How to Consolidate Debt Into a Mortgage

Consolidating consumer debt into a home loan is often a way to eliminate thousands of dollars in interest and payments.

Consolidating debt into a mortgage involves refinancing a property and paying off consumer debt accounts with the proceeds of a new home loan. Funds left over after a first and/or second mortgage are replaced are directed to consolidate debt. Some lenders allow cash-in-hand to be used to pay debts, while others disperse funds to each consumer account at the time of closing on the new mortgage.

Things You'll Need

• List of consumer debts
• Mortgage statements
• Home appraisal

Instructions

1. Make a list of your consumer debt accounts. Include your credit cards, auto and student loans, collection accounts and personal loans. Add each balance. This will give you an idea of how much you will have to pay after your new mortgage is recorded.

2. Obtain payoffs on your first and/or second mortgage. This will allow you to determine the size of your new loan. Ideally, your new loan will replace your existing mortgage or mortgages and cover closing costs. Payoffs can be obtained by contacting your lender.

3. Calculate the equity in your home. In order to consolidate debt into a mortgage, you must have enough equity to secure a mortgage large enough to pay off your consumer accounts. Subtract the amount you owe on your mortgage from the approximate value of your home. For example, if you owe $130,000 on a home worth $225,000, you have $95,000 in equity. Depending on what you qualify for, a new home loan would replace your existing mortgage, leaving $95,000 to pay off debt and roll in closing costs. To get an idea of what your home is worth, do a basic value or comparable sales search.

4. Apply for a new home loan. Gather your last two pay stubs, W-2s, bank statements and a list of all your consumer debt accounts. Your loan officer will recalculate your equity and qualify you for a new mortgage. You will also be given the opportunity, depending on the amount of your consumer debt, to choose which accounts you wish to pay with the proceeds of your new mortgage.

5. Have your home appraised. After you've completed your application paperwork, you will be required to have your home appraised. Your loan officer will arrange the appraisal. Home appraisals fall into the $250 to $500 range, depending on your market and type of property.

References

• 1st Step Mortgage Group

Resources

• Debt Consolidation Calculator
• Real Estate Value Search