Mortgage Loan and Debt Consolidation: How to Achieve Both

A mortgage loan debt consolidation can help you accomplish two vitally important things at once. You can get the house that you want, as well as pay off some nagging debt that has been lingering around. While it sounds like a great option, not everyone knows how to accomplish this task. Here are a few things that you can do to help get a mortgage loan and debt consolidation in one.

Buy an Undervalued House

If you have some debt that you would like to pay off with your mortgage, one way to do so is to find a great deal on a property. You could focus on foreclosures and houses that need to be sold quickly. If you can find a house that is greatly undervalued, this would be a great target for getting a mortgage and a debt consolidation in one. Let's say that you buy a house that is sold for $150,000. When you have it appraised, the actual market value of the house is determined to be $200,000. Therefore, you now have $50,000 worth of equity in the house. If you could find a 100% loan-to-value mortgage lender, you could then borrow $200,000 and get your house and consolidate your outstanding debt into one loan.

The most important part of this strategy is that you make your money on the front end. You don't go buy a house at regular market value and then try to borrow more than the house is worth. You have to find a house that is selling for less than the appraised value. With this strategy, you can lump everything into one easy payment to work with.

125% Mortgages

There are certain mortgage brokers out there that will loan you 125% of the value of your house. They do this to offer you the ability to put other debts into the loan with the house. For example, if you buy a house that is worth $100,000, you can actually borrow as much as $125,000 in the loan.

With a 125% loan-to-value mortgage, you can borrow more than the collateral is worth, but it does not come without some strings attached. This type of loan usually has a little bit higher interest than a traditional mortgage would. Banks always like to see you have something invested in the property that you are buying. Therefore, putting down 10 to 20% is still the most common method for a real estate purchase. With a 125% loan-to-value mortgage you will also have to pay private mortgage insurance to insure the loan against default.

These loans can also be risky if you sell the house. Unless you realize a lot of appreciation, you will not be able to repay the loan just from the sale of the house. You sell the house for $110,000 and you still owe $15,000 on the loan. The loan will stay with you at the same payment until you pay it off. Therefore, with this option, you should consider the risks involved before you do the deal.