If you’re struggling with debt, a debt management plan (DMP) can help you consolidate and manage your payments, making debt more manageable and often reducing interest rates.
But what happens when you’re ready to take the next step and buy a home? Many people worry that having a DMP will make mortgage approval difficult or impossible. The good news is that while it may add some hurdles, getting a mortgage with a debt management plan is possible.
So, can you get a mortgage with a debt management plan? Let’s break down what you need to know.
Table of Contents
- Can You Get a Mortgage While in Debt Management?
- Will a DMP Affect Your Current Mortgage?
- Getting a Mortgage with a Debt Management Plan
- Make a Full Recovery
Can You Get a Mortgage While in Debt Management?
While it is possible to get a mortgage with a debt management plan, it is difficult. Lenders will scrutinize your finances and credit health when determining if you qualify. They’ll be looking at factors like:
- Credit score. Lenders want to see a credit score at least in the “good” range, typically 680 or higher. Being in a DMP can negatively impact your credit score, at least in the short term.
- Debt-to-income ratio. Your total monthly debt payments, including the DMP, need to be about 40% or less of your gross monthly income. Lenders view high debt-to-income ratios as risky.
- Savings and down payment. Lenders want to see that you have enough cash saved for a down payment, usually 20% of the home’s value. They also like to see emergency savings.
- Income level. Your income needs to be stable and sufficient to cover mortgage payments on top of your DMP payments.
Getting a mortgage with a debt management plan is an uphill battle, but not impossible. Improving your credit, reducing overall debt levels, and boosting your savings can all help tip the scales in your favor.
In the meantime, the team at Debt Reduction Services can connect you with HUD-approved housing counselors who can advise you on your options.
Will a DMP Affect Your Current Mortgage?
As long as you keep up with your DMP payments, it shouldn’t directly impact your current mortgage. The DMP is designed to help you catch up on and pay unsecured debts like credit cards, medical bills, and personal loans—not your mortgage.
However, if you attempt to refinance your existing mortgage while in a DMP, that’s a different story. Lenders will look at your finances just as they would for a brand-new mortgage application. Your credit score, debt ratios, and overall financial profile will all come into play.
Getting a Mortgage with a Debt Management Plan
The good news is that successfully completing a debt management program can improve your chances of getting a mortgage down the line. Here’s why:
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- Improved credit score. As you pay debts through the DMP, your credit utilization ratio will decrease, helping your credit score rebound.
- Lower debt-to-income ratio. The DMP will help you pay off a significant portion of your unsecured debts, lowering your overall debt load.
- Established savings habit. To complete a DMP, you need to make timely monthly payments. This can help you build up a healthy savings cushion.
So, once you’ve successfully completed your debt management plan, you’ll be in a much stronger financial position to apply for a mortgage. Lenders will see you as a lower-risk borrower.
Make a Full Recovery
Navigating the housing market while dealing with debt can be tricky. A debt management plan from Debt Reduction Services can be the key to getting your finances back on track and positioning you for mortgage approval in the future.
Our certified credit counselors will work closely with you to create a customized DMP, negotiate with creditors, and help you develop healthy money habits. When you’re ready to buy a home, we can connect you with HUD-approved housing counselors who can guide you through the process.
Don’t let debt stand in the way of your homeownership dreams. Call Debt Reduction Services today at 1-866-688-3328 to get started on the path to full financial recovery.
