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Consolidate Debt With New Mortgage

Mark Cappel
UpdatedJun 20, 2024

I plan to purchase a home in 6 months. If I have other debt can I roll all of it into my mortgage?

I plan to purchase a home in 6 months. If I have other debt can I roll all of it into my mortgage?

Perhaps during the go-go days of the mortgage boom five to ten years ago a creative deal that would have allowed a home buyer to consolidate debt in a mortgage would have been written. But this is 2010, the mortgage party is over, and scrupulous mortgage brokers who now need to pass a federally administered examination to work in the field, play by the book.

I think it highly unlikely that you will be able to structure the deal you suggested with a conventional mortgage because you would be altering the loan-to-value ratio of the deal to add in your existing debt. Let me illustrate with a simple example. Let us say the market value of the property is $100,000. A broker will find a loan where the bank will probably want a 20% down payment, which is $20,000 in this case. What you are really asking the bank to do is lend you more than 80% of the value of the home so that you can retire your existing debt. The bank will not want to do so if it has a policy of lending at 80% LTV.

Let us assume for a moment that that you can find a direct lender that will give you a loan at 100% LTV, which may not be possible with a broker. By trying to add in the existing debt, you are taking the loan beyond 100% LTV. In today's real estate market, I would be very surprised if you could find a direct lender to write such a loan.

Construction Loans

One far-fetched possibility is to get a construction loan. There are two basic types of construction loans: construction-only loans and construction-to-permanent loans. The primary difference between these two types of loans is what will happen after your home is built. Construction-only loans are short-terms loans that are designed to pay for the construction of the home and which must be repaid after construction is completed.

The key benefit to using construction-only loans is that they provide borrowers with flexibility to finance their completed home with a wide variety of mortgage loan products, giving them freedom to shop around for the best mortgage interest rates and terms across the market.

Construction-to-permanent loans (CtoP) are where the loan, which starts as a construction loan, converts to a mortgage loan automatically after the home construction is complete. This type of loan is probably the more popular of the two common types of construction loans for two reasons.

First, they are convenient for borrowers, as borrowers do not need to worry about finding a mortgage loan to finance the property and pay back their separate construction loan. Building a home can be very stressful and the fewer issues that borrowers need to worry about the easier the process becomes. Borrowers also do not need to pay for two loan closings.

Second, CtoP loans are often encouraged by lenders due to the fact that this type of loan allows the same lender to keep control and retain the profits of both the construction loan and the post-construction mortgage. CtoP loans, therefore, are often more profitable for lenders than construction-only loans.

Here, the advantage of a construction loan is you may be able to use some of construction funds to retire the existing debt. I write "may" because it is common for banks to review construction expenditures. If paying for non-construction expenses is contrary to your loan agreement the bank may stop funding the construction of your house if you try to slip through a payment to your existing creditor.

To read more about mortgage loans and the various programs available to borrowers, I encourage you to visit the mortgage page. Go to the mortgage saving center for no-cost, pre-screened quotes from mortgage lenders.

I hope this information helps you Find. Learn & Save.



Mortgage market update: the latest

No surprise that mortgage rates fluctuate. If you are thinking about purchasing a home or maybe considering refinancing your current mortgage, then you want to be up to date on mortgage rates.

Mortgage rates April 10, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of April 10, 2024 stands at 6.88%. This 6 basis points increase from the previous week's rate.
Additionally, Freddie Mac reports that the 15-year mortgage rate for April 10, 2024 is 6.16%, indicating a 10 basis points increase from previous week’s rates.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.

Understanding the impact of mortgage rates on your finances
When it comes to determining your monthly payment, mortgage rates are a key factor to consider. Here are the avergage interest rates (APR) for April 14, 2024 based on Zillow data for borrowers with a high credit score (680-740) in the United States:

  • 30-year conventional loan is 7.09%
  • 15-year conventional loan is 6.29%
    Based on the provided rates, a $279,082 30-year mortgage would result in a monthly payment of $1,874. Alternatively, a 15-year mortgage would require a monthly payment of around $2,399.

Explore your options and secure pre-approval today!
To make your life easier, we highly recommend shopping around for mortgages and getting pre-approved. This will streamline the home-buying or refinancing process and make it a breeze. Ready to get started? Check Out mortgage rates now for the best options available.