Can I Buy a Home While on a Debt Management Plan?

If you are overwhelmed by debt, you may want to get on a debt management plan. Through this type of plan, you make one lump sum payment to a credit agency every month and the agency distributes your payment to your creditors. Debt management plans help you get caught up with existing debts, but in some cases you may be able to purchase a home while on such a plan.

No Set Rules

The Federal Trade Commission says that some debt management plans may require you to agree not to use credit while on the debt management plan. Other debt management plans may require you to notify them in advance, while others may not have any rule whatsoever regarding buying a home or other purchase requiring credit while on a debt management plan.

Chapter 13 Bankruptcy

If you entered a debt management plan as part of your Chapter 13 bankruptcy, you cannot incur more debt without getting permission from your bankruptcy trustee. Make an appointment with your trustee. Bring your budget and explain why you need to purchase a new home as well as how paying for it will fit into your budget. Your trustee will authorize a certain amount of credit based on your budget, income and amount of previous debt you are paying.

Considerations

If your debt management plan allows you to buy a home, consider whether you can handle more debt. If you find yourself unable to make mortgage payments, it will not only undo the work you are doing to repair your credit, but you can lose your new home. Write a budget that includes your current income and expenses to determine how much you can afford to pay for a new home. Decide what size home you really need and determine whether you can realistically afford a home of that size.

Dealing With Lenders

Lenders may be reluctant to extend credit to a debtor who already has a negative credit history. Contact lenders and explain the situation before beginning your house hunt to find out who may be willing to work with you. Depending on the lender, you may need to have someone co-sign your mortgage because of your credit history.