What Home Loans Are Available to People on a Debt Management Program?

by HomeLoan.com

A debt management program is a service provided by a company that works with creditors to combine credit cards into to one monthly payment. While many people seek out a debt management program in order to get their credit card fees under control and keep creditors at bay, seeking new credit can be a difficult process. Obtaining a home loan while on a debt management program depends on a few factors including how high the credit balance is, when it's paid and what the FICO score is.

FICO score and credit report

The initial responsibility of consumers seeking a home loan when on a debt management program is to find out what their exact FICO score is. One way to obtain this is by accessing a personal credit report. Some credit reports also offer the option of buying a FICO score. This will help gain a good understanding of what loan one may qualify for. The length of time being in a debt management program will determine how high the FICO score will be. If only in the program for a short period of time, the FICO will likely be low--possibly in the 300 to 500 range. A low FICO score will likely result in being rejected for a home loan. Working to bring up the score to a minimum of 650 will start making the financial profile look more attractive to lenders. A FICO between 700 and 800 is considered very good to excellent and will allow the consumer to get a low percentage rate on the term of the loan.

Zero down mortgage

A zero down mortgage is a good option for those on a debt management program. The reason for this is because there is a minimal amount of funds that are required to get into a home. With a zero down mortgage, the lender finances between 103 and 105 percent of the entire loan. Many of these loans are only available to those who have a good credit score. While many people who are on a debt management program have a low credit score it may be because their debt-to-income ratio is high. Borrowers should not be distracted from applying for this type of mortgage when on a program, because the lender will look at each case on an individual basis.

Adjustable rate mortgage

An adjustable rate mortgage is a very risky mortgage. The monthly payment can fluctuate throughout the life of the loan. Often referred to as a sub-prime mortgage--this type of mortgage entices potential buyers by offering them a low introductory rate. The payments can actually be quite low month-to-month but they also can be extremely high and out of budget. The monthly payment is based on the current interest rate. When it goes up--so does the house payment. These types of mortgages are often one of the easiest to obtain for someone with poor credit as the criteria is lower than that of a conventional mortgage.

Government loan

A government loan is a mortgage that is financed and funded by the federal government. This type of loan is a great loan for first-time home buyers if they have average to above-average credit. A government loan such as FHA or USDA is a good choice for someone who is toward the end of their debt management program. Creditors mainly look at the current situation as opposed to a FICO score--which proves beneficial for those with a shaky financial past, but a good steady income currently.

Fixed rate mortgage

A fixed rate mortgage can fall under many different loan types. Most recognizable is a conventional loan or mortgage. This type of loan can be beneficial for someone on a debt management program. Although a high FICO score and good credit report is necessary--lenders also consider debt consolidation and wrapping all current debt into the life of the loan. This is beneficial to eliminate re-occurring fees that may be associated with the debt management program.


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