How does going onto a Debt consolidation repayment plan affect buying a house?

Question

We are looking at an unsecured debt repayment plan through a third party debt consolidation company. Can we buy a house while we are on that plan?

Answer 1

I think it's always a good idea to speak with a financial consultant on stuff like this!  http://www.jacksfinancialconsultantlist....

Answer 2

Unlikely.  Banks are being very careful who they approve for mortgages these days.

Answer 3

Best answer or not, I implore to consider my advice.

Your repayment plan could and likely will have a negative impact. It shows creditors that you are not able to handle your own debt and finances. Stack that on top of some scared bankers and you may seriously hurt your chances of getting a loan, or if you do, getting one with a reasonable rate.

It is also very important to consider the almost scripted pitfall of consolidating debt without having to go through the pain of managing it. Life will creep up on you again. There are always financial surprises. Taking advantage of a debt consolidation loan or repayment plan will open your debt channels back up to accruing more debt. So now you will have your old payments plus some new ones.

In addition some of those programs will close out your consolidated accounts for you, which may be something you were considering doing yourself anyway. This would be devastating to your credit rating. Absolutely do not under any circumstances close all your current debt accounts. This is also a bad sign of someone with poor debt management.

So what to do?

1) It's important to educate yourself on Cashflow management. Learn the game. Credit, banking, and financial literacy.

2) If you want the services of a professional, I would sooner consult an accountant and/or a certified financial planner to prepare your financial statement for you so you can get a clear perspective on your current financial situation. Those types of professionals should also be able to advise you on a reliable course of action to manage your cashflow and pay down your debt.

3) Try to save some money into a "rainy-day" fund. Once you can see your financial situation and the numbers are right in front of you, you know exactly what your monthly expenses are. I would save up 3-6 months worth of expenses as a "rainy-day" fund. I have another term for it, but it's not appropriate.

4) Make buying the house part of your financial plan and make sure it will fit into your cashflow picture. Again, this is somewhere using the services of an accountant and/or CFP will be extremely beneficial. Especially a good CFP because they might be able to help you find a good (buyer's) realtor, mortgage broker, and get you some really good coverages for home owners insurance.

A final point or piece of advice I would give you is when you do look at a house use the "PITI" method to calculate your expenses. "PITI"  is an acronym for: principle, interest, taxes, and insurance. There's a great calculator for just that sort of thing at (need java): http://www.dinkytown.com/java/MortgageLo...

Answer 4

It will show in your credit report that you are currently on the debt consolidation program.  Your creditors will report that.  The mortgage company may not like it.  As an option, you may want to get somebody's trusting you that has a good credit to cosign in the mortgage.

Learn more about credit:

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Answer 5

Can you buy a house?  Probably.  However, if you don't have a good down payment, I doubt that you would be able to get a loan.

Answer 6

Your question is not clear.  A third party debt repayment plan can come in many flavors.  For example: Debt Management/Credit Counseling, Debt Negotiation/Debt Settlement or a Debt Consolidation Loan program.

If you have opted for an unsecured debt consolidation loan, then it will not affect your credit, but it will change your debt to income ratio.  But my guess is that you are interested in one of the other two programs.

Keep in mind that Debt Settlement is a kind of a program which will definitely hurt your credit while you are enrolled in the program, this is because you are not making any payments to the creditors while in the program because you want to settle the debt for good.  Credit counseling on the other had, although less damaging on your credit, still looks bad because it tells your future lenders that you are not prudent with your finances.  You will not be able to buy a house while you are enrolled in either one of these programs,  Hope that brigns some clarity.