Can you get a mortgage if you have debt in Australia?

Having debt does not automatically disqualify you from from securing a mortgage in Australia, as lenders evaluate your financial health, including debt-to-income ratio and credit score. By strategically managing existing debt and seeking professional advice from a mortgage broker, you can improve your chances of mortgage approval.

In Australia, the goal of homeownership often comes with questions about financial eligibility, particularly for those carrying debt or who have existing loans. The pervasive myth that debt entirely disqualifies you from securing a mortgage has left many potential homeowners apprehensive. However, the relationship between debt and mortgage approval is nuanced, requiring a deeper understanding of financial practices and lender considerations in Australia.

Understanding Debt in Australia

Debt, whether in the form of credit card balances, personal loans, or student debt, is a common part of life for many Australians. It encompasses any borrowed money that needs to be repaid, often with interest. While debt can seem daunting, it's important to remember that not all debt is considered negative, and having debt doesn't automatically exclude individuals from being able to purchase a home.

How Debt Affects Mortgage Eligibility

When assessing mortgage applications, lenders meticulously review an applicant's financial situation, including existing debts. Two critical factors in this evaluation are the debt-to-income ratio and credit score. The debt-to-income ratio compares an individual's total monthly debt payments to their gross monthly income, providing lenders with insight into the applicant's capacity to take on additional financial obligations. A healthy credit score, on the other hand, signals responsible debt management and repayment history.

Types of Debt and Their Impact on a Mortgage Application

Not all debts are viewed equally in the eyes of mortgage lenders. Secured debts, like car loans or property loans, may be seen as less risky compared to high-interest, unsecured debts such as credit card balances or tax debts. Furthermore, debts incurred as investments, like education loans, can be perceived differently than those that stem from consumer spending. The nature, amount, and management of these debts can significantly influence mortgage approval prospects.

Lender's Assessment Criteria

Lenders aim to ensure that borrowers have the financial stability and capacity to repay their mortgage. Beyond examining debt-to-income ratios and credit scores, they consider the applicant's income stability, employment history, and the potential impact of existing financial commitments on their ability to service a new loan. The goal is to gauge the risk of lending and the borrower's long-term financial health.

Strategies for Improving Mortgage Approval Chances

For those hoping to get a home loan, managing existing debt is crucial. Strategies include prioritising the repayment of high-interest or unsecured debts and working towards a strong credit score through consistent, timely repayments. Demonstrating financial responsibility and a stable income can also positively impact a lender's assessment. Sometimes, consolidating multiple debts into a single, lower-interest loan can improve financial manageability and appeal to lenders.

Case Studies: Success Stories

There are numerous success stories of individuals navigating their debt to achieve homeownership. For instance, a young couple who worked with Principal Mortgages (one of the best mortgage brokers in Australia) had significant student and car loan debt. However, they successfully secured a mortgage by consolidating their debts and improving their credit scores over 12 months. Their story emphasises that with strategic financial planning and discipline, overcoming the hurdle of existing debt to secure a mortgage is possible.

Seeking Professional Advice

Navigating the complex landscape of mortgages and debt management often requires expert advice. Financial advisors and mortgage brokers can provide personalised guidance, helping Australians understand their options and make informed decisions. They can offer strategies tailored to individual financial situations, improving prospects for mortgage approval.


The pathway to securing a mortgage in Australia, even with existing debt, is less about the debt itself and more about how it's managed. Understanding how lenders assess debt and employing strategies to mitigate its impact are key steps towards mortgage eligibility. By approaching the mortgage application process informed and prepared, with an emphasis on proactive debt management and seeking professional guidance, potential homebuyers can achieve their dream of homeownership.

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