Can I Buy a Home After Doing a Debt Relief Program?

Often times, the very first move people want to make after paying down a large debt is buying a home. Yes, you can absolutely buy a home after enrolling in a debt relief program. However, there is a set time period you'll probably want to wait before applying for a mortgage. Timing is everything if your purchasing a home and your credit sore can really make a significant difference with regards to an interest rate you could be paying off for 30 years. Ideally, you should apply for a mortgage when you are not carrying any outstanding credit card debt whatsoever. Doing so would mean your utilization rate is at 0%, your credit is optimized and your ready to go! However, life isn't always ideal and we need to sometimes work with what we got.

All in all, some people that ask this question can be overly optimistic about their financial situation and timelines for becoming debt free. Now optimism is a great thing but if you’ve accrued a large enough amount of credit card debt in which you are considering enrolling in a debt relief program, you will probably want to hold off from applying for a home mortgage. That’s my professional opinion so please form your own opinion and use your own decision-making process. However, there is typically an order to how things should ideally occur. And if you are purchasing a home you'll really want to get all your ducks in a row.

Buying A Home or Getting Out of Debt?

Before we begin, you will need to ask yourself some questions if you’re trying to decide between one or the other. Can you afford a home without first paying off your debt and reducing your debt to income ratio? Will you qualify for a home with your current financial situation? These are all valid questions to ask yourself before deciding on whether you want to focus on buying a home or getting out of debt first. Be realistic with yourself and set realistic goals. Otherwise you will be caught in between two completely different paths. One path involves you putting all your effort towards attaining home ownership. The other involves you cleaning up your financial situation, paying down your debt and starting fresh. After which you will have a better footing and starting ground for your financial future and a clean slate to buy a home. The second option will take longer but it'll save you a lot of headaches and really provide you with clarity of mind.

Financial Order to Becoming a Homeowner

First, you should aspire to eliminate any and all unsecured credit card debt. Unsecured debt is usually the largest culprit of high interest rate debt. Once you’ve taken care of your credit card debt you can make a plan to start saving money each and every month. Once you have saved up a reasonable amount of money, you can then begin the process of becoming more credit prepared for the home purchase. Your first and main concern should always be to save up enough money for a down payment, so you can buy a home. However, if you are applying for a mortgage, credit is also going to play an important part with regards to home ownership since your score will have a significant impact on your interest rate!

Being Financially Prepared Before Credit Prepared

With regards to being a homeowner, it’s often times more important to become financially prepared with a large enough down payment on a home more than anything else. A home down payment is going to be the number one hurdle you face if you're an aspiring homeowner. This hold true, because if you don’t have enough money for a required down payment or don’t meet minimum debt to income requirements, your credit score isn’t going to do you much good. Moreover, many people buy homes with cash and don't apply for a mortgage whatsoever. In that scenario, you don't need a credit score, since you aren't actually borrowing any money.

Credit Ramifications of Doing a Debt Relief Program

Doing a debt relief program can have negative credit ramifications. Since you’ll become past due and won’t actively be making your monthly minimum payments, you’ll likely see a negative impact to your credit score. However this also depends on your current situation and your current credit score. If you are already behind on payments, you're impact will be less severe than someone who has no latenesses. You can also offset that impact by making timely payments on your other debts but this beginning drop is usually unavoidable (unless your score has already taken a hit where you probably won’t feel much of a dip anyway).

The cost of living in America has increased so much that It feels like the current American dream is just to become a homeowner. Our lofty goals have dwindled and America has a new economic reality. Can average citizens and younger generations still aspire to becoming homeowners without generational help? The answer still appears to be yes, but the numbers appear to be worsening and the average age to become a homeowner is not getting any better.

How long should I wait?

You definitely don’t want to apply for a mortgage during the beginning of your debt relief program, that would be a big mistake. These things need to be a little better planned. You’ll most likely want to wait until you’ve finished successfully paying everything off. If you’ve successfully paid down your credit card debt and have money for a down payment you are well on your way to becoming a homeowner. If that's the case, you should consider saving up as much money as possible for your down payment so that you can qualify for a mortgage (assuming your goal is to get one).

What Happens If I Acquire a Windfall of Cash?

If you come into a large sum of money, your first goal should be to pre-pay the debt relief program and accelerate its payoff. Paying down your debt will help you better your debt-to-income ratio and it will also help improve your credit score. Anytime you pay off debt you become more credit worthy. When you successfully pay off what you’ve borrowed you will have more options available for borrowing again.

The short answer is yes, you can absolutely buy a home after enrolling in a debt relief program, however you'll probably want to wait until you complete the program and are on firmer financial footing. This isn't something you want to do instantaneously and you should try your best to effectively set your priorities. Because realistically speaking, if you have a large amount of credit card debt, looking for a home to purchase probably shouldn't be your first priority.

If you're looking to purchase a home, make sure you have your finances in order. If you don’t, you should hold off from prematurely buying anything. It simply might not be your time and if that's the case, that's totally fine. Don't rush into things before due time! We are all walking our own path at our own pace.