Home > Mortgages > How to Get a Mortgage Despite a Debt Judgment

Comments 50 Comments
Advertiser Disclosure


A judgment is a painful court order to pay a debt, and can arise from a lawsuit, a divorce, business dispute or an array of other possibilities. Judgments are public record. They will appear on your personal credit report and can wreak havoc on your credit scores. They can also hurt your ability to get a mortgage — unless you take specific steps.

If you’re hoping to get a mortgage, any mortgage company is going to examine what led to the judgment and, more importantly, how the judgment will be accounted for.

Whether buying a home or refinancing a home you own already, the judgment will be reviewed and examined in the same manner.  The lender is looking for any potential signs of a disregard for financial obligations and inability to manage liabilities, as this could signify a future risk of default on the mortgage they’re issuing.


What Consumers Must Know

  • If there are open judgments or garnishments specifically identified in the public records section of the borrower’s credit report used in conjunction with the loan acquisition…
  • Then the liability needs to be paid off at or before close of escrow on the new mortgage.

As an exception to the rule, the consumer — rather than having to pay off the judgment in full — can agree with the creditor to make timely and regular payments. The consumer will need to provide a copy of the written agreement with at least six months of timely payments made prior to the official mortgage loan approval. Additionally, a consumer is unable to prepay future months’ worth of payments in lieu of the payment history. In other words, there has to be a demonstrated consistent payment history. Additionally, the monthly payment amount must be accounted for in the qualifying process, which can limit borrowing power by increasing the consumer’s debt-to-income ratio.

Garnishments and Borrowing Power

Commonly, a judgment will involve wage garnishment. Wage garnishments are accounted for in the exact same fashion and affect debt-to-income ratio the way other payment liabilities such as a car loan, student loan or credit card would.

The debt-to-income ratio is a method lenders use to measure how much of your income is allocated for paying debts. The higher percentage of income that goes toward debt, the more challenging it can be to secure a mortgage. Conversely, the more income left over after paying debt obligations, the better.

Take a consumer who earns $10,000 in monthly income looking to borrow $400,000. Let’s assume this consumer’s total mortgage payment will be approximately $2,800 (principal, interest, taxes and insurance, and private mortgage insurance). Let’s also assume this individual has a $500 car payment, and $200 per month in minimum student loan payments.

If this consumer has no judgment or wage garnishment …

Then this borrower has a healthy debt-to-income ratio of 35%, meaning that 65% of his income is left over after all the obligations are accounted for.

($2,800 mortgage payment +  $700 in loan payments ÷ $10,000 monthly income = 35%)

If the same borrower has a judgment for $20,000, and the monthly payment for the past six months has been $600 per month …

Then the calculation works like this:

($2,800 mortgage payment + $700 loan payments + $600 monthly repayment on $20,000 judgment ÷ $10,000 monthly income = 41%)

The $600 per month payment on the judgment is 6% of the monthly income.

As a general rule of thumb, for every dollar of debt, two dollars in income is required to offset it (for ratio of 2:1).

Offsetting Judgment Debt

If you have the financial means and can take a portion of your available cash on hand to pay off the judgment in full, that is the ideal situation as the liability is paid off, and not to resume for future responsibility. If you don’t have the cash, the next best alternative is set up an agreement to pay off the debt in monthly payments. In order to accomplish this, you would need to have at least 55% of your monthly income left over after paying the wage garnishment/judgment liability, mortgage payment, and any other debt obligations like personal loans, credit cards and auto loans.

[Editor’s note: If you’re shopping for a mortgage and you have a judgment on your credit report, it’s especially important to check your credit reports to make sure there are no errors in how the debt is reported.  You can check your credit reports for free every year from each of the major credit reporting agencies.  It’s also helpful to keep an eye on your credit scores as you pay off debts and rebuild from a judgment, especially if you’re in the market to buy a home.  There are free tools that allow you to monitor your scores, such as the Credit Report Card from Credit.com – which updates your scores and an overview of your credit reports every month.]

More on Mortgages and Homebuying:

Image: Devonyu

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team