Can You Still Qualify for a Home Loan If You Have Other Debts?
Key Takeaways
Having debt rarely stops a home loan; it reduces borrowing power because lenders deduct your existing repayments from the income available to service a new mortgage.
Credit cards are assessed on the full limit, not the balance, so lowering or closing unused cards often lifts borrowing power for almost no cost.
Tackle debts in order: credit card and BNPL limits first, then high-interest personal loans, car finance, HECS strategy and any shared debts.
Consolidation can ease cash flow but may cost more if short-term debt is stretched over a 30-year loan, and the right lender choice can matter as much as paying debt down.
Very few people come to a home loan with a completely clean slate. Most of us carry something, whether it is a car loan, a credit card, a study debt or a Buy Now Pay Later account or two. So it is natural to wonder whether those debts will quietly disqualify you, especially when cost-of-living pressures have many households juggling more than one repayment at once.
The question matters because debt directly shapes how much you can borrow, and in a tighter lending environment, that effect is felt more keenly. The good news is that having debt rarely stops a home loan on its own. What it does is reduce your borrowing power and, sometimes, narrow your lender options. The real decision is not whether you can be approved, but which debts to tackle first to put yourself in the strongest position.
This article explains how lenders assess existing debt, which debts hurt borrowing power most, and how to prioritise what to fix before you apply. If you are weighing up your debts against a purchase, a broker in Albury and Wodonga can help you see where you stand.
Can You Get a Home Loan If You Already Have Debt?
Yes, in most cases you can. Lenders expect borrowers to have some existing commitments, and carrying debt does not automatically rule you out. What changes is the size of the loan you qualify for.
Every existing repayment reduces the income available to service a new mortgage, so the more you are paying out each month, the less is left to put toward home loan repayments. A borrower with modest, well-managed debt and a stable income can often still borrow comfortably. The aim is to make sure your debts are not quietly costing you more borrowing power than they need to.
How Lenders Assess Existing Debt
To understand how to manage your debts, it helps to see how lenders weigh them. The mechanism is serviceability, which is the lender's assessment of whether you can afford the repayments after your other commitments are taken into account.
Lenders do not test you at the rate you will pay. They add a buffer, commonly 3 percentage points under guidance from the Australian Prudential Regulation Authority (APRA), so a loan at 6% might be assessed at around 9%. They then subtract your living expenses and the assessed cost of your existing debts from your income to see what surplus is left. The larger your existing repayments, the smaller that surplus, and the smaller the loan you can service. This is why two people on the same salary can have very different borrowing power.
The Debts That Affect Borrowing Power Most
Not all debts are weighed the same way, and knowing how each is treated helps you target the ones that matter. The categories below cover the debts lenders see most often.
Credit Cards and Store Cards
Credit cards are assessed on the full limit, not the balance, because you could draw on the whole limit at any time. A card with a high limit can reduce your borrowing power even if you pay it off every month and owe nothing.
Personal Loans
Personal loans usually carry fixed monthly repayments that directly reduce your serviceable income. Because they often have higher interest rates and shorter terms, their repayments can take a meaningful bite out of your capacity.
Car and Secured Loans
Car finance and other secured loans work much like personal loans in a serviceability sense, with the repayment counted against your income. A large car loan taken on shortly before applying is a common reason borrowing power comes in lower than expected.
HECS-HELP Debt
Higher Education Loan Program (HELP) debt, still widely called HECS, reduces your assessable income through compulsory repayments that scale with what you earn. It is rarely a dealbreaker on its own, but it does lower borrowing power, and the effect is larger on higher incomes.
Buy Now Pay Later Accounts
Buy Now Pay Later (BNPL) accounts are increasingly visible to lenders and can count against you. Beyond the repayments themselves, heavy use can prompt questions about spending habits when an assessor reviews your statements.
Existing Mortgages
If you already hold a mortgage, including an investment loan, its repayments are factored in and stress-tested with the buffer too. For investors with several properties, this effect compounds across each loan.
Shared and Joint Debts
Where you are a co-borrower on a loan, many lenders treat the entire debt as yours unless there is clear evidence the other borrower can meet their share. This catches a lot of people who are still on a joint loan after a relationship has ended.
Why Credit Card Limits Matter More Than Balances
One of the most common surprises for borrowers is how credit cards are assessed. It is the limit, not the balance, that drives the calculation, and understanding this can unlock easy borrowing power.
Lenders assume you could max out the card at any time, so they apply an assessed monthly repayment based on the full limit. A $10,000 limit might be treated as a set monthly commitment even if the balance is zero and you clear it each month. That means an unused card can quietly reduce the amount you can borrow. Reducing the limit, or closing cards you no longer need, is often one of the quickest ways to improve your position before applying. You can compare and manage cards sensibly using the government's MoneySmart guide to credit cards.
How Debt-to-Income and Serviceability Work Together
Alongside serviceability, lenders look at your debt-to-income position, and the two work hand in hand. It is worth understanding how they differ.
Your Debt-to-Income (DTI) ratio compares your total debt to your gross annual income. While serviceability asks whether you can afford the repayments month to month, DTI gives the lender a broader sense of how leveraged you are overall. Many lenders watch for higher DTI levels, often around six times income or more, as a sign of elevated risk that may attract closer scrutiny or tighter policy. Reducing total debt can therefore help on both fronts at once: it improves your monthly surplus and lowers your DTI.
Which Debts Should You Pay Off First?
If you are unsure whether to pay down debt, reduce credit limits or keep more money aside for your deposit, it can help to model the options before you apply. A mortgage broker in Albury & Wodonga can review how your existing debts affect serviceability, compare lender policies, and help you decide which changes may improve your borrowing position most.
If you want to lift your borrowing power, the order you tackle debts in matters, because some give a bigger improvement for less effort. A sensible priority order looks like this.
Reduce or close unused credit card and store card limits first, since the full limit counts even at a zero balance
Clear or scale back BNPL accounts, which are quick to resolve and can tidy up your statements
Pay down high-interest personal loans, which carry heavy monthly repayments
Address car finance where you can, or consider whether the vehicle commitment fits your goals
Think carefully about HECS, since paying it off uses cash that might be better kept as a deposit
Resolve shared or joint debts, especially after a separation, so they are not counted in full against you
The standout point is that closing or reducing credit card limits often delivers the most borrowing power for the least money, because you are removing an assessed commitment rather than an actual balance.
Should You Consolidate Debt Before Applying?
Debt consolidation can look appealing when you are juggling several repayments, but it is not always the win it appears to be. The right answer depends on what you are trying to achieve.
Consolidating multiple high-interest debts into one lower-rate loan can genuinely improve cash flow and simplify your finances, which may help with serviceability. The trap is rolling short-term debts, such as a credit card or a three-year car loan, into a 30-year mortgage. The monthly repayment falls, but stretching that debt over decades can sharply increase the total interest you pay. Consolidation is a tool, not a cure, and it works best when paired with a plan to pay the consolidated amount down faster rather than over the full loan term.
Real Borrower Scenarios
Examples help show how debt plays out in practice. These reflect common situations and the likely approach, though every application is assessed on its own facts.
A first home buyer with a HECS debt finds it trims their borrowing power but is not a barrier, so the focus shifts to other quick wins like credit card limits.
A couple with a recent car loan sees their capacity drop, and paying it down or reducing other commitments helps restore room before applying.
An applicant with two rarely used credit cards lifts their borrowing power simply by lowering the limits, without spending a cent on balances.
An investor with existing mortgages has each loan stress-tested, so the broker focuses on lenders whose policy handles multiple properties well.
A borrower with several BNPL accounts clears them before applying, both to remove the commitments and to present cleaner statements.
A separated borrower is still named on a joint loan, so evidence the former partner is servicing it, or refinancing it out, becomes the priority.
Mistakes to Avoid
A handful of common misconceptions can quietly weaken an application. Knowing them helps you avoid setting yourself back.
Assuming a credit card with a zero balance does not matter when the limit still counts
Treating HECS as if it does not affect borrowing power
Thinking BNPL accounts are invisible or harmless to a lender
Believing consolidation always saves money, when it can cost more over a long term
Leaving a debt off the application, which lenders will uncover anyway
Taking out car finance or new credit after pre-approval, which can undo your assessment
Frequently Asked Questions (FAQs)
How much debt is too much for a home loan?
There is no single cut-off, because it depends on your income, expenses, and the lender. What matters is whether your surplus income, after your debts and living costs, can service the new loan at the assessed rate. Lenders also watch your debt-to-income ratio, so high total debt relative to income can attract tighter policy even when monthly repayments seem manageable.
Do lenders look at credit card limits or balances?
Lenders generally assess the full credit card limit rather than the balance, because you could use the whole limit at any time. This means a card you pay off every month can still reduce your borrowing power. Lowering the limit or closing unused cards is one of the simplest ways to improve your position before applying.
Should I pay off my HECS before buying a house?
Not always. HECS reduces borrowing power but is rarely a dealbreaker, and paying it off uses cash that might be more valuable as part of your deposit. For some borrowers near the end of their HECS balance, clearing it can help; for others, keeping the funds for a larger deposit is the better move. It is worth modelling both before deciding.
Does Buy Now Pay Later affect a mortgage application?
It can. BNPL repayments are counted as commitments, and regular use can raise questions about spending habits when a lender reviews your statements. Clearing and pausing these accounts before applying is usually a sensible step, both to remove the commitment and to present a cleaner financial picture.
Can I consolidate debt into my home loan?
Often yes, and it can improve cash flow by combining several repayments into one at a lower rate. The caution is that rolling short-term debts into a long mortgage term can increase the total interest you pay over time. It works best when paired with a plan to pay the consolidated amount down faster rather than across the full loan.
Should I pay off debt or save a bigger deposit?
It depends on the debt. Reducing high-interest debt and trimming credit card limits often lifts borrowing power efficiently, while a larger deposit can lower your Loan to Value Ratio (LVR) and reduce Lenders Mortgage Insurance (LMI). For many borrowers, a balance of both is ideal, and a broker can help you weigh which gives the bigger benefit for your situation.
The Bottom Line
Having other debts does not shut the door on a home loan. It reduces your borrowing power because lenders must allow for your existing repayments, but with a clear plan, you can often borrow comfortably anyway. The key is knowing how each debt is assessed, then prioritising the changes that give you the most room, starting with credit card limits and Buy Now Pay Later accounts before moving to higher-interest loans.
The most practical takeaway is that small, well-targeted moves before you apply can meaningfully improve your position, and the right lender choice can matter as much as paying debt down. A clear read on your debts, and a plan to tidy them, turns a worry into a manageable step on the way to approval.