Can I Get a Mortgage When in a Debt management Plan?

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If you are in a debt management plan, getting a mortgage is not impossible. But you may need a larger deposit and be ready for pay a higher rate of interest. A debt management plan (or Dmp) can be used to conduct a personal debt problem. It is an informal business agreement with your creditors to significantly reduce monthly payments to unsecured debts like credit cards.

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Although reducing the estimate that your creditors are paid each month can be a life saver, this does not come without a cost. One of the effects of a debt management plan is that your credit rating will be damaged.

Credit rating damaged by defaults

If you agree to pay less than the contracted minimum monthly payments to your creditors, they will commonly issue a default notice against you. This default will be recorded on your credit file. A default notice will remain on your credit file for 6 years and will warn other potential lenders that their risk of not being paid by you is higher than normal. The fact that default notices are registered against your file will ordinarily preclude you from taking more unsecured credit until your debts are repaid first.

However, it is still potential to get a mortgage.

Moving home or equity release

Because a mortgage is secured against a house, some mortgage fellowships are more willing to risk lending to people who have a poor credit rating. They will offer what is known as an adverse mortgage. If you already have a property, you may want to move or issue equity from your home to pay off your debt. There are adverse mortgage lenders who will think lending to you. However, you must be ready for the fact that most of these lenders will not let you borrow more than 75% of the value of the property.

This ceiling on borrowing is designed to safe the mortgage lender against time to come falls in the price of your house where they are forced to repossess the property if you do not keep up your payments.

First time buyers

If you are in a debt management plan and are looking into buying your first home, again this is potential with an adverse mortgage. However, there are a combine of things to be aware of. Firstly you will need a enormous deposit. In today's mortgage market, first time buyers will ordinarily need a deposit of 20% of the property's value. If you are in a Dmp and struggling financially, this size of deposit you need could be nearer 30%.

Secondly, you need to plan very considered for the ongoing cost of living in your own house. When reviewing your budget, there will be new costs which did not exist when you were renting such as building's insurance, maintenance and repairs. If you are already trying to repay debt, the last thing you should do is take on a mortgage only to find that you can no longer pay your debt management plan because your living expenses have increased.

At the end of the day, it is potential to get a mortgage when you are in a debt management plan. However, the reality of today's mortgage store is such that this will be difficult especially as house prices and equity has fallen. If you are a first time buyer, again it is potential to take a mortgage if you are in a Dmp. However, this would have to be considered opinion out. In general, it may well be advisable to think resolving your debt problem first before trying to get in to the property market.

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