Talk to a debt counselor toll free:800-300-9550
Our Clients Rate Us Excellent
Based on 3234 reviewsTrustPilot Reviews
What happens after you settle your debts?The truth is, settling your debts will have an effect on your chances of becoming a homeowner. But that is only temporary. Debt settlementmay compromise your ability to buy a house but that does not mean it is not a good idea. If you cannot pay off your debts for now, you really cannot buy a house just yet. You need to solve your debt situation quickly before you can invest in your own house. That is something that debt settlement can do for you. But once you have settled your debts, what happens now? There are two things that will happen after you settle your debts. You have less debt to your name. The first is having less debt. Although you only paid for a portion of your debts, the creditor agreed to forgive the amount - as long as you completed the settlement amount. This means your balance should be significantly lower now. If you settled all of your credit accounts, your balance should now be zero. Your credit score is probably low. The other thing that will be evident after debt settlement is that fact that your credit score is now lower than before. Most of the time, creditors will not settle with you until your loan is already in default status or in collections. That means you had gone a few months without paying your loans. Late payments can lower your credit score significantly. Although your debt is already gone, your credit score will still need some work. Of the two effects of settling your debts, the latter is the one that will compromise your ability to buy a house. This should not be a problem because you can always rebuild your credit after debt settlement. It is not an impossible task to do. But before you concentrate on fixing your finances so you can buy a house, there are three things that you need to do first. These will help ensure that the debt relief program that you used will not backfire on you.
- Get a copy of the settlement agreement. First of all, get a copy of the settlement agreement. This copy should have an authorized signature from the creditor. Once you have this document, keep it in a safe place. This document will help prove that you no longer owe anything to this creditor. Sometimes, creditors come back to collect the debt that was supposed to be forgiven. The settlement agreement will help prove that you should owe nothing anymore.
- Make sure the settlement payment is credited to your debt. After paying the settlement amount, check your account to make sure that it is credited to your debt. Call them and have them send you a document that the settled debt already has a zero balance.
- Check your credit report to ensure that your debt is settled. Finally, check your credit report. Wait a couple of weeks before you do this so the creditor has time to report it to the credit bureaus. After some time, get a copy of your credit report and see if the settled debt is marked accordingly.
How to qualify for a home loan after debt settlementThere are many ways that you can improve your finances so you can qualify for a home loan after you go through debt settlement. You simply have to improve your credit score. As mentioned earlier, it is your damaged credit score that will compromise your ability to own a house. You need to work on building you score so you will get a good deal on the home loan that you will borrow. Based on the information from FHA.com, you can only qualify for a home loan from the Federal Housing Administration if you have a score of at least 580 (FICO score). This will allow you to get a home loan and make you eligible to pay only 3.5% on your down payment. Otherwise, you have to pay 10% on your down payment.
There are various ways that you can improve your credit score. If you have other debts, you can pay them off on time so you can show that you are a responsible credit borrower. You can also use your credit card for small purchases and then pay off the balance in full when the billing statement arrives. All of these efforts will take a bit of time because building up your credit score will not happen overnight.While you are rebuilding your credit score after debt settlement, you can work on other things that will help improve your finances in time for your home buying intentions. Here are a couple of things that you need to work on.
- Save up for a down payment. Start by saving money for your down payment. The bigger the amount that you put towards your down payment, less you have to borrow. It also means you get to own more of the equity in your property.
- Stop adding to your debt. While using your credit card will help you improve your credit score, that does not mean you have to be in debt. You can use your card but you have to pay it off immediately. Do not let your debt accumulate once more. According to Time.com, debt levels have steadily risen in the American household. The revolving balance of consumers is currently at $15,355. The home loan will already be a big amount to owe. Do not add more to what you intend to borrow when you buy your house.
- Diversify your income. Another thing that you need to do is to diversify your income. Open other streams of income so you can stabilize your financial position. In case one income source is compromised, you do not have to worry about your finances. You have other sources that will give you the money that you will need to pay off your basic needs and debts.