Can you get a mortgage if you have a loan?
Having an existing loan doesn’t automatically disqualify you from getting a mortgage. But loans do play a part in mortgage lenders' decisions, as they'll assess your overall financial situation – including any existing debts – when choosing whether to approve your application.
Does having a loan affect a mortgage application?
It depends on when you applied for the loan, the type of loan and how much debt you currently have:
1. When you took out the loan
If you’ve had a personal loan for more than six months and are comfortably making the repayments on time, it’s unlikely to have a negative effect on your mortgage application. You’ll just need to be able to show lenders that you can afford the repayments on the loan and the mortgage.
If you have a loan that you’re due to finish repaying shortly after your mortgage starts, then a mortgage provider might ignore it completely.
However, taking out a new loan shortly before applying for a mortgage could raise concerns. The loan application will show up on your credit report and may suggest to mortgage lenders that you’re in need of cash and are struggling financially.
2. The type of loan
The type of loan you have can affect your mortgage application differently:
Personal loan: a manageable personal loan, where you're making the repayments on time each month, shouldn’t have a significant bearing on your mortgage application. But your repayments will be factored into the mortgage lender’s affordability calculations, potentially affecting the amount you’ll be able to borrow.
Car loan or finance agreement: if you're managing it responsibly, a car loan or car finance might also have little impact on your chance of being approved.
Student loan: unlike other debts, a student loan doesn’t typically appear on your credit history. That means you can’t generally fail a credit check for a mortgage because you have a student loan. But your student loan repayments will form part of the mortgage provider’s affordability check.
Payday loan: if you use payday loans frequently, this can be a signal to lenders that you’re struggling to manage your existing financial commitments. Fewer mortgage providers are likely to be willing to lend to you and some could refuse your application. But a single payday loan that you paid off in the past might be acceptable to some providers, if you can explain why you needed the funds at the time
3. Debt-to-income (DTI) ratio
When you apply for a mortgage, lenders use a measure known as the debt-to-income (DTI) ratio to help them work out whether you’ll be able to pay back the mortgage you’re applying for.
This ratio compares your total monthly debt repayments to your gross monthly income. It helps lenders assess whether you can realistically take on more debt.
Here’s how to calculate your DTI ratio:
Total monthly debt repayments ÷ gross monthly income × 100
For example: if you earn £2,000 per month and your total debt repayments are £200 per month, your DTI ratio is:
£200 ÷ £2,000 = 0.1
0.1 × 100 = 10%
In general, a DTI below 30% is seen as low risk and improves your chances of being approved for a mortgage.
How to improve your mortgage eligibility
If you’re worried that your current debt might prevent you from getting a mortgage, here are a few simple tips to improve your chances:
Check your credit report: make sure your credit history is accurate and any errors are corrected. You can check your credit report for free. If your rating isn't great, take the time to build up your credit score if possible.
Reduce existing debts: ideally, try to pay off any large outstanding debts and credit card balances. This will improve your DTI ratio.
Avoid new debts: avoid applying for any type of credit in the six months before applying for a mortgage.
Find out more in our guide to maximising your chances of getting a mortgage.
FAQs
Can I use a loan for a mortgage deposit?
It’s highly unlikely that you’ll be able to use a loan for a mortgage deposit. Lenders typically ask why you need a personal loan and, in most cases, they won’t approve one to use as a deposit for a mortgage. Likewise, mortgage lenders are unlikely to accept personal loans as a source of funds.
This is because using a loan for your deposit means taking on debt to fund an even bigger debt – your mortgage. This raises red flags for lenders, as they’re likely to worry you won’t be able to afford both repayments.
Can I add a personal loan to my mortgage?
It may be possible to combine money you owe on a personal loan into a debt consolidation mortgage.
This involves taking out a larger mortgage against your home, usually via remortgaging, and using the extra funds to pay off your personal loan.
Can I pay off my mortgage with a personal loan?
Using a personal loan to pay off your mortgage isn’t usually a good idea. Personal loans often have higher interest rates and shorter repayment periods than a mortgage.
Personal loans are unsecured, which means you don’t have to offer up an asset, such as your home, to get the loan. If you can’t pay back the personal loan, you risk defaulting on it. The financial consequences of doing so include damage to your credit score and potential court action against you.
Can I take out a loan after a mortgage offer?
After you receive your mortgage offer, it’s not a good idea to take out a loan or any form of credit until you've actually completed the process and begun the mortgage term. That’s because it could lower your credit score.
Your mortgage offer is based on your credit profile at the time you apply. If the mortgage provider conducts another credit check later in the process and sees a difference, this could result in your offer being withdrawn.
As well as writing for Churchill and Privilege insurance websites, Karen’s CV includes working with M&S, Debenhams, Tesco, Sainsbury’s and John Lewis. With over 20 years of editorial experience for big household names she leads a talented content team with a focus on simplifying personal finance for everybody.
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What our expert says...
"An existing loan doesn’t always stop someone getting a mortgage, but it does become part of the wider affordability picture. What often matters most is whether those current repayments still leave enough room for a lender to feel comfortable with another long-term commitment."