By Ashish, Marketing Specialist | Topline Finance
Having existing debt does not automatically mean you cannot get a home loan in New Zealand. Many borrowers already have credit cards, personal loans, vehicle finance, student loans or other financial commitments when they begin looking for a property.
The key question for lenders is not simply “Do you have debt?” but rather “Can you comfortably manage your existing commitments alongside a new home loan?”
Understanding how lenders assess your overall financial position can help you prepare a stronger home loan application.
What Types of Debt Do Lenders Consider?
When assessing a home loan application, lenders generally look at your existing financial commitments. These may include:
- Credit card balances and credit limits
- Personal loans
- Car or vehicle finance
- Student loans
- Buy Now, Pay Later accounts
- Existing mortgages
- Overdrafts and other credit facilities
- Other regular financial commitments
Even if you are not currently using a credit facility, the available credit limit may still be relevant to the lender’s assessment.
How Does Existing Debt Affect Your Borrowing Capacity?
Your existing debt can affect how much you may be able to borrow because lenders consider your overall ability to meet repayments.
For example, suppose a household has:
Income: $150,000 per year
Existing car loan: $25,000
Credit card: $8,000 limit
Personal loan: $10,000
The lender may assess the repayments and commitments associated with these facilities when determining how much additional debt the household can reasonably service.
This means two households earning the same income may have different borrowing capacities because their existing financial commitments are different.
Your Debt-to-Income Position Matters
One important factor in lending assessments is the relationship between your total debt and your income.
New Zealand’s lending environment also includes regulatory requirements and lender-specific policies around debt-to-income ratios. However, the assessment is not necessarily based on one number alone.
Lenders may consider factors such as:
- Household income
- Existing debt
- Proposed mortgage amount
- Interest rates and servicing assumptions
- Household expenses
- Number of dependants
- Deposit and equity position
- Employment and income stability
- Credit history
- The type and purpose of the proposed lending
This is why understanding your complete financial position before applying can be valuable.
Should You Pay Off Existing Debt Before Applying?
Not necessarily.
Paying down debt can reduce your financial commitments and potentially improve your borrowing position, but using a large portion of your available cash to clear debt could also reduce the deposit or funds available for purchasing a property.
For example, a borrower with $30,000 in savings and $15,000 of personal debt needs to consider both:
Option A: Use savings to significantly reduce the personal debt.
Option B: Retain more savings for the property purchase while continuing to service the existing debt.
The appropriate approach depends on the individual’s income, expenses, deposit, interest rates, lending structure and broader financial position.
There is no single strategy that works for every borrower.
What About Credit Cards and Buy Now, Pay Later?
Credit cards and Buy Now, Pay Later facilities can be particularly important when preparing a loan application.
A borrower may think:
“I don’t owe much on my credit card, so it shouldn’t affect my application.”
However, lenders may consider the credit facility itself, including the available limit, as part of their assessment.
Before applying for a mortgage, it can therefore be useful to review all your credit facilities and understand how they may be treated by the lender.
Does Existing Debt Mean Your Application Will Be Declined?
No.
Having existing debt does not automatically result in a declined application.
The outcome depends on the lender’s assessment of your overall financial position and whether the proposed lending meets that lender’s criteria.
A borrower with existing debt may still have a strong application if they have:
- Stable and sufficient income
- Manageable existing commitments
- A suitable deposit or equity position
- A satisfactory repayment history
- Sustainable household expenses
- A well-structured application
The important point is to look at the whole financial picture, rather than focusing on one debt or one financial figure.
How Can You Prepare Before Applying?
Before approaching a lender, consider taking these practical steps:
- Review all your debts
Make a list of your mortgages, credit cards, personal loans, vehicle finance and other credit facilities.
- Check your monthly commitments
Understand exactly how much you are currently paying towards your debts each month.
- Review your spending
Look at your recent bank statements and identify recurring expenses and discretionary spending.
- Avoid taking on unnecessary new debt
If you are preparing to apply for a home loan, consider whether additional borrowing is necessary.
- Organise your financial documents
Having income evidence, bank statements, debt information and other relevant documentation organised can make the application process more efficient.
- Understand your overall borrowing position
Rather than simply asking, “How much can I borrow?”, consider what level of borrowing is sustainable alongside your existing financial commitments.
A Lender-Ready Application Is About More Than Your Income
A strong home loan application is not simply about earning a good salary.
Lenders generally need to understand your complete financial position.
This is where preparation can make a difference.
At Topline Finance, we help clients understand their finance position and prepare information for lending discussions. Our approach is centred on presenting financial information clearly and professionally so that the application provides a complete picture of the borrower’s circumstances.
Final Thoughts
Can you get a home loan with existing debt?
In many circumstances, yes.
Existing debt is only one part of the overall lending assessment. Your income, expenses, deposit, repayment commitments, credit facilities and proposed borrowing all contribute to the picture a lender considers.
If you are thinking about buying a home, refinancing or restructuring your existing lending, preparing your finances before making an application can help you understand your position and approach the process with greater clarity.
Looking at Your Home Loan Options?
Topline Finance can help you understand your lending position and prepare a professional, lender-ready finance proposal.
Whether you are a first-home buyer, an existing property owner, self-employed borrower or someone managing multiple financial commitments, getting your information organised early can help make the lending process clearer.
Topline Finance
Helping clients prepare lender-ready finance applications.
Website: Toplinefinance.co.nz
General information only. Lending criteria, interest rates, fees and approval requirements vary between lenders and individual circumstances. Approval is subject to the relevant lender’s assessment and criteria.
