Getting a Mortgage with a Debt Management Plan

Homeownership is part of the American Dream. But for some aspiring homebuyers, financial problems are a major obstacle to achieving the dream. In 2025, 70% of aspiring homeowners reported that they were afraid they would never be able to afford buying.

If debt is one of the issues standing in your way, a debt management plan (DMP) could be part of the solution. Yes, some mortgage lenders see a DMP as a financial red flag. However, as you pay off debt, your credit scores will likely improve and so will your chances of qualifying for an affordable mortgage.

Can I Get a Mortgage on a Debt Management Plan?

It can be difficult, but not impossible, to get a mortgage after going on a debt management plan. For most debtors, your chances of qualifying for a mortgage will be very low when you start the program but will increase over time.

If you do qualify, you may find that you’re only approved for loans with high interest rates. As a result, your monthly payments will be higher and your total cost of repayment can increase dramatically.

Why does starting a DMP make it hard to qualify for a good mortgage? There are a few reasons:

• Debt trouble: When lenders look at your credit reports, they’ll see that you’re on a DMP. This signals to them that you’re struggling to manage debt, which is a bad deterrent for lenders since they’re looking to determine your likelihood of paying new debt.
• Lower scores: You may have to close some of your credit card accounts in order to go on a DMP. This doesn’t hurt your credit as much as filing bankruptcy, but your scores will initially drop.

Fortunately, sticking with a DMP can resolve these issues for you.

As you pay down your debt, your credit scores will improve, making it easier to qualify for a home loan. Some creditors will also remove missed payments from your credit reports when you go on a DMP, giving a further boost to your scores.

How to Improve Your Chances of Getting a Mortgage with a Debt Management Plan

You might have a tough time finding a lender to offer you a mortgage during your DMP. However, you can make a number of moves to improve your chances of qualifying. Here’s what you can do:

• Stick to the plan: Somewhere between 30% to 45% of people drop out of their DMPs before finishing. If you drop out, you can undo your progress with your credit scores and end up in deeper trouble with debt.
• Homebuyer programs: Search for government or nonprofit programs in your area that make homebuying more accessible by offering flexible credit and down payment requirements for mortgage qualification.
• Work on your credit: Use AnnualCreditReport.com to keep an eye on your credit reports. Look for ways to make improvements, like by disputing any errors you find.
• Increase your down payment: Having a bigger down payment makes it easier to qualify for a mortgage. However, you should talk to your credit counselor to see if it’s better to use the extra money for DMP payments first.
• Have a cosigner: Find a loved one who’s willing to help you qualify by agreeing to share legal responsibility for the loan.
• Maintain stable income: Avoid gaps in your employment, since most lenders want you to have at least two years of uninterrupted work history. If you’re looking to make a job change, look for a role that gives you a pay increase so you can pay off debt sooner.
• Wait a year: Some lenders won’t work with you until you’ve completed one year’s worth of DMP payments. To avoid unnecessary hits to your credit scores from loan applications, consider waiting to apply until you’ve been on the plan for at least one year.

Mortgage Lenders Who Consider Applicants with DMPs

If you’re turned down for a mortgage after enrolling in a DMP, but you still want to buy a home, consider narrowing down your list of potential lenders.

You might have more luck if you move away from big banks to alternatives. For example:

• Credit unions: Compared to big banks, credit unions tend to have more flexible requirements for loan approval and some will review applications on a case-by-case basis.
• Online mortgage marketplaces: Websites like LendingTree or Zillow allow you to submit your basic information and then view multiple, conditional estimates from a variety of lenders.

Just make sure you only work with reputable and well-established lenders. One way to do that is to use the Nationwide Multistate Licensing System to see if your loan officer is authorized to do business in your state. You can also read customer reviews on the Better Business Bureau (BBB) website.

Should You Buy a Home If You’re in Debt?

You can certainly buy a home while you’re in debt, but it’s not always a good idea.

For example, getting a mortgage while you have credit card debt can be a bad move. The average credit card APR is now above 21%, so you can actually save money by using your down payment funds to pay off credit card debt first, and then rebuilding your down-payment savings.

Additionally, taking on a mortgage is not recommended while you’re on a DMP. Some people find it hard enough to stick with DMP payments, but imagine how much harder it will be if you add a new mortgage into the mix. On top of that, your mortgage payments and interest rate will be higher if you apply for a mortgage while on a DMP.

Do you want to not only buy a home, but also increase your chances of staying in that home for the long-run? If so, it’s best to wait until you’re at least a year into your DMP payments –  if not completely done with your plan – before applying for a mortgage.