Debt has now become a nightmare in the mortgage world. Prospective homeowners have to be very careful about the debt they accumulate because they could find themselves becoming eliminated from the housing market.

The federal government recently changed the rules surrounding unsecured lines of credit, so now lenders must use 3% of the balance as a payment when calculating debt service ratios.  Recently, we had a client trying to buy a house. His line of credit balance was $35,000 with a minimum monthly payment of only $400.

However, for mortgage qualifying purposes the payment must be stated as 3% of the balance, which is a whopping $1050.

This is a fictitious number, which completely skewed his debt service ratios and disqualified him from being approved for a mortgage. He now has to scramble to try and pay this right down so that his ratios work.

Another big ‘debtmare’ we often see are vehicle loans. It’s easy to get caught up in the moment when looking for a new vehicle.

Leasing is actually better for debt service purposes when buying a home because payments are considerably less and the purchase price is much lower.  While it seems like a good idea to purchase a vehicle with a loan, consider the amount you are borrowing and keep the payment as low as possible, especially now that the qualifying rate for mortgages has been increased to 4.64%.

Above all, do your best to live within your means and not incur consumer debt. Debt is like a yoke around your neck, which gives control of your life to your creditors.

If you need help with consolidating your debt load so you can get a fresh start, the time has never been better. 30 year amortizations are still available until the end of this month.