Question:
Is Credit Counseling a Better Solution Than Debt Settlement In Order To Qualify For A Home?
Answer:
I first need to establish why you would use credit counseling and debt settlement in order to better answer this question. Most people who consider credit counseling or debt settlement typically want to do one thing: get out of debt.
With this said, it is hard to say whether Credit Counseling is a better solution for getting out of debt than debt settlement. Comparing Credit Counseling to Debt Settlement is a little like comparing apples to oranges. Credit counseling is used when your credit is still good and you are still making payments to all of your creditors.
Credit Counseling Reduces Interest Rates And Fees
Credit Counseling doesn’t reduce your debt, or the total amount that you owe like debt settlement does. Rather it is a program that seeks to negotiate lower APRs (or Interest Rates), stopping fees, and working out a payment plan. If your credit is still good your creditors are not going to lower the amount that you owe them – why should they? But, they can and most do agree to lower rates and freeze fees in order to keep getting paid the full amount that you owe them.
Debt Settlement Reduces Debt
Debt Settlement on the other hand is used once your credit is already bad, your credit scores have plummeted, and you have collection accounts, credit card charge offs and other bad unsecured lines of credit and loans. Debt Settlement does seek to reduce your total debt owed. At the point of entering into a Debt Settlement Program, collection companies and creditors will most likely be willing to take something from you versus nothing at all.
Qualifying For A Mortgage - Credit Counseling
As far as home loans go, you can qualify for a mortgage while you are in a credit counseling program. You must be in it at least a year before you get your mortgage and you cannot have missed any payments to the credit counseling service company who you are working with.
Qualifying For A Mortgage - Debt Settlement
As far as getting a mortgage while in a debt settlement program - probably not. You'll most likely need to wait until your settlement program is over and you may have to wait for at least 12 months after it is completed depending on the condition of your credit report and the accounts that were included in your program. A good loan officer will be able to give you more guidance once they see your credit report.
A FHA home loan will most likely be the first type of mortgage you'll be able to qualify for with a debt settlement program. For a credit counseling program you may qualify for it with Fannie Mae and Freddie Mac and most likely with FHA. Good luck.
