The process of debt settlement can be tricky to understand, especially if you have never gone through it before. For this reason, a lot of people have questions about the process, including whether or not they will be able to buy a house afterwards. The short answer to this question is yes, but it may take a little while.
To understand why this is, it is first important to understand how debt settlement works. During the debt settlement process, a professional negotiator works on your behalf to negotiate with your creditors. This negotiator can work with your creditors to get you a lower interest rate, but the majority of the time they work to get the principal balance of your loan reduced. After this, the negotiator can then bargain to get your monthly payments reduced or for you to have a shorter payoff period for the loan.
The one downside to the process of debt settlement, however, is that it can affect your credit score. Every debt that is negotiated will be noted on your credit report. In many cases, the amount that is deducted from your principal balance will show up as a write-down or charge-off by the creditor. It is not uncommon to see a credit score drop by 100 points or more, depending on the amount of debt that is eliminated through this process.
Unfortunately, this drop in credit score can affect a person’s ability to buy a house. With so many banks today tightening their lending standards, it can be next to impossible to find a mortgage without a good credit score. Since the savings that many people get through debt settlement allow them to be in a position where they can consider buying a house, the difficulty they have finding a mortgage can be very frustrating.
Fortunately, there are several ways to get around this problem. To start, many people have discovered that a bank is more willing to deal with them if they have a down payment saved up. Ideally, if you can save up a ten or twenty percent down payment, you will be in a better position to obtain a mortgage. Many people with significant savings choose to go through debt settlement so that they can use their savings to purchase a home instead of paying down their debt.
If you do not have significant savings, then the next option is to go through a rent to own. In these situations, you would start by renting a house then slowly over time purchase it from its owner, typically by paying extra on your rent every month. These arrangements typically bypass a bank altogether, so the issue of your credit score is rarely a problem.
Finally, you can simply wait for the negative information to fall off of your credit report. Depending on your exact circumstances, it can take between two to four years for a debt settlement to fall off of your credit report. Many people use this time to rebuild their savings, pay off any remaining loan balances they have, and build up an emergency fund and/or down payment for their new house.
Buying a home after going through debt settlement is possible, but it might be necessary to go through a couple of extra steps in order to get financing. If you’re determined to buy a house, though, this will not be such a big deal.