Too Much Debt When Buying a House - Can It Hurt Me?

Reader Question: Can too much open debt hurt me when buying a house for the first time? My credit score is in the 800 range, but I have a lot of debt.

With a credit score in the 800s, you should have no trouble qualifying for a mortgage loan to buy a house. In fact, with a score that high, you should also qualify for the best interest rates the lender has to offer. This means a smaller mortgage payment each month.

The lender will consider your overall debt relative to your gross monthly income. This is aptly referred to as your debt-to-income ratio, and it's one of several factors a mortgage lender will consider when you apply for a loan. Basically, they are trying to find out if you're carrying so much debt (relative to your income) that you might have trouble making mortgage payments.

Without knowing what your income is, I can't say what your debt-to-income ratio is. But you can find out by using a DTI calculator like this one at USnews.com. If you run the numbers and find that your monthly debt payments are less than 30% of your gross monthly income, then you're probably in good shape. If your DTI ratio is higher than 35%, I would suggest reducing your debt before applying for a mortgage loan.

Your credit score is in great shape, and it should help you qualify for the best rates a lender has to offer. But they'll also consider the total amount of debt you have in order to determine the risk level of lending you money. So do some homework to find out what your DTI ratio is, and whether or not it's a factor.

Hope that helps. Good luck with your home buying process.