Getting credit after a loan settlement can be a bit challenging. Consequently, if you need a home loan after settling a previous one, you might have to wait a while. But why is that so?
If you’re eager to buy your dream home soon after a recent loan settlement, your dream might be a bit farther away. After all, obtaining credit becomes slightly difficult after loan settlement. Therefore, if you require a home loan, you might need to wait a bit longer. But why is this so? And are there any provisions regarding how many days after loan settlement you can take a home loan? Let’s delve into this in detail.
What is Loan Settlement?
Suppose you’ve taken a loan and, due to some reason, are unable to repay it according to the original terms and conditions. In that case, you approach your bank or lender for options. Your bank may offer you an option to settle your loan account by making a one-time payment. The outstanding amount you need to pay, i.e., the amount you have to clear, should be less than the total outstanding. Once you pay this amount, your loan will be considered ‘Settled Debt.’ Please note, it won’t be a closed account but rather a settled one.
The tag of your settled loan can remain on your credit report for up to seven years. During this time, whenever you apply for a loan, credit card, or any other form of credit, the lender will consider your loan settlement status while deciding on loan approval.
Can You Purchase a House with a Settled Loan?
If there’s a tag of a settled loan in your report, it doesn’t mean you won’t get a loan at all. Yes, it might not be easy, but it’s not impossible. Several other factors will determine if and when you can get a loan. For instance, there might be some conditions or requirements from the bank that you need to fulfill. By meeting these criteria, you can decide whether you’ll be able to purchase a home.
- Credit Rating/Score: To get a home loan, your credit score should be above 650. Initially, your credit rating will be checked. Since loan settlement can affect your report negatively, you might need to rectify it first.
- Debt-to-Income Ratio: The bank will also check your total monthly income and how much of it goes into repaying debts. For loan approval, your DTI should be less than 36%.
- Job/Employment: Banks also assess your income source and its stability. Usually, they prefer applicants who have been employed for at least two years.
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Information Source: Internet
