be said that banks are willing to offer home loans for people with personal loans. However, the person must prove that they can repay both loans timely and without defaulting. They can be determined by looking into a borrower’s debt to income ratio, credit history, and credit score. If these things fit the set criteria, then the banks disburse the home loans to the people applying for them, whether they have personal loans or not.
Why should you get a home loan with an existing personal loan?
Before deciding to pay off your loan and then getting a home loan, you should pause and think twice. This is because paying off a personal loan can make it even harder to get an ideal home loan.
Several merits come along with getting home loans while having personal loans. The following outlined points explain why you should consider getting a home loan alongside your loans and the advantages associated with it.
a.) Paying off a personal loan doesn’t improve a borrower’s credit
It is true that when you pay off credit card debts, then your credit score improves. This is because paying off credit card debts reduces a borrower’s credit utilization ratio; that is, the credit amount used compared to the available credit.
However, it is not a similar case with personal loans. When you repay a personal loan, there is no guarantee that this will improve your credit score. What can improve your credit score is having a combination of different credits to be paying off. The right mix of credits would be personal loans and home loans. Paying off these two loans can improve the credit score on your credit report.
b.) Personal loans charge relatively lower interest rates
When comparing the interest rates of personal loans with other types of loans, for instance, credit card loans, it is evident that personal loans charge relatively lower interest rates. Some home loans could, however, have quite lower interests than other loans. For more details you can visit this website
However, it wouldn’t be a wise move to pay off a personal loan if the borrower has other loans or could take up other loans, such as home loans with higher interests. Besides, one does not need to pay off a personal debt if doing so could result in the person borrowing again from other credit cards to cover expenses such as moving costs and home repairs.
The best alternative would be to withhold paying off personal loans for a while, then getting a home loan. This would have the added advantage of paying low interests for both the personal loan and home loan. Also, finances for covering additional home expenses would be available, from personal loans.
c.) Delaying of home purchase
If a person decides to pay off a personal loan first, before getting a home loan, this has the disadvantage in that it could delay the purchase of the home or flat. The delay results from time wasted as the user looks for money to pay off the personal loan first.
The delay has even further demerits. The longer you wait, the higher the risk for the home loan interest rates rising. This could make the home loan more expensive by the time you are ready to get one. Furthermore, if you decide to pay off personal loans first, this could result in your getting stuck paying for rent. It could also mean a delay in the time when you can start building equity at home or flat. However, getting a home loan while still having personal loans foregoes all those demerits and mentioned risks.
Do you have a personal loan? Are you also looking to fill for a home loan? Well, you have two options to go about that. You could decide to pay off the personal loan first then get the home loan. Or rather, you could get a home loan while still having a personal loan. The ultimate decision lies on you.
However, the fact remains that there are more merits attached to the later decision; getting a home loan with an existing personal loan. Indeed, getting a home loan while still having personal loans is not only possible for you but also the best decision you can make.