debt management & buying a house

[Anonymous]

Hello. I am hoping to buy a house by the middle of 2009 and I am trying to figure out if I start a debt management program now, how it will effect my credit score and the type of mortgage I can qualify for.  Currently I have a lot of credit card debt (~$15K), but I am not deliquent on any payments. I would really like some information on this topic.

Thank you.

[marty56]

Welcome to the forum.  I finished a debt managment program last year.  I dont think there would be any change to your FICO score since the only thing that happens is the DMP closes the accounts and adds a TL that shows the account is being managed by a CCCS.   

I dont think the mortgage company would deny you based on being in a DMP but the problem is that one of the creditors might not like the mortgage and drop their account from the program.  BofA would probably do that.

I used a DMP for 70k of CC debt which took 5 years to pay.  How long would it take you to pay the debt in a DMP. With 15K of debt, you could probably knock the debt out in a year with a second job.  Also what is your total util?  If your util is high, paying the debt down would give a real boost to your FICO score.  How much can you afford to pay extra on your CC debt.

Make sure the DMP is not a debt settlement.  That will trash your credit and most certianly prevent you from getting a mortgage.

DMP was the right choice for me.

[Anonymous]

I would defintely wait until you buy a house to go inot a DMP. 

DMP's can be great, but at times have negative impacts on your score.  On the end it all works out OK as they effect of paying off the credit overtime will overcome any hits you take for the accoutns being closed and the non-open tradelines.

But, it may mess up the mortgage for a couple reasons.

Mortgage lenders will question lending you money if you could not handle the debt load you already had.

The closed accounts will drop your score a little bit

Lenders like to see 3 open tradelines that have 12 months positive history and the DMP will make you close all of your accounts.

If you had high reserves/down payment, etc this could all be worked out, but if you had those, you would not need DMP.

In the end, it comes down to risk.  In this financial and mortgage market, anything that is negative on your score can make it hard to get approval.  If getting a house in the next 12 months is a priority, then I would just work on paying your debts down as much as possible, get your score FICO as high as possible (paying down debt will help this alot) and cleaning any errors, etc  on your credit reports.

Pay off debt by paying your smallest one aff as quick as possible, then take that payment amount and put it towards your next smallest, and so forth. 

Also, DMP may opt out when you do get a mortgage as you sign an agreement not to open any new credit usually.  Buying a house is never a necessity so it may or may not cancel your DMP anyways if you did that.