Owning your own house is a big part of the American dream. Who doesn’t want to own a house and not have to pay rent month after month? A place they can call home and build according to their taste—sounds good, right? But having mountains of debt, like many Americans, can be a massive problem in fulfilling this dream!
One of the ways to get out from under credit card debt is through debt settlement. However, where this method frees you of some of your financial burden, it severely damages your credit score and sometimes leaves you with huge bills and taxes to pay! As a result, your chances of getting a mortgage decrease majorly. But don’t worry; that does not mean buying your own house after a debt settlement is impossible.
You can settle your debt with your creditor at less than what you owe them in different ways. While some methods may damage your chances of getting a mortgage, others may not! But still, how long can someone buy a house after settling their debt? Well, today, we’ll discuss just that!
This article will discuss debt settlement and how it can affect your chances of getting a mortgage. Furthermore, we will also discuss exactly how long someone can buy a house after debt settlement, so stay with us until the end!
What is Debt Settlement, And How Does It Affect Your Ability To Purchase A House
When a creditor decides to settle a debtor’s debt at less than what they owe them for any reason, it is termed a debt settlement. As a result, the creditor accepts the debt as paid in full and clears your account. The amount waived is termed a debt settlement amount.
While debt settlement does ease your financial burden, you may receive a letter from the IRS to pay appropriate taxes on your settlement (especially if it is greater than $600) or pay heavy bills. However, this depends on how you choose to reach the debt settlement.
Does Debt Settlement Affect the Chances of Getting Mortgage?
Unfortunately, a debt settlement will affect your chances of getting a mortgage. However, to what extent is defined by the method you choose to settle with your creditor? For example, you can obtain debt settlement through a for-profit company, a non-profit organization, or by negotiating with your creditor yourself.
Various for-profit companies can help you reach a debt settlement with your creditor. However, they will control all your accounts until the settlement is reached and charge a heavy fee. In addition, debt settlements reached through this method usually cause severe damage to the individual’s credit score.
Non-profit organizations can also help you settle with your creditor. These organizations are very effective and can get you 50% to 60% debt settlement while the rest are divided into easy installments without charging any fees. However, this method will also majorly decrease your credit score. Even if you want to negotiate a debt settlement with your creditor, you will have to miss out on payments for a few months to put you in a position where the creditor will consider settling your debt. And this will put a dent in your credit history.
Common Requirements for Mortgage
Primarily, lenders consider an individual’s credit history, debt-to-income ratio (DTI), down payment, and employment history while assessing whether or not they qualify for a mortgage. A good credit score (at least 620 for approval and 760 for the best rates), a low debt-to-income ratio (less than %36), and a stable employment history can help you get a mortgage. A hefty down payment (over 20%) can increase your mortgage chances.
How Long After Debt Settlement Can Someone Buy A House?
The time it takes for individuals to reach the criteria required to get a mortgage is relative as it depends on how they got the debt settlement and its terms. Furthermore, anyone with a debt settlement must build a good credit history to qualify for a mortgage. This can take anywhere from 1 to 3 years. The goal is to reach enough creditor score after debt settlement that you qualify for a mortgage; the sooner that can be reached, the sooner you will have a home!
Debt settlement is any amount of your debt that the creditor decides to forgive for any reason. Since a debt settlement can negatively impact your credit history and score, it can decrease your chances of getting a mortgage. After settling your debt, you must build a stable credit history to reach an acceptable credit score and get approved for a mortgage. This can take anywhere from 1 to 3 years.
Some services will speed up the process of building your credit score after settling your debt. These are credit restoration, and many companies will improve your credit score significantly, often within 6 months or less. Yes, they charge a fee for this service, and some offer unscrupulous advice, but if you find the right company, you can improve your FICO score much more quickly than if you did it yourself.
Are you looking to purchase a house after completing a debt settlement program? Or are you interested in learning more about a debt settlement program but have questions about what happens if you want to buy a house? Contact Gateway Debt Relief at 888-560-0132 to learn more about the steps you need to take to purchase a home after settling your debt.