Medical Debt: A Mortgage Deal-Breaker?

When applying for a mortgage loan, it is important to consider how your medical history and financial situation may impact your eligibility. While medical records are generally not requested by lenders, they can be used to determine eligibility for credit, and in some cases, lenders may require this information. Medical debt is a common reason for loan application rejections, and it can influence your credit score, which is a key factor in mortgage loan approval. Therefore, it is advisable to seek financial advice and ensure you can pay back the loan.

Medical debt can impact mortgage approval

In the United States, medical debt has become a common challenge for homeowners seeking mortgage approval. Lenders will assess your credit score and history to determine if you can handle the debt. While medical collections under $501 are not reported to credit bureaus, larger debts can impact your credit score. Additionally, your debt-to-income ratio is a key factor in the mortgage approval process. Lenders need to be confident that you can manage your debt and make regular payments.

Furthermore, while lenders usually don't ask for medical records, they may require you to protect the loan with insurance. This is especially relevant if you have a pre-existing medical condition or history. It is advisable to disclose any medical conditions to the insurer and discuss insurance options with a financial advisor.

It is worth noting that some lenders may request your protected health information (PHI). However, you are not legally obligated to disclose this information. If you are concerned about the impact of medical debt on your mortgage approval, it is best to consult a financial planner or mortgage broker to review your options and ensure that homeownership aligns with your long-term financial strategy.

Overall, while medical debt can impact mortgage approval, it is not the sole determining factor. Lenders will consider various aspects of your financial situation, including your credit score, debt-to-income ratio, and ability to secure the loan with insurance. Seeking professional advice can help you navigate these considerations and improve your chances of obtaining mortgage approval.

Lenders may request your medical information

Your medical information can be used to determine your eligibility for a loan. For example, if you are a veteran or receive long-term disability income, lenders may request medical information to verify your eligibility for certain programs. Additionally, if you are a medical professional, you may qualify for a physician mortgage loan, which takes into account your future earning potential.

It is important to note that, while lenders may request your medical information, they are not allowed to use it in a way that is inconsistent with non-medical information. For instance, they cannot deny you a loan based on a terminal illness. However, they may use your medical information to recommend additional protections, such as insurance, for your loan.

If you are concerned about how your medical history might impact your ability to obtain a mortgage, it is best to speak with a financial adviser. They can help you understand your options and determine the best way to protect your financial interests.

Medical history doesn't bar you from a mortgage

While a mortgage lender won't generally ask you to disclose your medical history, it is within their rights to request your protected health information (PHI). However, you are not compelled to disclose this information. Medical debt is a common reason for homeowners to face challenges when seeking approval for a home loan. This is because your credit score and history are checked during the mortgage loan approval process to ensure you can handle the debt. Medical collections under $501 are no longer reported to credit bureaus, and it now takes a full year for outstanding medical bills to show up on your credit report.

Being diagnosed with a serious illness like cancer does not mean that you cannot get a mortgage. However, a lender will need to know that you can pay back the loan. It may be in your best interest to protect your loan with insurance. You will need to disclose any medical conditions to the insurer, and they can advise you on the best way to protect yourself and your loan.

If you are worried about paying your mortgage, contact your lender as soon as possible. They are required to look at ways to help you.

Medical information can be used to determine eligibility

In the United States, medical information can be used to determine eligibility for a mortgage loan. While medical debt is not considered for underwriting purposes, it can impact your credit score, which is a key factor in mortgage loan approval. Lenders will also want to know that you can pay back the loan and may request your protected health information ("PHI") to make this assessment. However, they cannot compel you to disclose this information, and generally, a lender will not ask for your medical history.

In the case of disability income, medical information can be used to determine eligibility for a mortgage loan. For example, a consumer seeking a $200,000 mortgage loan may disclose that they receive $15,000 in long-term disability income from their former employer and have no other income. In this case, the creditor has used medical information to determine eligibility for credit.

Additionally, if a consumer is a veteran with a disability, the mortgage lender may be required to obtain medical information about their disability to verify their eligibility for a specific program. However, this information must be used in a manner consistent with the exception, and the consumer's physical, mental, or behavioural health cannot be used as the sole basis for denying credit.

It is important to note that medical debt should not directly influence your mortgage qualification, and a diagnosis of a serious illness like cancer does not mean that you cannot obtain a mortgage. However, lenders may want you to protect the loan with insurance, and you should disclose any medical conditions to the insurer.

Medical debt is not always reported to credit bureaus

Medical debt is one of the most common reasons homeowners face challenges when seeking approval for a home loan. This is because your credit score and history are checked as part of the mortgage loan approval process to ensure you can handle the debt.

However, medical debt is handled differently from other types of consumer debt. Medical debt is not always reported to credit bureaus, as most healthcare providers don't report to credit bureaus. Instead, your debt would have to be sold to a collection agency before it appears on your credit report. Even after your bill goes to collections, there is a 365-day grace period before the collection account appears in your credit history, giving you time to resolve the debt.

In addition, in 2023, the three main credit bureaus—Experian, TransUnion, and Equifax—stopped including medical debt under $500 or $501 in credit reports. Outstanding balances over $500 could still appear on your credit report for seven years, the same as any other debt.

In 2025, the Consumer Financial Protection Bureau approved a new regulation that prevents nearly all medical debt from appearing on credit reports, regardless of the amount. This rule also prohibits lenders from using medical information in their approval decisions. As a result, Americans with medical debt on their records could see their credit scores rise, and more mortgages will be approved.

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