In need of cash? Some apps can help — but they want to be your bank account, too.
Apps at banking fintech firms Dave and MoneyLion offer small, short-term cash advances to eligible consumers. If you open a bank account or set up direct deposit, the apps sweeten the deal with lower fees or larger borrowing amounts. Apps at other firms, such as Chime, Current and Albert, offer a similar perk for those with accounts: No-fee overdraft services that cover an expense when your account has nonsufficient funds.
But a single feature like extra cash between paychecks is likely not a good reason to wed yourself to a new bank account, says Adam Rust, director of financial services with the Consumer Federation of America, a nonprofit that represents consumer advocacy organizations.
Between banks and credit unions, consumers can choose from more than 8,000 federally insured banking institutions, he says. The flexibility to overspend may be one of many qualities you look for in a new bank.
Here’s how to think through these two separate financial decisions: Getting extra cash and choosing a bank account.
Extra cash: An enticing offer, but with strings
When you urgently need extra money, a hurdle like setting up a bank account — and potentially adding direct deposit — may seem easy to clear if it means getting the cash you need.
Dave’s fee for immediate funding is 5% of the advance amount for users with an external bank account, but just 3% for users with a Dave checking account. MoneyLion offers cash advances of up to $500 to users with external bank accounts, but increases the eligible advance amount to $1,000 if they set up direct deposit to a MoneyLion checking account.
The fee-free overdraft feature from Chime, Current and Albert will pay for certain customers’ transactions when they don’t have enough funds in their account, but only if they have a bank account that receives direct deposits. Chime requires at least $200 a month in direct deposits, and Current requires at least $500 a month. Albert requires direct deposits plus a subscription.
Apps with cash advances or overdraft coverage seem like helpful tools to bridge an income gap. They don’t check credit or charge late fees, and you can usually get a small amount of money — up to $250 covered for overdrafts and up to $500 from a cash advance app — on short notice. Your next paycheck or bank account deposit typically repays what you borrowed. And none of these apps have overdraft fees, which can be around $35 at banks.
But opening a new bank account just for a cash advance or overdraft feature might lead to unexpected inconveniences or worse. Switching banks is hard for a reason: You set up a relationship with a bank or firm, including using your bank account to pay your ongoing bills and subscriptions.
“That’s such a significant part of your financial life — it’s the foundation of your financial life — and to pick that because of a once-every-direct-deposit transaction seems, to me, like a risk of making a mistake,” Rust says.
Compare bank accounts based on low fees and available features
Choosing where to bank involves assessing available features and their associated costs. A good checking account typically has low or no monthly fees, low or no minimum balance requirements, a free ATM network and cheap ways to move money around.
Banking fintech firms — or neobanks — tend to check many of the boxes for a desirable checking account: low costs and some perks not often available at traditional banks. Dave and MoneyLion have $1 monthly fees, either as part of membership or for bank account usage. Chime and Current have no monthly fees. These four offer free ATM withdrawals nationwide through third-party networks, direct deposits up to two days early and cash-back rewards. Albert has all of these features but charges a nearly $15 monthly fee.
Consider features they lack, too
Banking fintech firms often focus on a narrow set of accounts and features. None of the five mentioned offer joint accounts or business bank accounts, in case you manage money with a partner or run a small business. These firms don’t have branch networks for in-person services as an alternative to online or phone support. They’re also not part of the Zelle network, which enables nearly instant transfers across different banks. Other features, such as paper checkbooks, foreign currency and cashier’s checks, aren’t available either.
Most banking fintech firms have federally insured accounts through partner banks instead of being banks themselves. If the firms fail, there can be risks that bank failures don’t have. The Federal Deposit Insurance Corp. (FDIC) sweeps in to protect customers at failed banks to prevent any loss or delay to money access, but that doesn’t happen for bankrupt companies that partner with banks. Neobank failures can result in delays to accessing your money or bank accounts.
Even credit-related perks have limits. Dave and MoneyLion set caps on the amount users can borrow between paychecks. Overdraft features at Chime, Current and Albert have maximum coverage amounts — starting as low as $20 — and some transactions, like online bill payments or transfers, aren’t covered.
Bear in mind, too, that setting up direct deposit with a cash advance app’s bank account just to meet the criteria for a larger advance could disrupt your finances. Funneling your paycheck to two different banks may mean you’ll need another set of login credentials to access your account online, you may need another debit card — and things get even more complex if transfers take days to move from your new account to your primary one.
“It can obviously be a loss of convenience for the consumer to have multiple accounts or to have to only use their MoneyLion account because it could get them greater advances,” says Andrew Kushner, senior policy counsel with the Center for Responsible Lending.
Find alternatives for extra cash
Cash advances and overdraft coverage can be helpful if they’re used occasionally, but if you’re struggling to cover everyday expenses like gas and groceries, consider alternatives that require less commitment to an app and low or no fees.
Some national banks offer small, affordable loans to existing customers, and federal credit unions may provide low-cost payday alternative loans. Financial assistance programs from local nonprofits can help with necessities like food and clothing. Or consider taking out a low- or no-interest loan from a family member.
There’s no question that inflation has cooled significantly compared to mid-2022 when the inflation rate hovered above 9%. However, we aren’t back to normal just yet. At 3.2%, today’s inflation rate is still well above the Fed’s target rate of 2%, resulting in the Federal Reserve’s benchmark rate remaining paused at a 23-year high. In turn, borrowers now face elevated interest rates on everything from credit cards to mortgage loans — especially compared to the rates that were offered in 2020 and 2021.
But the good news is that mortgage rates, in particular, have declined slightly over the last few months, making it more affordable to borrow money for a home. And, as the spring homebuying season kicks into high gear, many prospective buyers are starting the pre-approval process to secure a mortgage loan.
Finding the right mortgage loan goes beyond just getting the best mortgage rate, though. It’s also critical that you understand all the details, fees and requirements from your lender so you can make the best decision possible for your money. And that starts by asking some important questions.
Explore your top mortgage loan options online now.
10 important mortgage loan questions to ask this spring
If you want to make an informed decision on your mortgage loan this spring, here are 10 crucial questions you should ask your mortgage lender:
What are the current mortgage rates and fees?
It’s crucial to get a clear picture of the interest rate you qualify for and understand all the lender fees involved in the transaction. As part of this process, be sure to ask about the mortgage loan’s annual percentage rate (APR), which includes the interest rate plus other costs. And, given that today’s mortgage rates are hovering near 7%, don’t forget to inquire about discount points to buy down the rate.
Find the best mortgage loan rates you could qualify for today.
What are the different loan program options?
There are various mortgage products to choose from. For example, your lender may offer you conventional or jumbo mortgage loan options as well as government-backed mortgage loans, like Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and U.S. Department of Veterans Affairs (VA) loans.
Each type of mortgage loan has pros and cons to consider, and your lender should explain the differences and qualifications for each. That way, you can choose the right fit based on your down payment amount, credit score and financial situation.
What is the required down payment minimum?
Down payment requirements can vary across mortgage loan programs, and depending on the amount of money you have to put down on the home, one mortgage loan could make more sense over another. So, be sure to find the minimum down payment percentages for each type of loan you’re considering, as well as the benefits of putting down a higher amount to avoid mortgage insurance.
You may also want to ask if you’re eligible for any down payment assistance programs, as these programs may be available for certain types of buyers or mortgage loans.
How much home can I afford?
Your lender will pre-approve you for a maximum mortgage loan amount based on your income, debts and credit. However, it’s important to understand that the amount you’re approved for is the maximum, and you need to know what monthly payment you can realistically afford.
With that in mind, be sure to ask your lender to run different home price scenarios with estimated payments to ensure that you’re comfortable with the potential costs each month and that they align with what you have budgeted for your mortgage payments.
What documentation is required?
Your lender will need various documentation, from tax returns and pay stubs to bank statements and gift letters, to verify your income, assets and other information that’s required to approve you for your mortgage loan. It can be helpful to get a full checklist of required paperwork so you can prepare in advance, helping to expedite the pre-approval process (and ultimately the loan approval process).
How long is the mortgage pre-approval valid?
Pre-approvals typically have an expiration date, which can vary by lender, but are often between 60 and 90 days. Ask your lender how long your mortgage loan preapproval is valid for and find out what the process is to get re-approved if your home search takes longer just in case there are issues with finding the right home in that time frame.
What are the estimated closing costs?
In addition to your down payment, you’ll need to pay closing costs, which can vary by lender, but typically amount to 2% to 5% of the home’s purchase price. Be sure to request a fee worksheet or estimate from your lender to understand this significant upfront expense.
And, in some cases, you may be able to negotiate with your lender to lower some of these closing costs and fees. Knowing what these costs are as you compare your loan and lender options can be useful as you determine whether it would be worth it to do so.
What is the rate lock period?
A mortgage rate lock guarantees that your quoted interest rate won’t increase for a set period, which is often between 30 and 60 days. As you navigate the mortgage lending process, be sure to find out the lender’s lock periods and associated fees in case you need an extended rate lock.
What are the steps after pre-approval?
Having clarity on the next steps after pre-approval is an important component of ensuring the mortgage lending process is a success. So, be sure to ask your lender about the typical timeline for what happens after pre-approval. That way you know how long you have to shop for homes, the timeline for having a home under contract, when you need to secure the appraisal and the estimated time it will take for the underwriting processes to get the final approval.
Are there any prepayment penalties?
These days, it’s rare for lenders to charge mortgage prepayment penalties. However, it’s still important to confirm there are no fees if you pay off your loan early or refinance down the road, so be sure to ask this question of your lender.
The bottom line
The mortgage process can be daunting, especially in today’s high-rate environment, but being an informed borrower is half the battle. So, as you navigate the mortgage lending process, don’t hesitate to ask your lender plenty of questions, as this will likely be one of the biggest financial decisions you’ll make. That’s why an experienced, communicative lender is key to making the right mortgage choice this spring homebuying season.
Angelica Leicht
Angelica Leicht is senior editor for CBS’ Moneywatch: Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
If you are offered a relatively low mortgage rate, locking it in can secure it and potentially save you a bundle of money over the life of your loan. In other words, it can be a smart move.
That said, when applying for a mortgage, you only have so much control over the mortgage rate, as lenders will consider your credit score, income, and assets to determine your risk as a borrower. What’s more, mortgage rates change daily based on external economic factors like investment activity and inflation.
Read on to learn how a mortgage rate lock works and the benefits and downsides of using this option.
What Is a Mortgage Rate Lock?
A mortgage rate lock is an agreement between a borrower and lender to secure an interest rate on a mortgage for a set period of time. Locking in your mortgage rate safeguards you from market fluctuations while the lender underwrites and processes your loan.
Interest rates can rise and fall significantly between mortgage preapproval and closing on a property.
Remember that in the home-buying process, when you’re pre-approved for a mortgage, you will know exactly how much you most likely can borrow, and then you can shop for a home in that range.
So when can you lock in a mortgage rate? Depending on the lender, you may have the option to lock in the rate any time between preapproval and when underwriting begins.
Before preapproval and locking in, it’s recommended to get multiple offers when shopping for a mortgage to find a competitive rate. 💡 Quick Tip: Want the comforts of home and to feel comfortable with your home loan? SoFi has a simple online application and a team dedicated to closing your loan on time. No surprise SoFi has been named a Top Online Lender in 2024 by LendingTree/Newsweek.
How a Mortgage Rate Lock Works
Mortgage rate locks are more complicated than simply securing a set rate in perpetuity. How the rate lock works in practice will vary among lenders, loan terms, different types of mortgages, and geographic locations.
Once you lock a mortgage rate, there are three possible scenarios: Interest rates will increase, decrease, or stay the same. The ideal outcome is securing a lower rate than the prevailing market interest rate at the time of closing.
Here are some key points to know if you are considering a rate lock:
• Rate locks are sometimes free but often cost between 0.25% and 0.50% of the loan amount.
• When you choose to lock in your rate, it’s stabilized for a set period of time — usually for 30 to 60 days, but up to 120 days may be available.
• If the rate lock expires before closing on the property, the ability to extend is subject to the lender.
• Time it right. The average mortgage took 44 days to close as of February 2024, according to ICE Mortgage Technology, underscoring the importance of timing a mortgage rate lock with your expected closing date. Otherwise, you could face fees for extending the rate lock or have to settle for a new, potentially higher rate.
• Whether borrowers are charged for a rate lock depends on the lender. It could be baked into the cost of the offer or tacked on as a flat fee or percentage of the loan amount. The longer the lock period, the higher the fees, generally speaking.
• Lenders have the discretion to void the rate lock and change your rate based on your personal financial situation. Say you take out a new line of credit to cover an emergency expense during the mortgage underwriting process. This could affect your credit and debt-to-income ratio, causing the lender to reevaluate your eligibility for the offered rate and financing.
• Lenders also determine the mortgage rate based on the types of houses a borrower is looking at: A primary residence vs. a vacation home or investment property, for example, would influence the interest rate.
Recommended: A Guide to Buying a Duplex
Consequences of Not Locking in Your Mortgage Rate
There are risks to not locking in a mortgage rate before closing.
If you don’t lock in a rate, it can change at any time. An uptick in interest rates would translate to a higher monthly mortgage payment. Granted, a slight bump to your monthly payment may not lead to mortgage relief, but it could cost thousands over time.
Example: The monthly payment on a $300,000 loan at a 30-year fixed rate would go up by $88 if the interest rate increased from 4% to 4.5%. This would add up to an extra $31,611 in interest paid over the life of the loan.
You can use a mortgage calculator tool to see how much a rise in rates could affect your mortgage payment.
Furthermore, a higher monthly payment might potentially disqualify you from financing, depending on the impact on your debt-to-income ratio. After a jump in interest rates, borrowers may need to make a larger down payment or buy mortgage points upfront to obtain financing.
Even if you lock in a mortgage rate early on, you could face these consequences if it expires before closing. Deciding when to lock in a mortgage rate should account for any potential contingencies that could delay the process. If you’re unsure, ask your lender for guidance on when you should lock in. 💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
What to Do if Interest Rates Fall After Your Rate Lock
The main concern with mortgage rate locks is that you could miss out on a lower rate. In most cases, buyers will pay the rate they are locked in at if the prevailing interest rate is less.
A float-down option, however, protects you from rate increases while letting you switch to the lower interest rate at closing.
• Float-down policies vary by lender but generally cost more than a conventional rate lock for the added flexibility and assurance.
• It’s also possible that a float-down option won’t be triggered unless a certain threshold is met for the drop in rates.
• It’s worth noting that borrowers aren’t committed to the mortgage lender until closing, so reapplying elsewhere is an option if rates change considerably.
Pros and Cons of Mortgage Rate Lock
Back to the big question: Should I lock my mortgage rate today? It’s important to weigh the pros and cons to decide when to lock in a mortgage rate.
Pros
Cons
Locking in a rate you can afford can lessen money stress during the closing process
A rate lock might prevent you from getting a better deal if rates fall later on
You could save money on interest if you lock in before rates go up
If a rate lock expires, you may have to pay for an extension or get stuck with a potentially higher rate
Lenders may offer a short-term rate lock for free, providing a window to close the deal if rates spike but an opportunity to wait it out if they drop
Rate locks can involve a fee of 0.25% to 0.50% of the loan amount.
The Takeaway
A favorable interest rate can make a difference in your home-buying budget. If you’re considering a rate lock because you’re concerned that rates will be rising, it’s important to choose a lock period that gives the lender ample time to process the loan to avoid extra fees or a potentially higher rate.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How long does a rate lock period last?
Rate locks usually last 30 to 60 days but can be shorter or longer depending on the agreement. It’s not uncommon for lenders to offer a free rate lock for a designated time frame.
Should you use a mortgage rate “float-down”?
If you’re worried about missing out on low interest rates, a mortgage rate float-down option could let you secure the current rate with the option to take a lower one if rates drop. Take note that these agreements usually outline a specified period and minimum amount the rate must drop to activate the float-down.
How much does a rate lock cost?
Lenders don’t always charge for a rate lock. If they do, you can expect costs to range from 0.25% to 0.50% of the loan amount for a lock period (usually 30 to 60 days). A longer lock period or adding a float-down option typically increases the rate lock cost.
What happens if my rate lock expires?
If your rate lock expires before you’ve finalized the deal, you can choose to extend the lock period (usually for a fee) or take the prevailing rate when you close on the loan.
Photo credit: iStock/Vertigo3d
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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Mortgage rates increased this week. But the latest news from the Federal Reserve suggests that we could see them start to tick down in the coming months.
On Wednesday, the Fed announced that it will keep the federal funds rate steady as it waits for more data showing that inflation is nearing its 2% goal. The central bank also released the latest Summary of Economic Projections, which showed that Fed officials still expect to cut rates three times this year. This would likely lead to lower mortgage interest rates as well.
Average 30-year mortgage rates increased 13 basis points to 6.87% this week, according to Freddie Mac. Average 15-year rates also inched up to 6.21%.
“After decreasing for a couple of weeks, mortgage rates are once again on the upswing,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “As the spring homebuying season gets underway, existing home inventory has increased slightly and new home construction has picked up. Despite elevated rates, homebuilders are displaying renewed confidence in the housing market, focusing on the fact that there is a good amount of pent-up demand, an ongoing supply shortage, and expectations that the Federal Reserve will cut rates later in the year.”
The Fed could start cutting rates as soon as its June meeting, according to the CME FedWatch Tool. This would remove some of the upward pressure off of mortgage rates and allow them to trend down a bit.
But it will likely be a while before we see affordability improve significantly. If you’re waiting for rates to drop before you start the homebuying process, you may have better luck later this year or in 2025.
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Mortgage Calculator
Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments.
Mortgage Calculator
$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
30-Year Fixed Mortgage Rates
Last week’s average 30-year fixed mortgage rate is 6.87%, according to Freddie Mac. This is a 13-basis-point increase from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
Average 15-year mortgage rates inched up to 6.21% last week, according to Freddie Mac data. This is a five-point increase since the week before.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
How Do Fed Rate Hikes Affect Mortgages?
The Federal Reserve has increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed significantly, but it’s still a bit above the Fed’s 2% target rate.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
The Fed has indicated that it’s likely done hiking rates and that it could start cutting soon. This will likely allow mortgage rates to trend down later this year.
When Will Mortgage Rates Go Down?
Mortgage rates increased dramatically over the last two years, but they’ve moderated somewhat in recent months, and are expected to drop further this year.
In February 2024, the Consumer Price Index rose 3.2% year-over-year. Inflation has slowed significantly since it peaked last year, which is good news for mortgage rates. But it has to slow further before rates will begin to fall.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
Do you want to learn how to move out at 18 with no credit, little money, or even no money? Here’s what you need to know. There are many reasons for why you may want to move out at a young age – perhaps you have a difficult home life, you want to move somewhere…
Do you want to learn how to move out at 18 with no credit, little money, or even no money? Here’s what you need to know.
There are many reasons for why you may want to move out at a young age – perhaps you have a difficult home life, you want to move somewhere new, or you just want your own space.
I moved out shortly after turning 18 (about a week or so after my 18th birthday) into a rental home, and while I was not prepared at all, I do think being prepared to move out at a young age is extremely helpful. I made many mistakes that led to many, many tears, money wasted, stress, and more.
Today, I want to help you avoid as many problems as you can.
After all, moving out at 18 years old (or any other young age) is already really hard, and there is such a huge learning curve.
Moving out when you turn 18 is a big step into becoming an adult. Even though it can be exciting, moving out for the first time needs to be planned carefully. Before you leave, it’s important to make a plan to make sure you can afford it and stay on your own.
This means finding a job, making a budget you can stick to, and saving money for unexpected costs.
How To Move Out at 18
Below are ways to move out at 18.
Recommended reading: Buying a House at 20 (How I did it)
Make a plan to move out at 18
I highly recommend having a plan if you want to move out at 18 years old.
Moving out at 18 is a big step, and making a plan will help everything go a little more smoothly.
You will want to think about things such as:
Where you will work
How you will pay your bills
If you will live with a roommate or on your own
What your budget will be like
What you’ll do if things get tough, such as if you can’t afford your rent
What you will do for health insurance and medical bills
And so much more.
I will be going further in-depth on many of these below.
Find ways to make money
If you are 18 and want to move out, then you will need to have a stable source of income, of course. There are many options for earning money, from traditional jobs to more flexible side hustles.
A full-time job typically gives you more hours and benefits like health insurance, which are helpful when you’re living on your own. If you have other things going on, a part-time job might be better because it offers more flexibility while still giving you money (but, you may not earn as much money). You can find job openings online, at job fairs, or on community bulletin boards. Jobs like delivering food can be either full-time or part-time, and companies tend to need people.
If you want to make more money, you can side hustle to make extra income – a way to make extra cash that you do alongside your main job. You could freelance by doing things like writing, teaching tutoring lessons, or designing graphics. Or, you could babysit for families nearby, walk dogs, or help people with tasks or errands. These little jobs can add up to a lot of money and give you the flexibility to work when you want.
When I was young and first moved out, I worked full-time at a retail store. I also eventually started a few side hustles (like blogging, freelance writing, and selling stuff online) so that I could pay off my student loans quickly. Living on your own is not easy, especially when you are young and your income is not that high – so side hustles may be needed so that you can make enough money to pay your bills.
Some helpful articles to read include:
Create a budget
When you’re ready to step out into the world at 18, you need a budget. I can’t think of any young adult who would not need a budget.
Budgets are great because they help you keep track of your money coming in and going out. With a monthly budget, you’ll know exactly how much you can spend on different things each month as it helps you see how much money you have and where you might need to cut back on spending.
A budget will help you to figure out if you can afford to live on your own, if you need to have roommates, or if you need to find a cheaper living arrangement.
Making a budget is easy. First, write down how much money you make each month from your job or other places. Then, write down what you need to spend money on each month, like:
monthly rent
food
phone bill
internet
car
fuel
utilities like electrical, water, trash, sewer, gas/propane
car insurance
medical/health
pet care
restaurants
cable, satellite, or any TV monthly subscriptions
household essential items, like toilet paper, trash bags, etc.
and some money for fun stuff too
Knowing your monthly expenses will help you to better manage your money so that you won’t go into credit card debt.
Recommended reading: The Complete Budgeting Guide: How To Create A Budget That Works
Save for the move (and open a bank account)
When you’re getting ready to move out at 18, saving money is obviously very important. If you can help it, I do not recommend moving out with no money saved.
Think about all the costs you’ll face – like rent, your first security deposit, food, and any unexpected things that pop up. You’ll want to tuck away money for this.
How much should you save to move out? A good rule is to save at least three to six months of living expenses. For example, if you spend $1,500 a month, aim to save between $4,500 and $9,000 before you head out on your own.
This will be your emergency fund. An emergency fund is money you save up for unexpected things that might happen. This could be paying bills if you lose your job or if your hours or pay get reduced. It could also cover unexpected expenses like a car repair, medical bill, or fixing a broken window.
An emergency isn’t something like buying a birthday present, a new TV, or going on vacation.
Having an emergency fund is smart because it can stop you from getting into debt you don’t need. Some people rely on their credit cards for emergencies, but that’s not a good plan.
I also recommend getting your own bank account for all of the money you save. It’s a safe place for your money, and it helps you track what you earn and spend. Plus, you’ll need it for things like direct deposit from jobs or paying bills online.
I personally use Marcus by Goldman Sachs for my savings account as they have a very high rate. You can get up to 5.50% at the time of this writing through a referral link bonus. According to this high-yield savings account calculator, if you have $10,000 saved, you could earn $550 with a high-yield savings account in a year. Whereas with normal banks, your earnings would only be $46.
Improve your credit score and history
When you’re moving out of your parents’ home, having a good credit score is super helpful. This is because your credit score and credit history may be used for things like getting approved for an apartment and getting signed up for utility bills.
If your credit score is low, then you may be denied an apartment and even have to pay large deposits to get signed up for utilities (like water and electric).
Here are some important things to know:
Understand credit utilization – This is all about how much credit you’re using compared to how much you have. Try to use less than 30% of your credit limit. Say your card has a $1,000 limit. Aim to spend no more than $300.
Always pay on time – You should pay every bill on time, every time. Even being a little late can hurt your credit score a LOT!
There are other ways to improve your credit, such as by getting a secured credit card or becoming an authorized user on a family member’s credit card.
Here are two really helpful articles I recommend reading:
I also recommend keeping an eye on your credit by checking your score and report. Sites offer free checks, and it’s good to know where you stand. That way, you can fix any mistakes fast.
Think about where you’ll live
When planning to move out at 18, picking where you’ll live is a huge step.
Here are some things to think about:
Think about who you’ll live with. Living by yourself can be expensive so sharing rent and other bills with roommates can save you money, but make sure you choose your roommates wisely. You’ll be sharing your space with them, so it’s important to pick people who are responsible and trustworthy (and will actually pay the bills!).
Try using online tools to compare different areas. You can check things like crime rates, public transportation options, and how close they are to places you need, like grocery stores.
Think about the cost. Can you pay the rent and utility bills every month? Make sure to include these costs in your budget. Sometimes, living a bit farther from popular areas can be cheaper.
For my first home, I rented a very small 400-square-foot home with no real bedroom. But, it was within my budget and next to my college (I lived a few miles away), and surprisingly affordable.
Talk to your parents
When you’re getting ready to move out at 18, it’s important to have a conversation with your parents. This might feel hard or even impossible, but remember that clear communication is important.
I recommend choosing a time to tell them when your parents aren’t too busy or stressed as having this conversation when everyone is relaxed can make it easier for everyone to talk openly.
I think it is also helpful to think about how your parents might feel. If you’re the first to leave the home, they might find it tough. Try to understand their perspective and mention that you’ll stay in touch and visit.
And, be ready to show them your plan. Your parents will want to know you’ve thought things through. If you’ve been saving money, let them know. Talk about your job and how you’re managing to support yourself. It’s good to tell them about the place you’re planning to move into and how you chose it.
How to move out of your parents if it isn’t safe
So, after reading the above, I know that some of you may not have a good home life. You may not feel safe telling your parents that you are moving out.
If that’s the case, then I recommend reading this section.
Sometimes, home isn’t the safe place that it’s supposed to be. If you’re in a tough situation and need to leave at 18 but can’t talk to your parents about it, you’re not alone.
Here’s what you can do:
Find an adult you trust – Look for someone you trust, like a teacher, counselor, or family friend. They can maybe give you support and help you figure out your options.
Plan ahead – Start thinking about where you’ll go and how you’ll support yourself. Look into shelters, transitional housing programs, or staying with a trusted friend or relative.
Know your rights – As you turn 18, you have rights. Learn about your options for housing, education, and employment because there may be resources available to help you.
Stay safe – If you’re in danger at home, prioritize your safety. Contact local authorities or organizations that can help you leave safely.
Take care of yourself – Moving out can be tough, but remember to take care of yourself emotionally and physically, such as by talking to friends, finding support groups, or talking to a counselor if you need to.
Leaving home at 18 without being able to talk to your parents is hard, but it’s not impossible. Reach out for help, make a plan, and remember that you deserve to live in a safe and supportive environment.
Get free stuff for your new home
One of the big challenges of moving out on your own is affording all of the different things that you need.
Luckily, there are ways to get things for free or really cheap.
Some of the top ways include:
Facebook Buy Nothing groups – This is my favorite place to start if you want to get things for free. These groups promote recycling and reusing items instead of throwing them away when you’re done with them. To begin, look for and join a local Buy Nothing group on Facebook. You can search for groups for your city. People list their free stuff all the time, such as furniture, electronics, clothes, and more. You can even make a post asking if anyone has something that you need.
Ask family and friends – Your family and friends might have extra stuff they’re willing to part with. They might even be happy to see it go to a good home – your new home!
Check online platforms – Websites like Craigslist, Freecycle, and Facebook Marketplace can be goldmines for free furniture. People often list items they want to get rid of quickly.
Visit thrift stores and yard sales – Thrift stores and yard sales sometimes offer “free bins” or low-cost items they want to get rid of fast.
Attend college move-out days – If you live near a university, go there on move-out day. Students tend to leave behind perfectly good furniture that’s yours for the taking.
Community centers and churches – These places often have bulletin boards with listings for free items.
Always be safe when arranging pickups, especially with strangers. Always bring a friend or let someone know where you’re going.
Helpful articles:
Handling utilities and bills
Dealing with utilities and bills is a big step in moving out. Utilities are services you need like water, electricity, gas, and the internet.
Before you move, call or visit the websites of local utility companies. You’ll need to set up accounts in your name. This might include a deposit fee, so be ready for that.
I recommend making a list of all your expected bills. Rent, electricity, water, internet, and maybe gas are usually the basics. Add them up to see how much you’ll spend each month.
After you move in, you will want to find out when each bill is due. It’s your job to pay them on time as paying late can lead to extra fees or even getting your services turned off. Some companies let you set up automatic payments, and this means the money comes out of your bank account on its own each month. This can make sure you’re always on time.
You will want to hold onto your bills and receipts. This way, if there’s ever a mistake with a bill, your records will help fix it.
You can save money by being smart about using your services. Turn off lights when you leave a room and unplug electronics that you’re not using. You might also shop around for better deals on services like the internet.
After you get your first set of bills, you will understand why your parents wanted to keep the air conditioning off or why they always asked you to turn the lights off – things can be expensive!
Also, remember that different times of the year will impact your bills. For example, your electric bill will most likely be a lot more expensive in the summer than it will be in the spring or fall.
Maintain your home (housekeeping)
Moving out at 18 means taking on the responsibility of housekeeping. You might be surprised how quickly your new home can become cluttered and get dirty.
Keeping your home nice starts with regular cleaning, and I recommend setting aside some time each day for tasks like washing dishes, making your bed, and tidying up the living area. This way, messes won’t pile up and become overwhelming.
Then, once a week, dedicate your time to deeper cleaning such as vacuuming, mopping floors, cleaning the bathroom, dusting, and doing laundry.
Housekeeping also requires tools and supplies, so you will want to plan your budget to include items like sponges, cleaners, and trash bags.
Make friends in your new community
Moving out at 18 is a big step, and making friends in your new community is important. It can make your new place feel like home. When you move, you might not know many people, but there are fun and simple ways to meet people.
Here are some tips:
Get to know your neighbors – Start with a smile and say hi to your neighbors.
Join local groups or classes – Look for groups that interest you. Love to paint? Find an art class. Enjoy cooking? Maybe there’s a cooking group nearby. Like rock climbing? Go to the local climbing gym. This way, you meet people who like what you like.
Visit community centers – Many towns have a community center. They have activities like sports, games, and events.
Making friends might take time, but it’s totally possible! Just be yourself and be open to talking to new people.
Balancing work and personal life
I’m guessing you will have a lot going on, between trying to work full-time and enjoying your life, and even possibly furthering your education.
I recommend trying to schedule your time so you don’t get too busy. Use a calendar or app to make sure you’ve got time for work, taking care of your place, and doing fun things too.
It’s okay to say no if you’re too busy. If you’re working a full-time job, you might not be able to hang out with your friends all the time. It’s all about finding a healthy balance between earning money and enjoying life. I had to say no to my friends many times because I was simply too busy. If your friends still live at home, it may be hard for them to understand this unless you explain your situation.
Plus, remember to take breaks. When you’re planning your week, set aside some time just for relaxing. Watching a movie, reading, or hanging out in the park are all great ways to unwind and give your mind a break.
Frequently Asked Questions
Below are common questions about how to move out at 18 years old with little money.
How can I move out fast at 18?
To move out quickly, focus on making a steady income and finding affordable housing. Create a budget to manage your expenses and look for immediate job openings or housing options. Saving as much money as you can right now is also super helpful.
How much money should I have saved by 18 to move out?
Aim to save at least 3 to 6 months of living expenses before moving out. This safety net can cover rent, groceries, and unexpected costs, giving you financial stability as you start on your own.
Can you move out at 18 while still in high school?
Yes, you can move out at 18 while in high school, but make sure you have a support system in place. Balancing school responsibilities with living independently can be very hard.
How to move out at 18 with strict parents?
When moving out at 18 with strict parents, communicate your plans clearly and respectfully. Prepare a well-thought-out plan to show them you’re serious and capable of managing your own life.
Can your parents not let you move out at 18?
When you turn 18, you’re legally an adult in most places, and you can decide to move out even if your parents don’t agree. However, it’s important to respect their opinion and explain your reasons. There are some places where you have to be older, so make sure you do your research.
Do I have to tell my parents I’m moving out?
While you’re not legally required to inform your parents in most places, it’s nice to talk about your decision with them, as transparent communication helps maintain a positive relationship after you leave.
Can I move out at 18 without parental consent?
Yes, in most places, at 18 you’re legally permitted to move out without parental consent. You will want to make sure this applies to your local area.
What things do you need when moving out of your parents’ house?
There are many things that you will need to move out of your parents’ house such as a bed, blanket, pillow, kitchen supplies, towels, a place to eat, a dresser, cleaning supplies, groceries, and more.
Is it realistic to move out at 18?
It is realistic to move out at 18 if you have a reliable income, a budget, and a plan for handling responsibilities. You will want to be as prepared as possible to move out at a young age because there will be many hurdles thrown your way, most likely.
How To Move Out At 18 – Summary
I hope you enjoyed this article on how to move out at 18 years old.
It’s really important to have a plan for a successful move when you are just 18 years old.
You’ll need to find ways to earn money regularly, like getting a job and even doing extra work on the side.
Having savings in the bank and an emergency fund will help you handle unexpected expenses without ruining your plans.
There are also many other things to think about, such as the cost of living, utility bills, your credit score, and more.
I moved out when I was just 18 years old, so I completely understand where you are coming from. I had no financial help from my parents and found and did everything on my own – from making money to finding a place to live, making all of my own meals, and more. It was hard, but it was what needed to be done.
Do you plan on moving out soon? Do you have any questions for me on how to move out at 18?
Cara Walton, representing a Michigan consulting firm focused on small manufacturers, spoke of a profit squeeze. Higher costs across the board, from borrowing to raw materials and labor, are forcing some companies to hit the brakes on crucial equipment upgrades. She explained that the combination of expensive financing and slowing demand was creating a double … [Read more…]
In a recent report by Goldman Sachs, a stark warning was issued about the state of office mortgages in the United States, describing them as “living on borrowed time.” This caution comes amidst a backdrop of mounting stress in commercial real estate loans, particularly those tied to office properties, which have emerged as a significant sore point. With delinquencies on the rise, the specter of financial instability continues to haunt the U.S. banking sector, further aggravated by an office market that has seen demand plummet for two consecutive years.
The situation has become increasingly dire, with delinquencies ticking upwards, reflecting the ongoing distress within the office real estate sector. According to Trepp, a leading research firm, about 6.63 percent of all commercial office mortgages were delinquent as of February, marking a 33 basis points increase from January. This rise mirrors the average monthly increase witnessed over the past 12 months, starkly contrasting with the 2.38 percent delinquency rate recorded a year prior. The upsurge in delinquencies underscores an ominous trend in the office market, plagued by declining demand and reaching a vacancy rate of 19.7 percent at the onset of 2024.
A particularly alarming development is the significant increase in commercial real estate loans scheduled to mature by the end of 2024. The total amount has surged 41 percent to over $900 billion, primarily fueled by ongoing extensions and modifications of existing debts. This uptick, noted by analysts at Goldman Sachs, signifies a potentially tumultuous period ahead for the banking sector, already reeling from the impact of higher interest rates and declining property values that have complicated refinancing efforts.
Regional banks have acutely felt the ripple effects of the commercial real estate loan challenges, which have seen their stock prices wobble in the wake of last year’s string of bank failures. Given their exposure to commercial real estate loans, these institutions are particularly vulnerable, a situation exacerbated by the current economic climate marked by high interest rates and a depreciation in property values.
Despite the grim outlook for office loans, the broader commercial real estate market shows signs of resilience. In its assessment, Goldman Sachs noted that the office sector’s distress is unlikely to spill over into other areas of the commercial property market. Retail delinquencies, for instance, have shown improvement, and the multifamily and industrial sectors remain relatively stable. Furthermore, banks today are in a more robust capital position than during the financial crises of 2008-09 and the 1980s, offering hope that the current challenges can be navigated with strategic foresight and prudent management.
The office mortgage crisis presents a daunting challenge to the U.S. banking sector, underscored by a confluence of increasing delinquencies, a glut of maturing loans, and a commercial office market in distress.
Returned item charges are bank fees that are assessed when you don’t have enough money in your account to cover a check (or online payment) and the bank doesn’t cover that payment. Instead, they return the check or deny the electronic payment, and hit you with a penalty fee. Returned item fees are also called non-sufficient funds (NSF) fees. While these fees used to be ubiquitous, some banks have chosen to eliminate them.
Read on to learn exactly what NSF/returned item fees are and how you can avoid paying them.
What Is a Non-Sufficient Funds (NSF) Fee?
A non-sufficient fund or NSF fee is the same thing as a returned item fee. These are fees banks charge when someone does not have enough money in their checking account to cover a paper check, e-check, or electronic payment. They are assessed because the bank has to put forth additional work to deal with this situation. They also serve as a way for banks to make money. The average NSF fee is $19.94.
In addition to being hit with an NSF fee from the bank, having bounced checks and rejected electronic payments can cause you to receive returned check fees, late fees, or interest charges from the service provider or company you were attempting to pay. 💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.
How Do Non-Sufficient Fund Fees Work?
Here’s a basic example. Let’s say that someone has $500 in the bank. They withdraw $100 from an ATM and forget to record that transaction. Then, they write a check for $425, believing that those funds are available:
• Original balance: $500
• ATM withdrawal: $100
• New actual balance: $400
• Check amount: $425
• Problem: The check is for $25 more than what is currently available.
The financial institution could refuse to honor this check (in other words, the check would “bounce” or be considered a “bad check”) and charge an NSF fee to the account holder. This is not the same thing as an overdraft fee.
An overdraft fee comes into play when you sign up for overdraft protection. Overdraft protection is an agreement with the bank to cover overdrafts on a checking account. This service typically involves a fee (called an overdraft fee) and is generally limited to a preset maximum amount.
Are NSF Fees Legal?
Yes, NSF or returned item fees are legal on bounced checks and returned electronic bill payments. However, they should not be charged on debit card transactions or ATM withdrawals.
If you don’t opt in to overdraft coverage (i.e., agree to pay overdraft fees for certain transactions), then the financial institution cannot legally charge overdraft (or NSF) fees for debit card transactions or ATM withdrawals. Instead, the institution would simply decline the transaction when you try to make it.
No federal law states a maximum NSF fee. But The Truth in Lending Act does require banks to disclose their fees to customers when they open an account.
The Consumer Financial Protection Bureau has been pushing banks to eliminate NSF fees, and their efforts have paid off. Many banks have done away with NSF fees and others have lowered them.
Are NSF Fees Refundable?
You can always ask for a refund. If you’ve been with a financial institution for a while and this is your first NSF fee, you could contact the bank and ask for a refund. The financial institution may see you as a loyal customer that they don’t want to lose, so they may say “yes.” That said, it’s entirely up to them — and, even if they agree the first time, they will probably be less willing if it becomes a pattern. (Or, they may say “no” to the very first request.)
Recommended: Common Bank Fees and How to Avoid Them
Do NSF Fees Affect Your Credit?
Not directly, no. Banking history isn’t reported to the consumer credit bureaus. Indirectly, however, NSF fees could hurt your credit. If a check bounces — say, one to pay your mortgage, car payment, credit card bill, or personal loan — this may cause that payment to be late. If payments are at least 30 days late, loans and credit cards can be reported as delinquent, which can hurt your credit.
And if a payment bounces more than once, a company might send the bill to a collections agency. This information could appear on a credit report and damage your credit. If you don’t pay your NSF fees, the bank may send your debt to a collection agency, which could be reported to the credit bureaus.
Also, keep in mind that any bounced checks or overdrafts could be reported to ChexSystems, a banking reporting agency that works similarly to the credit bureaus. Too many bounced checks or overdrafts could make it hard to open a bank account in the future.
What Happens if You Don’t Pay Your NSF Fees?
If you don’t pay your NSF fees, the bank could suspend or close your account and report your negative banking history to ChexSystems. This could make it difficult for you to open a checking or savings account at another bank or credit union in the future. In addition, the bank may send your debt to a collection agency, which can be reported to the credit bureaus.
How Much Are NSF Fees?
NSF were once as high as $35 per incident but have come down in recent years. The average NSF is now $19.94, which is an historical low.
When Might I Get an NSF Fee?
NSF fees can be charged when there are insufficient funds in your account to cover a check or electronic payment as long as the bank’s policy includes those fees.
Recommended: Negative Bank Balance: What Happens to Your Account?
What’s the Difference Between an NSF and an Overdraft Fee?
An NSF fee can be charged if there aren’t enough funds in your account to cover a transaction and no overdraft protection exists. The check or transaction will not go through, and the fee may be charged.
Some financial institutions, though, do provide overdraft protection. If you opt in to overdraft protection and you have insufficient funds in your account to cover a payment, the bank would cover the amount (which means there is no bounced check or rejected payment), and then the financial institution may charge an overdraft fee. So with overdraft, the transaction you initiated does go through; with an NSF or returned item situation, the transaction does not go through and you need to redo it. Fees may be assessed, however, in both scenarios.
How to Avoid NSF Fees
There are ways to avoid overdraft fees or NSF fees. Here are some strategies to try.
Closely Watch Your Balances
If you know your bank balance, including what’s outstanding in checks, withdrawals, and transfers, then a NSF situation shouldn’t arise. Using your bank’s mobile app or other online access to your accounts can streamline the process of checking your account. Try to get in the habit of looking every few days or at least once a week.
Keep a Cushion Amount
With this strategy, you always keep a certain dollar amount in your account that’s above and beyond what you spend. If it’s significant enough, a minor slip up still shouldn’t trigger an NSF scenario. 💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.
Set Up Automatic Alerts
Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can transfer funds into the account to prevent getting hit with an NSF fee.
Link to a Backup Account
Your financial institution may allow you to link your savings account to your checking account. If so, should the checking balance go below zero, they’d transfer funds from your savings account to cover the difference.
Use Debit Cards Strategically
If you use your debit card to rent a car or check into a hotel, they may place a hold on a certain dollar amount to ensure payment. It may even be bigger than your actual bill. Depending upon your account balance, this could cause something else to bounce. So be careful in how you use your debit cards.
Look for No-Fee Overdraft Coverage
You can avoid NSF fees by shopping around for a bank that offers no-fee overdraft coverage.
The Takeaway
Returned item fees (also known as NSF fees) can be charged when there are insufficient funds in your account to cover your checks and electronic payments. When you get hit with an NSF fee, you’re essentially getting charged money for not having enough money in your account — a double bummer. To avoid these annoying fees, keep an eye on your balance, know when automatic bill payments go through, and try to find a bank that does not charge NSF fees.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
What happens when you get an NSF?
If you get charged an non-sufficient funds (or NSF) fee, it means that a financial transaction has bounced because of insufficient funds in your account. You will owe the fee that’s listed in your bank’s policy.
Is an NSF bad?
If a financial transaction doesn’t go through because of insufficient funds, then this can trigger returned item charges (NSF fees). This means you’re paying a fee for not having enough money in your account to cover your payments, a scenario you generally want to avoid.
Does an NSF affect your credit?
An NSF fee does not directly affect your credit, since banking information isn’t reported to the consumer credit agencies. However, if a bounced check or rejected electronic payment leads to a late payment, the company you paid could report the late payment to the credit bureaus, which could impact your credit.
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LOS ANGELES — The average long-term U.S. mortgage rate climbed back to nearly 7% this week, pushing up borrowing costs for home shoppers.
The average rate on a 30-year mortgage rose last week from 6.74% to 6.87%, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.42%. The average rate is now just below where it was two weeks ago.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, pushing the average rate last week from 6.16% to 6.21% . A year ago it averaged 5.68%, Freddie Mac said.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already out of reach for many Americans.
“After decreasing for a couple of weeks, mortgage rates are once again on the upswing,” said Sam Khater, Freddie Mac’s chief economist.
Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Federal Reserve does with its short-term interest rate can influence rates on home loans.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December. Rates eased amid expectations that inflation was cooling enough for the Fed to begin lowering its short-term interest rate by this spring. But a spate of stronger-than-expected reports on inflation, the job market and the economy in recent weeks dimmed that outlook, sending mortgage rates higher through most of February.
Many economists expect that mortgage rates will ultimately ease moderately this year, but that’s not likely to happen before the Federal Reserve begins cutting its benchmark interest rate. On Wednesday, the central bank kept its rate unchanged and signaled again that it expects to make three rate cuts this year, but not before it sees more evidence that inflation is slowing.
“The Fed’s announcement that it is holding interest rates steady for now was not unexpected, but it does mean that mortgage rates are going to remain higher for longer,” said Lisa Sturtevant, chief economist at Bright MLS.
The U.S. housing market is coming off a deep, 2-year sales slump triggered by a sharp rise in mortgage rates and a dearth of homes on the market. The overall decline in rates since their peak last fall has helped lower monthly mortgage payments, providing more financial breathing room for homebuyers facing rising prices and a shortage of homes for sale this year.
Sales of previously owned U.S. homes rose in February from the previous month to the strongest pace in a year. That followed a month-to-month home sales increase in January.
Still, the average rate on a 30-year mortgage remains well above where it was just two years ago at 4.42%. That large gap between rates now and then has helped limit the number of previously owned homes on the market by discouraging homeowners who locked in rock-bottom rates from selling.
It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.
With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging.
Here’s everything you need to know about selling a home with a mortgage.
What Happens to Your Mortgage When You Sell Your Home?
When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.
A Typical Sale
In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.
A Short Sale
A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).
In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.
When You Buy Another House
There are several roads you can take when you buy another house before selling your own. You may have the option of:
• Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.
• Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.
• Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
Selling a House With a Mortgage: Step by Step
Here are the steps to take to sell a home that still has a mortgage.
Get a Payoff Quote
To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.
The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.
Determine Your Home Equity
Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.
When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.
Secure a Real Estate Agent
A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.
Set a Price
With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.
Accept a Bid and Open Escrow
After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?
You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.
Review Your Settlement Statement
You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.
Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home. 💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Selling a House With a Negative Equity
Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.
If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.
In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.
The Takeaway
Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Who is responsible for the mortgage on the house during the sale?
The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.
What happens if you sell a house with a HELOC?
When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.
What happens to escrow money when you sell your house?
Your mortgage escrow account will be closed, and any money left will be refunded to you.
Can I make a profit on a house I still owe on?
Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.
Can I have two mortgages at once?
Yes, you can have two mortgages at once if the lender approves it.
Photo credit: iStock/Beton studio
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