Does debt settlement affect buying a house?

Date Posted: August 25, 2022
By: Maggie Marques

Does debt settlement affect buying a house? Applying for a housing mortgage immediately after your debt settlement may affect your desire to buy a house. It is true that for the next seven years, your debt settlement will still be reflected on your credit report. The good news is that you don’t have to wait for the settlement to be cleared from your credit report to apply. 

How can you prove that you are already creditworthy?

If, after a few years, you can already prove that you are creditworthy, then mortgage lenders will be willing to a look at your application. But before they do that, you need to prove that you are worth a second look. Here are some tips to help you get that loan and not let your debt settlement affect buying a house.

Start saving for a sizeable down payment. Paying for a down payment is inevitable. Admittedly, having a low credit score will bar you from getting the best rates in the market currently. So you can expect the lender to consider you a more considerable credit risk. The solution to this problem is to start saving up for a down payment as soon as possible and try to reach 20% of the cost of the house you are interested in. 

Spend below your means. Gone are the days when we should live within our means. If you want a piece of real estate and keep asking yourself, “does debt settlement affect buying a house?” then you have to cut down on unnecessary spending. Yes, it would be nice to sit in a lovely cafe enjoying a cup of coffee from the famous cafe chain but do you need it now? After all, spending $3-$5 daily isn’t much, right? But if you spend $3-S5 a day for coffee and multiply it by 30 days, that is $90-$150/month and $1,080- $1,800/year! A little, when added up, goes a long way. We are only talking about coffee. For sure, there are others that we can sacrifice for now until we reach the 20% downpayment goal.

Does debt settlement affect buying a house? Yes! But suppose you make the necessary changes now, and before you know it, you can already afford that dream home. In that case, you’d be talking to your mortgage officer because you’ve improved your credit and debt-to-income ratio by repaying your debts on time and improving your overall financial health.

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