Now that you have settled your debt, you are considering buying a house. But you are thinking, how long after debt settlement can I buy a house? Trying to get a house after paying your debt is a commendable route, especially now that you are debt-free, but you have to check well and consider some things to see if acquiring a new house is what you should be doing now.
Some of the things you should consider are:
- Have you rebuilt your credit score?
- Do you have enough money for it?
- Do you have any savings on the ground?
- What is your DTI ratio?
Also, consider that after a rough path of paying your debt, you don’t want another financial burden on yourself. Look at the best way to purchase a house after a debt.\
What Does It Mean To Settle Debt And What Next After Settlement?
Debt settlement is when the debtor pays the lender a huge amount, though not up to the total amount owed. Settling a debt between a creditor and a debtor usually comes after the two parties have been at loggerheads, usually because of late payment from the creditor’s end. Maybe the debtor has been making late payments or missing the agreed payment date.
The creditor might feel that the payment has dragged on for too long, and the debtor might file for bankruptcy and escape payment. In such a situation, debt settlement is the only reasonable thing to do. Usually, you do settlement in the presence of a debt settlement replacement company.
Understand that paying a debt does not mean you have cleared your credit history. If you want a good credit history, you must keep improving it.
Also Read: Can Loans Be Written Off?
How To Know It’s Time To Buy A House After Your Debt Settlement
Buying a house when you are in debt is a no-no, but purchasing a house once you have settled is not a bad idea. All you need to do is to ensure you have some things in the proper perspective. We have outlined five things you should do, and once you accomplish these things, you are qualified to take a house loan.
1. Have Some Savings
Start saving no matter how little and make plans for it. Probably when you had debts to pay, you couldn’t save, and that’s understandable. Maybe you were trying to gather a huge amount of money for your debt settlement.
Also, make deliberate efforts to save money for the down payment on the new house. Have a large reserve of some money in your account balance as well. Remember that having reasonable cash available for a down payment will boost your qualification when applying for a loan.
2. Cut Down on Expenses
During your time of debt and the whole settlement process, you must have learned how to cut down on your spending habit. Reducing how you spend money will help to reduce the rate at which you incur debt, and you invariably save more money. Try cutting down on unnecessary expenses that are either wasteful or you can do without them.
This does not mean that you will not enjoy life or get the things you want for yourself. If you do that, it might leave you frustrated and have challenging tasks to sustain. Instead, see it as a necessary step in helping your finances and make conscious efforts to achieve it. For example, you can decide to use public transit rather than use your car because you want to save fuel.
3. Increase Your Credit Rating
The next thing you should consider doing is improving your credit. First of all, start by paying off all the outstanding debt owed. Stay updated on your payment commitments and try and make your payment on time and regularly. If you already have a credit card, get a secured one for your transactions.
Once you have your card, ensure you don’t default on making payments and use your credit card well. All these will help to increase your credit rating positively and help you have a good credit report. Combining your down payment and a good credit report will help you secure a house loan easier.
4. Improve your Debt To Income Ratio(DTI)
Your DTI is one area that would affect your loan application, although this differs depending on the company. You get the result of your debt-to-income ratio by adding all your debt for the month, divided by your total monthly income expressing the number you get as a percentage. That percentage is what a loan service will consider before approving your application.
Some companies will accept a DTI ratio of 48% and below, but having a DTI ratio of 35% and below is excellent. With this understanding, it’s essential to improve your income while you have less debt. It will help to raise your debt-to-income ratio and make it more considerable to the lending party.
4. Plan for Extra Expenses
If you are thinking about how long after debt settlement can I buy a house, it all stems down to planning to make sure you are not about to make another financial mistake. While planning on purchasing a new home after settling your debt, look at your savings and try to improve your credit score. It will go a long way to make buying a house easier.
Meanwhile, It’s good that you have your cash, savings, good credit score, and DTI all figured out before purchasing a new house. However, consider something else, and that is extra expenses. You should also make plans and include in your budget extras like maintenance, repairs, insurance, etc., and ensure you have cash for it.
Conclusion
Settling your debt is a major thing to do before thinking of a new house, and now that you have done that, you are free to buy a new house. This is important if you ask how long after debt settlement I can buy a house. Once you have settled your debt, it no longer impacts your credit negatively, so you can channel your energy to increase your credit score.
Try reducing what you spend money on and increasing your savings so you can have a reasonable amount for a downpayment. Together with a good DTI ratio, you are ready to buy your new house.
