Whether it’s a 5% increase or a 20% bump, a pay raise at work is an opportunity to take charge of your financial priorities. A small raise might not seem like much when it’s broken down into a biweekly paycheck, but over time, that difference in income could provide a boost to your lifestyle or be put toward other financial goals.
Whether you decide to pay off debt, pad your safety net, invest, give back, improve your quality of life or treat yourself, a raise is a good time to think about the direction of your financial life.
Keep an eye on lifestyle creep
Many personal finance experts warn against “lifestyle creep,” which is when you begin to spend more as you earn more. Lifestyle creep can take the form of buying more conveniences — like ordering food in more often — or buying more expensive or higher-quality items, like sturdier hiking boots or a better brand of skin care products.
“If you get a raise and use it to buy a new car or a new home or go out every weekend, your rate of spending might surpass your new income,” says Mabel Nuñez, founder of the investing education site Girls on the Money.
Nuñez says that it’s good to reward yourself, but she advises clients to avoid buying more expensive things.
“Think about an expense that’s going to be a one-time purchase or something that’s going to make you better, like traveling somewhere new or taking a cooking class,” Nuñez says. “Don’t spend just for the sake of spending.”
Once you’ve looked at your financial situation, you might find that it’s not in your best interest to increase your spending on nonessentials. But if you’re feeling good about the status of your consumer debt and savings, then you might choose to spend more money on things that will make life more enjoyable.
For example, maybe you’ve been washing dishes by hand because you don’t have a dishwasher or yours is broken. You could put part of your raise toward a new appliance that’s going to save you a lot of time and energy. Or maybe you’ve been driving the same car for the past 20 years or living in a too-small house with your growing family. If you’ve planned for the increased costs, an upgrade that brings you increased functionality and comfort is a raise well-spent.
Focus on high-priority financial goals
Liz Carroll, a financial life and wellness coach at Mindful Money Coaches, says that paying off consumer debt with an 8% annual percentage rate or higher should be a top priority, especially if you have more income that you can put toward it.
Beyond debt payoff, Carroll suggests people have a financial safety net of at least a month’s worth of expenses, with the goal of working toward three to six months’ worth. This could be done through regular recurring transfers from your paycheck to your savings account.
“Give your future self a share,” Carroll says. “I tell my clients to be mindful and pause before the quick reaction of, ‘I got a raise, now I can spend money.’ Instead, you should think, ‘What’s in alignment with my values?’”
Investing for retirement is another priority to consider, such as contributing to your 401(k) to earn any matching funds offered by your employer or putting your money in a Roth IRA. You could also consider an index fund, which allows you to invest in a wide range of stocks all at once.
“You want money in savings for an emergency, but anything above that that you don’t need in the next few years could be invested in a conservative way, like an index fund,” Nuñez says. “Learn how to invest it in a smart way, and it’ll get you to the next level of financial life.”
Treat yourself and give back
Beyond debt, savings and other future financial planning, Carroll says you should feel comfortable celebrating your accomplishments. Just keep in mind that you may want to put up some guardrails around the way you reward yourself so that you can maximize the financial benefits of a raise. Carroll says something that equals 5% of the total raise is a good amount to aim for if you want to treat yourself but are also paying off debt. If you don’t have debt, she says, 10% of the total raise is a good benchmark.
Another thing you may choose to do with your raise is to give back to your community. Whether you donate money to your favorite charity or surprise a loved one with a random act of kindness, it can make you feel good to share your good fortune.
More income means having more resources to achieve your goals. By creating a plan for important financial milestones — as well as for fun splurges — you’ll get the most out of your money.
This article was written by NerdWallet and was originally published by The Associated Press.
Editorial Note: Blueprint may earn a commission from affiliate partner links featured here on our site. This commission does not influence our editors’ opinions or evaluations. Please view our full advertiser disclosure policy.
Today’s home equity line of credit (HELOC) rates, if you borrow $100,000, are 9.11% with a 60% loan-to-value (LTV) ratio, 9.26% with 80% and 9.95% with 90%.
Today’s HELOC rates
*Data accurate as of February 2, 2024, the latest data available.
Current HELOC rate trends
Here is the average annual percentage rate (APR) for a $100,000 HELOC at different LTV ratios — 60%, 80% and 90%.
HELOC rates: 60% LTV ratio
The HELOC rate today for a borrower with an LTV ratio of 60% sits at 9.11%. This means it’s the same as last week, according to data from Curinos. Last month, the rate was at 9.13%.
HELOC rates: 80% LTV ratio
The average HELOC rate if you have an LTV ratio of 80% stayed the same as last week at 9.26%, according to data from Curinos. This is down from last month’s 9.28%.
HELOC rates: 90% LTV ratio
Today’s average HELOC rate is 9.95% with a 90% LTV ratio which is the same as last week, according to data from Curinos. This is about the same as last month’s 9.95%.
Before you borrow, compare the best HELOC lenders.
Frequently asked questions (FAQs)
During the COVID-19 pandemic, many banks stopped offering HELOCs due to uncertainty surrounding the economy. However, numerous banks have resumed offering HELOCs to customers today.
There are many reasons why you might not qualify for a HELOC. For example, a lender could deny your application if:
Your LTV ratio is too high.
Your DTI ratio is too high.
Your credit score is too low.
You don’t have a history of on-time payments.
You don’t have a stable source of income.
If you can’t qualify for a HELOC because of any of the above reasons, your best option is likely to work on paying down debt along with building more equity in your home.
There are also some alternatives to consider if you’re disqualified. For example, a home equity loan or personal loan could be a good option. Unlike HELOCs, both of these alternatives generally come with fixed interest rates, giving you predictable payments over the life of the loan. However, you might end up with a higher interest rate than you would with a HELOC.
Additionally, home equity loans and personal loans are paid out in lump sums — meaning you’ll need to know exactly how much you need to borrow before applying.
Explore the difference: HELOC vs. home equity loan
Repayment terms for HELOCs typically range from five to 30 years. This generally comprises a draw period of up to 10 years and then up to 20 years to repay what you’ve borrowed.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
Jamie Young is Lead Editor of loans and mortgages at USA TODAY Blueprint. She has been writing and editing professionally for 12 years. Previously, she worked for Forbes Advisor, Credible, LendingTree, Student Loan Hero, and GOBankingRates. Her work has also appeared on some of the best-known media outlets including Yahoo, Fox Business, Time, CBS News, AOL, MSN, and more. Jamie is passionate about finance, technology, and the Oxford comma. In her free time, she likes to game, play with her two crazy cats (Detective Snoop and his girl Friday), and try to keep up with her ever-growing plant collection.
Ashley is a USA TODAY Blueprint loans and mortgages deputy editor who has worked in the online finance space since 2017. She’s passionate about creating helpful content that makes complicated financial topics easy to understand. She has previously worked at Forbes Advisor, Credible, LendingTree and Student Loan Hero. Her work has appeared on Fox Business and Yahoo. Ashley is also an artist and massive horror fan who had her short story “The Box” produced by the award-winning NoSleep Podcast. In her free time, she likes to draw, play video games, and hang out with her black cats, Salem and Binx.
The Federal Reserve left interest rates alone for the fourth consecutive meeting and acknowledged the progress it’s made at defeating red-hot inflation — but stopped short of indicating that rate cuts are around the corner as the economy’s strength continues to surprise.
The Federal Open Market Committee’s (FOMC) decision points to the likelihood that the Fed will not lift its key benchmark borrowing rate any higher than its current target range: 5.25-5.5 percent. That’s still, however, a level that hasn’t been seen since 2001, translating to significant gains on the prices consumers pay to borrow money. Mortgage rates, home equity lines of credit (HELOCs) and auto loans are the highest in more than a decade, Bankrate data shows.
An improving inflation picture is giving policymakers room to slow their fastest rate-hiking regime since the 1980s. The Fed officially targets a 2 percent annual rate, and prices rose 2.6 percent from a year ago as of December, according to their preferred gauge from the Department of Commerce. It marks a major improvement in a historically short period of time. Just last January, prices rose at a 5.5 percent annual rate, while inflation also peaked at 7.1 percent in June 2022.
The slowdown is also more pronounced than Fed officials expected. Last March, officials thought inflation would finish 2023 at a 3.3 percent annual rate, their projections show.
The FOMC “judges that the risks to achieving its employment and inflation goals are moving into better balance,” officials wrote in their post-meeting statement. “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
But officials aren’t yet ready to declare “mission accomplished” in their inflation fight. Defying theory, higher interest rates and slowing inflation haven’t slammed the brakes on economic growth. In the final two quarters of 2023, the U.S. economy expanded at the fastest pace since 2021. Unemployment has remained at a historically low level below 4 percent for the longest stretch of time since the 1960s, and job openings are still more plentiful than at any point before the pandemic.
It creates a difficult conundrum for U.S. central bankers, who are expected to soon start debating the proper timing for lowering interest rates. Officials don’t just attempt to keep prices stable but also aim to achieve maximum employment in the U.S. economy. Keeping interest rates too high for too long could risk damaging Americans’ job prospects — and the more inflation slows, the more restrictive their rate benchmark becomes.
But haunted by memories of the U.S. central bank pulling back too soon and reigning more inflation in the 1970s, Fed officials don’t want to risk giving the economy more juice that could make its war on inflation more pronounced and painful.
Officials aren’t appearing to be in any rush to cut interest rates. As of December, policymakers were expecting to cut interest rates three times this year. Investors, however, think the slowdown in inflation can pave the way for a much more aggressive series of rate cuts. Investors are currently pricing in six quarter-point, or 1.5 percentage points, worth of cuts for 2024, CME Group’s FedWatch tool shows.
The Fed has a more powerful influence over consumers’ wallets than any other policymaker in Washington. Just as the Fed’s rate acts as a lever on the key interest rates throughout Americans’ financial lives, it also influences how much consumers earn on their savings accounts and certificates of deposit (CDs). The highest yields in over a decade are also slowly starting to pull back, now that it looks like the Fed is done raising interest rates.
“Inflation has come down faster than anticipated, but whether or not this can be sustained is central to the Fed’s decision about when to begin cutting interest rates,” says Greg McBride, CFA, Bankrate chief financial analyst. “The Fed is certainly pushing back on the notion of a March interest rate cut, dashing investors’ hopes again, but keeping options open and remaining non-committal as a central bank does.”
The Fed’s rate decision: What it means for you
Savers
Even if the Fed cuts interest rates this year, the wins for savers aren’t yet over. Barring a major economic catastrophe, Fed officials are unlikely to reverse course and cut borrowing costs back to near-zero. Translation: Rates will stay higher for longer, meaning historic payouts on consumers’ savings accounts are bound to remain.
Don’t be surprised, however, if yields drift lower over the coming months. On many of the products Bankrate tracks, they already have. Last October, the top-yielding 5-year CD hit 4.85 percent annual percentage yield (APY). Today, it’s paying 4.6 percent. Even high-yield savings accounts — offering consumers an APY roughly nine times higher than the national average — have edged lower to 5.35 percent from 5.4 percent.
Consumers who can afford to tie up some of their cash — or retirees who want to add another no-risk, fixed-income investment to their portfolio — aren’t gaining any ground by waiting to lock in a CD. But if you’re primarily saving for emergencies, lower rates shouldn’t deter you from shopping around for an account with the best rate.
Keeping just $1,000 in a high-yield savings account offering 5 percent APY would give you $50 in interest. Stashing away $10,000, meanwhile, can earn a saver an extra $500 in a year.
Borrowers
If you don’t have an emergency fund, it’s an exceptionally costly era to have to turn to credit cards to fund an unexpected expense. Credit card rates have been hovering at the highest levels on record since September, most recently hitting 20.74 percent, Bankrate data shows. They could retreat when the Fed begins to cut interest rates but not enough to make high-cost debt less of a headache. Even when the Fed’s benchmark was at a record low, rates were holding above 16 percent annual percentage rate (APR).
The good news for credit card borrowers: The economy avoiding a recession means issuers are unlikely to pull back on the 0-percent introductory offers on balance transfer cards. If you’re looking to chip away at credit card debt, you can currently find a card that won’t charge you any interest for as long as 21 months, helping your debt repayments go even further. Be sure to calculate the fees associated with transferring that balance to a credit card and have a debt repayment game plan. A $10,000 balance with a 21-month no-interest offer would still require that consumers dedicate about $471 a month to eliminate that debt on time before their interest charges surge again.
Consumers with fixed-rate loans locked in before the Fed began raising interest rates have been protected from the Fed’s rapid rate hikes, but you can’t always time the market. If you’re going to have to finance a big ticket purchase in the near future, be sure to compare offers from multiple lenders before locking in a loan.
To set yourself up for lenders’ best offers, bolster your credit score by paying your bills on time and utilizing less than 30 percent of your available credit.
If you borrowed money after the Fed began raising interest rates and your credit score has improved, you might be able to refinance into a lower, fixed-rate loan.
Homebuyers
It’s not as affordable to finance a home as it was in the aftermath of the coronavirus pandemic, but it’s certainly getting cheaper than it was last fall. After surging above 8 percent in October for the first time since 2000, the 30-year fixed-rate mortgage has now fallen more than a percentage point, touching 6.93 percent as of Jan. 24, Bankrate data shows.
The difference might not seem like much, but for buyers simultaneously facing the dilemma of low inventory and high prices, the pullback creates more breathing room in homeowners’ budgets. The drop in mortgage rates since last fall translates to more than $4,000 in savings a year, Bankate’s mortgage calculator shows.
More improvement could be on the horizon. McBride predicts that the 30-year fixed-rate mortgage will fall to 5.75 percent by the end of the year, according to his 2024 interest rate forecast.
Central to housing affordability, however, are low inventory and high prices. Home prices in November snapped a nine-month streak of gains in S&P CoreLogic’s Case-Shiller Home Price Index, suggesting that home price appreciation might be losing some momentum. But housing is still more expensive than it was before the pandemic, with prices up 46 percent since February 2020, S&P CoreLogic’s data also shows.
The housing market has been especially troubling for first-time buyers. The typical age of a first-time buyer hit 35, near the oldest levels on record, according to National Association of Realtors data from November.
If you’re deciding to wait out a difficult market, you can still take steps that set you up for homeownership in the future. Work on growing your income, paying down your debts, bolstering your credit score and saving for a down payment, so you’re better prepared when the time does come.
Investors
No one is happier about the prospect of lower rates than investors. The S&P 500 and the Dow Jones Industrial Average have broken six fresh record highs so far in 2024.
But investors’ hopes can be dashed in an instant. The Fed looks unlikely to cut interest rates as aggressively as investors are expecting. Meanwhile, continued good news for the U.S. economy could quickly start to make markets jittery if it threatens the U.S. central bank’s plans to reduce borrowing costs.
The long-term investor, however, shouldn’t pay attention to those fears. Stay the course with your retirement savings, and keep a diversified portfolio. The temporary pain of high rates is meant to provide the long-term gain of slow and stable inflation — a positive for economic growth and company earnings in the long run.
Fed wants ‘greater evidence’ that its raised interest rates enough to cool inflation
In a pointed admission, Fed Chair Jerome Powell said discussions at the Fed’s latest rate-setting meeting lead him to believe that it’s unlikely the Fed will cut interest rates at its next meeting in March — though whether that proves reality “remains to be seen,” he said.
Officials aren’t so worried about inflation accelerating, though they’d be prepared to raise borrowing costs again if it did, Powell said. Rather, the greater risk is that inflation stays stuck in a holding pattern above 2 percent.
Between now and the March meeting, the Fed will have two more inflation and jobs reports from the Bureau of Labor Statistics, as well as another look at its preferred gauge from the Commerce Department.
“It’s not that we’re looking for better data, but a continuation of the good data we’ve been seeing,” Powell said at the post-meeting press conference, referring to what the Fed would need to see to feel confident enough about cutting rates. You’ve had six good months, very good months, but what’s really going to shake out here when we look back?”
Will the Fed still cut rates in 2024?
Rate cuts, however, haven’t been taken off the table. Powell said that “almost” all officials think slowing inflation will clear the path for them to cut borrowing costs sometime this year.
Investors are now starting to turn to the May or June meetings as the timing for the Fed’s first rate cut, CME Group’s data shows. A month ago, investors said the odds of rate cuts beginning in March were nearly 73 percent.
One takeaway that investors appreciated: Powell said the Fed doesn’t view a resilient economy as a problem, so long as inflation continues simultaneously cooling. Powell has previously indicated that officials believe they need to see “below-trend growth” to bring inflation down. His new comments suggest the Fed would still be willing to cut rates in a strong economy — different from previous cycles, when the Fed has aggressively slashed borrowing costs to save the economy from a recession.
Stocks soared to their highest of the trading day on the statement, though they quickly erased those gains once Powell took a March cut off the table.
“We want to see strong growth; we want to see a strong labor market,” Powell said. “We’re not looking for a weaker labor market. We’re looking for inflation to continue coming down, as it has been over the past six months.”
But the job isn’t over. Healing supply chains aren’t fueling disinflation as much as they once were — and the next mile of bringing inflation back down might rest within the labor market. A fresh look at companies’ compensation costs showed that wages rose 4.3 percent from a year ago in the fourth quarter of 2023, a major slowdown from the 5.7 percent rate in the second quarter of 2022 but more robust than at any point before the pandemic. The data signals that employers’ demands for workers are still outstripping supply, and elevated wage gains could put more pressure on the stickier side of inflation: services.
Helping to prevent the booming job market from contributing to more inflation last year, 2.8 million workers entered the labor force in 2023, Labor Department data shows. An aging population calls into question just how much longer those gains can last. A separate report from the Congressional Budget Office released on Jan. 18 showed that forecasters in Washington project the population will grow just 0.6 percent a year on average between 2024 and 2034.
The Fed has risks on both sides. Just as cutting rates too soon could spur more inflation, the Fed could also put its soft landing in jeopardy if it ends up leaving borrowing costs too high for too long.
“This is transitory disinflation,” says Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, harkening back to the phrase that Fed officials initially used to describe the post-pandemic price burst. “How do you land an economy that is as big as ours, at exactly the point where supply and demand meet? They always desire a soft landing. It’s just hard to achieve one.”
Both 15-year fixed and 30-year fixed refinances saw their mean rates rise this week. The average rate on 10-year fixed refinance also made gains.
30-year fixed refinance: 6.96%
15-year fixed refinance: 6.45%
10-year fixed refinance: 6.24%
Refinance rates remain relatively high, and millions of homeowners are keeping their original mortgages until rates ease more. Though home loan rates have been dipping since November, current rates are still well above the 3.5% average on existing mortgages, according to Mark Zandi, chief economist at Moody’s Analytics. And, although refinancing activity has picked up recently, the overall level of refinance applications is still very low compared to early 2021. “Rates will need to fall substantially more for refi activity to meaningfully increase,” said Zandi.
With the Federal Reserve taking its third consecutive pause from its aggressive rate-hike policy and promising interest rate cuts throughout this year, the opportunity to refinance might come sooner rather than later.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Current mortgage refinance rates
In today’s high-rate environment, refinancing is less attractive. Rates are currently between 6% and 7%, but your personal interest rate will depend on your credit history, financial profile and application.
Here are the average refinance rates provided by lenders across the US. We track refinance rate trends using information collected by Bankrate:
Today’s refinance rates
Product
Rate
A week ago
Change
30-year fixed refi
7.15%
7.14%
+0.01
15-year fixed refi
6.45%
6.38%
+0.07
10-year fixed refi
6.24%
6.20%
+0.04
Rates as of Jan. 30, 2024
How to choose a refinance
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly. But today’s mortgage market conditions aren’t ideal. If you decide to refinance, compare rates, fees and the annual percentage rate — which reflects the total cost of borrowing — from different lenders to find the best deal.
30-year fixed-rate refinance
The average rate for a 30-year fixed refinance loan is currently 7.15%, an increase of 1 basis point over this time last week. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The current average interest rate for 15-year refinances is 6.45%, an increase of 7 basis points over last week. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The current average interest rate for a 10-year refinance is 6.24%, an increase of 4 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
What is influencing the direction of refinance rates?
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners nabbed lower interest rates on their home loans. But refinancing might not actually save you money right now. “Refinancing for some people will make sense if they have rates above 8%,” said Logan Mohtashami, lead analyst at HousingWire. “However, with all refinancing options, it’s a personal financial choice because of the cost that goes with the loan process,” Mohtashami said.
If economic data goes in the right direction, 2024 should lead to lower rates. “The best bet there is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough drop,” said Matt Graham of Mortgage News Daily.
When to consider a mortgage refinance
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
How to find the best refinance rate
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner, but consider whether it’s the right choice for you at the moment.
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Taking out a mortgage comes with many costs — some upfront and some paid over long lengths of time. On a $300,000 mortgage, those costs might surprise you.
In fact, on a traditional 15- or 30-year loan of this size you might pay anywhere from $72,000 to $155,000 just in interest.
Learn more about how much a $300,000 mortgage will cost you in the long run:
Monthly payments for a $300,000 mortgage
Monthly mortgage payments always contain two things: principal and interest. In some cases, they might include other costs as well.
Here’s what typically makes up a mortgage payment:
Principal: This money is applied straight to your loan balance.
Interest: The cost of borrowing the money. How much you’ll pay is indicated by your interest rate.
Escrow costs: If you opt to use an escrow account (or your lender requires it), you’ll also have your property taxes, mortgage insurance, and homeowners insurance rolled into your monthly mortgage payment, too.
On a $300,000 mortgage with a 6% APR, you’d pay $2,531.57 per month on a 15-year loan and $1,798.65 on a 30-year loan, not including escrow. Escrow costs vary depending on your home’s location, insurer, and other details.
Here’s a quick look at what the monthly payment (principal and interest) would be for a $300,000 mortgage with varying interest rates:
Annual Percentage Rate (APR)
Monthly payment (15 year)
Monthly payment (30 year)
$2,531.57
$1,798.65
$2,572.27
$1,896.20
$2,613.32
$1,896.20
$2,654.73
$1,945.79
$2,696.48
$1,995.91
$2,738.59
$2,046.53
$2,781.04
$2,097.64
$2,823.83
$2,149.24
$2,866.96
$2,201.29
Get a prequalified mortgage quote
One form. 3 minutes. No spam calls.
Find My Rate
Check out: 20- vs 30-Year Mortgage: Is an Unusual Option Right for You?
Where to get a $300,000 mortgage
To get a $300,000 home loan, you’ll want to get quotes from at least a few different lenders. Though this can be done by reaching out to each mortgage company directly, you can also compare lender options with an online marketplace like Credible.
Once you receive your quotes, you’ll want to compare them line by line. You should look at the interest rate, total costs on closing day, any origination fees, mortgage points you’re being charged, and more.
After you determine the best offer, you can move forward with that lender’s application and submit any required documentation.
Credible makes the process of comparing lender options easier — and it only takes a few minutes.
Credible makes finding a mortgage easy
Compare prequalified mortgage rates from top lenders in just 3 minutes.
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Checking rates is free, with no commitment
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Learn More: How to Know If You Should Buy a House
What to consider before applying for a $300,000 mortgage
Before taking out a mortgage of this size (or any home loan for that matter), you’ll want to have a good handle on the total costs of the loan. That includes your closing costs, the down payment, the total interest you’ll pay, and the monthly payment the loan comes with.
Total interest paid on a $300,000 mortgage
You’ll always pay more interest on longer-term loans. So, for example, a 30-year loan would cost more in the long haul than a 15-year one would (though the 30-year loan would have a smaller monthly payment).
With a 30-year, $300,000 loan at a 6% interest rate, you’d pay $347,514.57 in total interest, and on a 15-year loan with the same rate, it’d be $155,682.69 — a whopping $191,831.88 less.
Use the below calculator to see how much interest you’ll pay, as well as what your home will cost you every month.
Enter your loan information to calculate how much you could pay
Total Payment
$
Total Interest
$
Monthly Payment
$
With a $
home loan, you will pay $
monthly and a total of $
in interest over the life of your loan. You will pay a total of $
over the life of the
mortgage.
Amortization schedule on a $300,000 mortgage
An amortization schedule breaks down how much you’ll pay in interest and principal for every year of your loan’s term.
At the start of your loan, the bulk of your monthly payments will go toward interest, but as you get further into the loan term, more will be applied to the principal balance.
Here’s what an amortization schedule looks like for a 30-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$1,798.65
$17,899.78
$3,684.04
$296,315.96
2
$296,315.96
$1,798.65
$17,672.56
$3,911.26
$292,404.71
3
$292,404.71
$1,798.65
$17,431.32
$4,152.50
$288,252.21
4
$288,252.21
$1,798.65
$17,175.21
$4,408.61
$283,843.60
5
$283,843.60
$1,798.65
$16,903.29
$4,680.53
$279,163.07
6
$279,163.07
$1,798.65
$16,614.61
$4,969.21
$274,193.86
7
$274,193.86
$1,798.65
$16,308.12
$5,275.70
$268,918.16
8
$268,918.16
$1,798.65
$15,982.72
$5,601.10
$263,317.06
9
$263,317.06
$1,798.65
$15,637.26
$5,946.56
$257,370.50
10
$257,370.50
$1,798.65
$15,270.49
$6,313.33
$251,057.17
11
$251,057.17
$1,798.65
$14,881.10
$6,702.72
$244,354.45
12
$244,354.45
$1,798.65
$14,467.69
$7,116.13
$237,238.32
13
$237,238.32
$1,798.65
$14,028.78
$7,555.04
$229,683.28
14
$229,683.28
$1,798.65
$13,562.80
$8,021.02
$221,662.27
15
$221,662.27
$1,798.65
$13,068.08
$8,515.74
$213,146.53
16
$213,146.53
$1,798.65
$12,542.85
$9,040.97
$204,105.57
17
$204,105.57
$1,798.65
$11,985.22
$9,598.59
$194,506.97
18
$194,506.97
$1,798.65
$11,393.20
$10,190.61
$184,316.36
19
$184,316.36
$1,798.65
$10,764.67
$10,819.15
$173,497.21
20
$173,497.21
$1,798.65
$10,097.37
$11,486.45
$162,010.76
21
$162,010.76
$1,798.65
$9,388.91
$12,194.91
$149,815.85
22
$149,815.85
$1,798.65
$8,636.75
$12,947.06
$136,868.78
23
$136,868.78
$1,798.65
$7,838.21
$13,745.61
$123,123.17
24
$123,123.17
$1,798.65
$6,990.41
$14,593.41
$108,529.76
25
$108,529.76
$1,798.65
$6,090.32
$15,493.50
$93,036.26
26
$93,036.26
$1,798.65
$5,134.71
$16,449.11
$76,587.16
27
$76,587.16
$1,798.65
$4,120.17
$17,463.65
$59,123.51
28
$59,123.51
$1,798.65
$3,043.05
$18,540.77
$40,582.73
29
$40,582.73
$1,798.65
$1,899.49
$19,684.32
$20,898.41
30
$20,898.41
$1,798.65
$685.41
$20,898.41
$0.00
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Here’s what an amortization schedule looks like for a 15-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$2,531.57
$17,653.84
$12,725.00
$287,275.00
2
$287,275.00
$2,531.57
$16,868.99
$13,509.85
$273,765.15
3
$273,765.15
$2,531.57
$16,035.74
$14,343.11
$259,422.04
4
$259,422.04
$2,531.57
$15,151.08
$15,227.76
$244,194.27
5
$244,194.27
$2,531.57
$14,211.87
$16,166.98
$228,027.30
6
$228,027.30
$2,531.57
$13,214.72
$17,164.12
$210,863.17
7
$210,863.17
$2,531.57
$12,156.08
$18,222.77
$192,640.41
8
$192,640.41
$2,531.57
$11,032.14
$19,346.71
$173,293.70
9
$173,293.70
$2,531.57
$9,838.88
$20,539.97
$152,753.73
10
$152,753.73
$2,531.57
$8,572.02
$21,806.83
$130,946.90
11
$130,946.90
$2,531.57
$7,227.02
$23,151.83
$107,795.08
12
$107,795.08
$2,531.57
$5,799.06
$24,579.78
$83,215.29
13
$83,215.29
$2,531.57
$4,283.04
$26,095.81
$57,119.49
14
$57,119.49
$2,531.57
$2,673.51
$27,705.34
$29,414.15
15
$29,414.15
$2,531.57
$964.70
$29,414.15
$0.00
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How to get a $300,000 mortgage
Finding a mortgage can be quite simple — especially when using a tool like Credible.
When filling your mortgage application out, you’ll want to have some financial details on hand, including your income, estimated credit score, homebuying budget, and info regarding your assets and savings.
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Here’s a step-by-step guide on how the mortgage process usually goes:
Estimate your homebuying budget. Take a look at your finances, including your earnings, debts, and monthly expenses, and determine what you can afford in terms of home price, down payment, and monthly payments. A good mortgage calculator can help you here.
Do a credit check. Both your credit history and your credit score will play a major part in your loan application, so pull your credit report and evaluate your standing. If you have late payments, collections efforts, or other negative events on your report, you may want to work on addressing those before applying, as they could hurt your chances.
Get pre-approved. Always get pre-approved for a mortgage before searching for a home. A pre-approval letter can give you a good price range to shop in, as well as give sellers more confidence in your offers.
Compare rates and mortgage offers. Next, you’ll want to compare options. Pay close attention to the interest rate and APR you’re being offered, the closing costs, and any fees the lender is charging.
Find and make an offer on a home. When you find that dream home, be sure to include your pre-approval letter in your offer, and work with an experienced real estate agent to get the best deal.
Complete the full mortgage application. After your offer has been accepted, fill out your lender’s full mortgage application and submit the documentation they require. This usually includes things like tax returns, bank statements, pay stubs, and more. You will also need to submit to a credit check.
Await approval. Your loan will then go into underwriting, which is when your lender verifies your income, savings, and other assets and makes sure you can repay the loan. The lender will also order an appraisal to gauge your home’s value (and make sure it’s worth the money you’re requesting to borrow for it).
Get ready for closing. Once your loan is nearing full approval, you’ll get a closing date, which is when you’ll sign the final paperwork and receive your keys. You’ll typically need proof of homeowners insurance by this day, so be sure to shop around for your policy early.
Close on your loan. When closing day rolls around, you’ll attend your appointment, sign the required paperwork, and pay for your down payment and closing costs (usually via cashier’s check or wire transfer).
Keep Reading: How Long It Takes to Buy a House
About the author
Aly J. Yale
Aly J. Yale is a mortgage and real estate authority. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
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Home » All » Mortgages » How Much a $300,000 Mortgage Will Cost You
Debt consolidation loans work by giving you access to a lump sum of money you use to pay off your unsecured debts, like credit cards, in one fell swoop. You’re then left with only one payment on your new debt consolidation loan.
Debt consolidation loans are a smart way to pay off debt if you can qualify for a lower annual percentage rate compared to the average rate across your existing debts. This lower rate means you’ll save money on interest, and you’ll likely get out of debt faster.
Debt consolidation loans also have fixed rates and terms, so you’ll pay the same amount every month, which makes the payment easier to budget for than revolving debts like credit cards. Plus, you’ll know exactly what day you’ll be debt-free, which can be especially motivating.
Where can I find debt consolidation loans?
You can find debt consolidation loans at banks, credit unions and online lenders.
Banks typically offer the lowest interest rates on debt consolidation loans, but you may need good or excellent credit (a score of 690 or higher) to qualify. If you already have a relationship with a bank, it’s worth asking what their loan options and qualification criteria are before considering other lenders.
Credit unions also offer lower-rate loans and may be more lenient to borrowers with fair or bad credit (a score of 689 or lower). You’ll need to join the credit union before applying for a loan, but the membership process is typically quick and affordable. You can usually fill out the application online, and you may need to make an initial deposit of $5 to $25.
Online loans are available to borrowers across the credit spectrum, and they’re often the most convenient option. Some online lenders can make immediate approval decisions and fund loans the same or next day. Many also let you pre-qualify, which means you can check your potential loan terms without hurting your credit score. Since online loans can have a higher cost of borrowing, it’s best to pre-qualify with multiple lenders to compare rates.
How do I qualify for a debt consolidation loan?
You qualify for a debt consolidation loan based on the information in your application. Lenders typically look at three core factors: credit score, credit history and debt-to-income ratio.
Some lenders may publish minimum credit score or minimum credit history requirements to apply. Most like to see a good credit score and two to three years of credit history that shows responsible repayment behavior.
You’ll also need to list your income. This gives lenders an idea of your debt-to-income ratio, which divides your total monthly debt payments by your gross monthly income, and helps lenders assess your ability to repay a debt consolidation loan.
How does a debt consolidation loan affect my credit score?
A debt consolidation loan should help build your credit score, as long as you use the loan to successfully pay off your debts and you pay back the new loan on time.
You’ll also undergo a hard credit check when you apply, which knocks a few points off your score, but this is temporary. Any missed payments on the loan can hurt your score.
Steps to getting a debt consolidation loan
1. Add up your debts
The first step to getting a debt consolidation loan is knowing how much debt you have. Make a list of unsecured debts you’d like to consolidate, since this is the loan amount you’ll need to apply for.
You can also calculate the average annual percentage rate across your current debts using a debt consolidation calculator. You’ll want to get a debt consolidation loan with a lower rate in order to save money on interest and pay off the debt faster.
2. Pre-qualify if you can
Not all lenders offer pre-qualification, so take advantage of those that do. This typically involves filling out a short application with basic personal information, including your Social Security number. The lender will run a soft credit check, which won’t hurt your credit score, and then display potential loan offers.
If your lender doesn’t offer pre-qualification, it doesn’t hurt to call and see what information they can tell you over the phone about applicant requirements, including minimum credit score.
3. Apply for the loan
Once you’ve pre-qualified or decided on a lender, it’s time to fill out your loan application.
A loan application asks for personal information — think name, birthdate, address and contact details — as well as information about the loan you want, including loan purpose, desired loan amount and repayment term. You may need to show proof of identity, address, employment and income. Once you submit your application, you’ll undergo a hard credit check.
Most applications are available online, but a smaller bank or credit union may ask you to visit a branch.
You can typically expect to hear back from the lender within a few days.
4. Get funded and pay off your debts
Once approved, funding time is typically within a week, though some lenders may offer same- or next-day funding. Lenders can deposit the loan funds in your bank account, but some may offer to send the money directly to your creditors on your behalf, saving you that step.
This is a convenient way to pay off your debts, but make sure to check your accounts to confirm your balances are $0. If the lender doesn’t offer direct payment, use the loan funds to pay off your debts yourself.
5. Pay back your new loan
Once your debts are paid off, you’re left with only your new loan payment. Your first payment is typically due one month after funding and will be due every month until the loan is paid off. Make sure you add this payment to your budget. Missing a loan payment can result in costly late fees and hurt your credit score.
When to avoid debt consolidation loans
Debt consolidation loans aren’t the right choice for everyone, and they can be risky, particularly if you’re someone who struggles to stay out of debt. For example, if you use a debt consolidation loan to pay off your credit cards, but then start using your credit cards again, you’ll have even more debt than you started with. This can hurt your credit score and leave you struggling to repay your loan.
Terms on debt consolidation loans can also be long — sometimes up to seven years, depending on the lender. If you have good or excellent credit, you may want to consider other types of consolidation, like balance transfer cards, which come with 0% promotional periods. This can help you pay off debt faster, since there’s no interest.
If you can’t qualify for a balance transfer card or for a low enough rate on a debt consolidation loan, it may be best to choose a different debt payoff method.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
A personal loan enables you to borrow a lump sum of money and repay it in fixed installments. While personal loans can be a useful tool, there are important factors to consider before taking one out.
According to recent statistics, millions of Americans have personal loan debt, with the average loan amount being $16,931. Personal loans can be used for various reasons, whether for debt consolidation, medical expenses, or home improvements. But how do you know if a personal loan is right for you?
Everyone’s financial situation is unique, so be sure to understand what to know about personal loans before you determine if it’s the best way to go. Here are seven things you should know before taking out a personal loan.
1. How Personal Loans Work
A personal loan allows you to borrow money and repay it in fixed installments. You can get a personal loan from banks, credit unions, or online lenders. Once you choose a lender, you’ll need to submit a formal application. When filling out the application, you’ll likely need to include identification such as your Social Security card, your address, and proof of income.
If your application is approved by the lender, you will receive a lump sum of money that you will repay in monthly payments plus interest.
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2. Debt Consolidation Isn’t for Everyone
With increasing amounts of credit card debt, personal loans are becoming increasingly popular. Although personal loans are a common solution for debt consolidation, that doesn’t mean it’s right for you. Here are a few indicators that debt consolidation through a personal loan is not the best solution, and you’d be better off seeking debt counseling or another financial avenue:
With your current financial pace, you’ll pay off your debt in less than a year. If this is the case, debt consolidation likely will not be worth it.
You can’t afford the monthly payment. You don’t want to be stuck with an additional payment you can’t afford. This could lead to late payments or, worse, loan default.
You will pay more interest and fees with a personal loan compared to your existing debt. You don’t want to take out a personal loan if it will cost you more money in the long run.
Your spending isn’t under control, and you might rack up more debt after you pay off your existing debt. There’s no point in taking out a personal loan to consolidate your debt if it will just tempt you to accumulate more debt on paid-off credit cards.
Your credit score isn’t good enough for an acceptable interest rate. You might want to take the time to improve your credit before applying for a personal loan.
Consider these statements and compare current debt costs to the costs of a personal loan to determine if debt consolidation is the best option. Also, note that not all personal loan providers are the best for debt consolidation. Some lenders specialize in debt consolidation, whereas others don’t have good enough offerings to make debt consolidation with their loans worth it.
3. The Difference Between Secured and Unsecured Loans
Most personal loans are unsecured loans. This means you do not have to offer any collateral to receive the loan. Types of collateral include owned property, a house, or a car—anything the lender can use to pay back the money owed if you default on the loan.
However, not all personal loans are unsecured, and some lenders offer secured loans that require collateral. For example, if you have little to no credit or a poor credit score, lenders may only offer you a secured loan because your credit report isn’t a good enough indicator that you will repay the loan. If you don’t mind putting up collateral and intend to pay back the loan in full, secured loans don’t have to be bad.
4. Compare APRs Before Selecting a Lender
The annual percentage rate (APR) combines the personal loan interest rate and any additional loan fees, and it fluctuates based on the personal loan provider. APRs typically range between around 5% and 36%, and this is partly determined by your credit history.
Popular personal loan providers, such as Best Egg and Achieve, are known for low APRs, especially if you have above-average credit. However, if you have a good credit score and a loan provider is still requiring a high APR, you might want to consider looking into other options for a better APR. A bad APR could cost you hundreds of unnecessary dollars over the course of the loan.
5. The Impact of a Hard Inquiry on Your Credit Score
A hard inquiry is when a lender or creditor pulls your credit for the purpose of offering you a loan. This will ding your credit a minimal amount. The hard inquiry will remain on your credit report for up to two years, but it will likely stop affecting your score after one year. Plus, if you repay your loan on time and take care of your credit in the meantime, your credit will bounce back.
It’s also important to note that you should keep your loan shopping within a specific time frame. In other words, only apply for personal loans for two weeks to 45 days at the most. If it takes any longer, you might receive multiple dings on your credit report rather than just one.
6. The Max Loan Offer May Not Be the Best Option
Personal loans can range between $2,000 to $50,000, and some lenders, such as SoFi, offer as much as $100,000 loans. With that in mind, you may qualify for a large amount, but that doesn’t necessarily mean you should take the highest offer. Consult your finances and budget before deciding what personal loan amount to accept, because if you accept one for more money than you can afford, you will likely regret this.
Check Your Credit Score Before Applying
Most personal loan providers require at least a 640 credit score. However, some companies, such as Achieve and Upstart, offer loans to 620 credit scores and up. If you make your personal loan payments on time and responsibly handle your other credit responsibilities, a personal loan can improve your credit in the long run and immensely help your credit card utilization rate if you choose to use it for debt consolidation.
Before you determine if a personal loan is right for you, pull your credit first. With Credit.com, you can check your credit score for free.
If you’re like many Americans, you may carry thousands of dollars of credit card debt. One recent analysis found that the average citizen has $7,951 in debt. While getting out from under debt may seem daunting, there are ways to make it manageable.
Here’s a look at different strategies for paying off a large chunk of debt; specifically, $10,000. In addition to tactics for eliminating debt, you’ll learn why doing so is important, which can help boost your motivation.
Why Paying off Credit Card Debt is Important
In an ideal world, you would pay off your credit card every month in full. If you’re able to do that, using a credit card (responsibly) can be a good thing. It’s actually a pretty useful way to build credit and gain credit card rewards.
However, when you start to carry monthly credit card debt, things can get a bit dicey, because you’ll start to pay interest.
When you signed up for your credit card, you probably noticed that it came with an annual percentage rate (APR). The APR includes not only the approximate percentage of interest that you’ll likely pay on your credit card balance, but also fees associated with your credit card, such as origination fees or balance transfer fees.
Even if you make minimum payments, interest will still accrue on the balance you owe. The more money you owe, the quicker your interest payments can add up and the harder your debt can be to pay off. The fact that credit cards typically charge high interest rates (the current average interest rate is almost 25% at the end of 2023) is part of what you’re grappling with.
So strategies that help you pay down debt as fast as you can also might help you control your interest rates. That, in turn, can help keep your debt from getting ahead of you.
To illustrate some of the debt-demolishing tips in this article, the nice round number of $10,000 is being used. But everyone’s debt totals will be different, and the right ways to pay down debt will be different for everyone as well. It’s up to you to find the path that’s best for your needs. 💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.
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Avoiding Adding to Your Debt
If tackling $10,000 in credit card debt, or really any amount of credit card debt, the very first step might be to stop using credit cards altogether. This can be tough, especially if you’re used to using them all the time. But if you keep spending on your card, you’ll be adding to your debt. While you get your debt under control, you could consider switching over to only using cash or your debit card.
Building a Budget
Making a budget may help you find extra cash to help you pay down your credit cards. You can start by making a list of all your necessary expenses, including housing, utilities, transportation, insurance, and groceries.
It’s usually a good idea to include minimum credit card payments in this category as well, since making minimum payments can at least keep you from having to pay additional penalties and fees on top of your credit card balance and interest payments.
You can tally up the cost of your necessary expenses and subtract the total from your income. What’s left is the money available for discretionary spending, or in other words, the money you’d use for savings, eating out, entertainment, etc. Look for discretionary expenses you can cut — you might forgo a vacation or start cooking more — so you can direct extra money to paying down your credit card.
Consider using any extra windfalls — such as a bonus at work, a tax refund, or a cash birthday gift — to help you pay down your debt as well.
Though it may seem frustrating to cut out activities you enjoy doing, it can be helpful to remember that these cuts are likely temporary. As soon as you pay off your cards, you can add reasonable discretionary expenditures back into your budget.
The Debt Avalanche Method
Once you’ve identified the money you’ll use to pay off your cards, there are a couple of strategies that may be worth considering to help organize your payments. If you have multiple credit cards that each carry a balance, you could consider the debt avalanche method. The first step when using this strategy is to order your credit card debts from the highest interest rate to the lowest.
From there, you’d make minimum payments on all of your cards to avoid additional penalties and fees. Then, you could direct extra payments to the card with the highest interest rates first. When that card is paid off, you’d focus on the next highest card and so on until you’d paid off all of your debt.
The idea here is that higher interest rates end up costing you more money over the long run, so clearing the highest rates saves you cash and accelerates your ability to pay off your other debts.
The Debt Snowball Method
Another strategy potentially worth considering if you have multiple credit cards is the snowball method. With this method, you’d order your debts from smallest to largest balance. You would then make minimum payments on all of your cards here as well, but direct any extra payments to paying off the smallest balance first.
Once that’s done, you’d move on to the card with the next lowest balance, continuing this process until you have all of your cards paid off. By paying off your smallest debt you get an immediate win. Ideally, this small win would help you build momentum and stay motivated to keep going.
The drawback of this method is you continue making interest payments on your highest rate loans. So you may actually end up spending more money on interest using this method than you would using the avalanche method.
Only you know what type of motivation works best for you. If the sense of accomplishment you feel from paying off your small balances will help inspire you to actually pay your debt off, then this method may be the right choice for you.
Consolidate Your Debt
Interest rates on credit cards can be hefty to say the least. Personal loans can help you rein in your credit card debt by consolidating it with a potentially lower interest rate. With a personal loan, you can consolidate all of your credit cards into one loan, instead of managing multiple credit card payments.
Once you’ve used your personal loan to consolidate your credit card debt, you’ll still be responsible for paying off the loan. However, you’ll no longer have to juggle multiple debts. And hopefully, with a lower interest rate and shorter term, you’ll actually be able to pay your debt off faster.
Paying Off Credit Card Debt With a Personal Loan
If you think a personal loan could be a good way for you to pay off $10,000 of credit card debt, see what SoFi offers.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
There are many steps in the homebuying process, not least of which is deciding what type of mortgage to use. Comparing two common mortgage categories — a loan backed by the Federal Housing Administration (FHA) vs a conventional loan — is a smart place to start. This may be especially true for first-time homebuyers, who often find it challenging to save a substantial amount of money for a down payment.
Understanding FHA Loans and Conventional Mortgages
Buying a home is often the largest investment of a lifetime. It’s important for borrowers to understand how the FHA loan vs conventional loan decision could impact their interest rate, loan terms, and minimum down payment. Eligibility requirements also vary between different types of home mortgages. Let’s examine how each loan type works, plus the factors to consider when deciding between an FHA vs a conventional loan.
💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.
What Is an FHA Loan?
An FHA loan is a government-backed loan that’s issued by a lender, such as a bank or credit union, but insured by the Federal Housing Authority (FHA). FHA loans offer low down payment options, as well as flexible income and credit guidelines. For a first-time homebuyer, it may be easier to secure an FHA loan than a conventional mortgage, although it’s always worth exploring both options.
What Is a Conventional Mortgage?
Conventional loans are not insured by the government. They typically have stricter borrower requirements than FHA loans but can cost less over the life of the loan.
Basic Eligibility and Application Process for Each
There are some key differences in eligibility requirements between these two popular mortgage types. Eligibility for FHA and conventional loans is based in part on financial factors like credit score and debt-to-income ratio (DTI). Additionally, FHA loans can only be used for a primary residence and require borrowers to occupy the property within 60 days. Buyers can typically have only one FHA loan at a time, unless they meet specific exceptions.
Applying for either type of home loan involves many of the same steps of the mortgage preapproval process. With either mortgage type, lenders may ask borrowers to submit information on the property they’re purchasing and documentation of income, assets, debts, and employment.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Recommended: The Mortgage Loan Process Explained in 9 Steps
FHA vs. Conventional Loans: Key Distinctions
In a head-to-head FHA vs conventional loan comparison, it’s worth noting some key distinctions. The minimum down payment, credit requirements, insurance, loan limit, and property eligibility varies between each loan type. Here’s how it looks:
Down Payment Requirements and Differences
Pitting an conventional loan vs. an FHA loan will show you how much money you need to put down on a house. (To get a good sense of how much home you are prepared to buy, use a home affordability calculator.) The minimum down payment for FHA loans is 3.5% for borrowers with at least a 580 credit score and 10% for borrowers with credit scores between 500-579. Meanwhile, conventional loans can offer down payments as low as 3% for a fixed-rate loan, or 5% for an adjustable-rate mortgage.
Credit Score Requirements and Impact on Approval
Lenders will look at your credit score with either loan type. Borrowers can secure an FHA loan with a credit score of 500, though as noted above, this requires a down payment of 10% versus just 3.5% with a credit score of 580 or higher. Conventional loans have stricter credit requirements — borrowers will typically need a credit score of at least 620 to qualify.
Mortgage Insurance: PMI vs. MIP
Mortgage insurance premiums (MIPs) are required with an FHA loan. This includes an upfront payment equivalent to 1.75% of the loan and an annual premium that’s spread across monthly mortgage payments. MIP runs for the full loan term or for 11 years if a borrower puts 10% or more down. With a conventional loan, buyers who put less than 20% down will need private mortgage insurance (PMI), which is paid monthly with the mortgage payment.
Loan Limits and Property Eligibility
The amount you can borrow and the condition and intended use of the property are key factors when deciding between an FHA vs. conventional loan. FHA loan limits are set annually by the U.S. Department of Housing and Urban Development (HUD). For 2024, the limit for single-family residences is $498,257 for low-cost areas and $1,149,825 for high-cost areas. The limits increase for two-, three-, and four-unit properties. In 2024, the conventional loan limit for single-family properties is $766,550 in low-cost areas and $1,149,825 in high-cost areas.
Property eligibility also differs by loan type. FHA loans involve stricter appraisals that consider safety and building codes, not just the home’s value. Additionally, conventional loans can be used for a second home while FHA loans are limited to primary residences.
Interest Rate Variations
Interest rates are influenced by several factors, including a borrower’s income, credit score, down payment amount, and the overall state of the economy. Because FHA loans are backed by the government, they generally have more competitive interest rates compared to conventional mortgages.
Benefits and Drawbacks of FHA Loans
Lower Down Payment but with Mortgage Insurance Premium
For borrowers with credit scores of 580 or higher, the ability to put as little as 3.5% down is a key reason for choosing an FHA loan. But FHA borrowers pay MIP, regardless of the down payment amount.
Recommended: Private Mortgage Insurance (PMI) versus Mortgage Insurance Premium (MIP)
Flexible Credit Requirements
In terms of credit score, FHA loans are easier to qualify for than conventional loans. FHA loans require a credit score of 580 to put 3.5% down or 500 to put 10% down.
Property Eligibility and Restrictions
FHA loans are intended for primary residences, so they can’t be used for vacation homes or investment properties. The appraisal process for FHA loans is also more strict than for conventional loans. The FHA appraisal assesses the property value and the home condition to ensure it meets minimum property standards set by HUD. These extensive standards cover design, as well as building materials such as insulation.
Interest Rate Variability
FHA loans usually have lower interest rates since lenders incur less risk with government-backed loans. Interest rates vary by lender, so it’s worth shopping around to compare options, whether you are considering an FHA or a conventional mortgage.
Advantages and Disadvantages of Conventional Mortgages
Opting for a conventional loan vs FHA loan comes with a mix of potential benefits and drawbacks.
Higher Down Payment but No Upfront Mortgage Insurance
Though borrowers could qualify for a conventional loan with a 3% down payment, a higher down payment is more common. The average down payment on a house is 13%, although younger borrowers and first-time buyers often put down less than this. Borrowers can choose to put 20% down on a conventional loan to avoid the cost of private mortgage insurance.
Stricter Credit Score Requirements
The minimum credit score to qualify for a conventional loan is 620, though this can vary by lender.
Property Eligibility and Restrictions
Conventional loans don’t have the same occupancy requirements as FHA Loans. This allows borrowers to purchase a variety of property types, including primary residences, vacation homes, and investment properties.
Interest Rate Stability and Flexibility
There are two types of conventional loans: fixed-rate and adjustable-rate. The former has the same interest rate for the loan term, offering predictability and stability. Adjustable-rate mortgages, on the other hand, tend to have a lower introductory rate for several years before the rate fluctuates based on market conditions. This can provide upfront savings at the onset of the mortgage.
FHA Loan vs. Conventional: Costs Comparison
When comparing FHA loans vs conventional loans, it’s worth considering the monthly payment and overall cost over the life of the loan with each option. For home buyers with a good credit score, a conventional loan may be more attractive. That’s because conventional loan costs are more dependent on your credit score and down payment amount than FHA loan costs. And as a result, your monthly payments and PMI are lower when your credit score is higher. This is a key difference from how FHA loans work.
Upfront and Monthly Costs for Mortgage Insurance
FHA loans require paying MIP for 11 years or the life of the loan depending on the down payment amount. MIP also involves an upfront cost that’s equal to 1.75% of the loan amount. The ongoing cost of MIP is between 0.45% and 1.05% annually, divided across monthly payments.
With a conventional loan, borrowers pay PMI, which typically ranges from 0.5% to 2% of the total loan amount annually. The cost of PMI depends on the borrower’s credit score, loan-to-value (LTV) ratio, and other factors. Borrowers can stop paying PMI once the mortgage balance is at 78% of the home’s original value or current value following an appraisal. For borrowers with stronger credit, PMI with a conventional loan can cost less than MIP with an FHA loan
Interest Rates and Overall Loan Costs
Though FHA loans can offer more competitive rates and be less expensive in the short-term, borrowers with strong credit could save in the long-term with a conventional loan. Once borrowers get out of PMI on a conventional loan, the annual percentage rate (APR) — the annual cost of the loan — may be lower than an FHA loan.
Down Payment Impact on Immediate and Long-Term Finances
If you can afford to put 20% down on a conventional loan, you’ll avoid the upfront and ongoing cost of PMI. Putting more money down could translate to a lower interest rate, providing further savings on monthly payments and long-term finances.
Increasing your down payment on an FHA loan to 10% can reduce the duration of paying MIP to 11 years and potentially lower the interest rate. However, borrowers who can afford a higher down payment may save more with a conventional loan since PMI can be canceled sooner.
FHA vs. Conventional Loans: Eligibility and Qualification Criteria
Borrowers have to meet certain eligibility requirements to qualify for either an FHA or a conventional loan. Generally, FHA loans are easier to qualify for, but they have stricter property eligibility requirements than conventional loans.
Qualifying Credit Scores for FHA and Conventional Loans
To qualify for a conventional loan, borrowers typically need a credit score of 620 or higher. Meanwhile, borrowers could qualify for an FHA loan with a credit score of 500 if they put 10% down. Borrowers with a 580 credit score can put just 3.5% down.
Down Payment Requirements for Both Loan Types
The minimum down payment for a conventional loan is typically 3% if it’s a fixed-rate mortgage or 5% if it’s an adjustable-rate mortgage. However, the down payment requirement can vary based on a borrower’s financial situation, loan amount, and type of property. FHA loans require either a 3.5% or 10% down payment depending on a borrower’s credit score.
Property Eligibility and Loan Limits
FHA loans can only be used for primary residences, while conventional loans apply to a primary residence, vacation home, or investment property. For 2024, FHA loan limits for single-family homes are $498,257 (in low-cost areas of the U.S.) and $1,149,825 (in high-cost areas). Conventional loan limits for single-family properties are $766,550 in low-cost areas and $1,149,825 in high-cost areas. Buyers who want to purchase a property that exceeds these limits will need to consider a jumbo mortgage loan.
FHA Loan vs. Conventional: Which Is Right for You?
There’s no one-size-fits all solution for buying a house. When deciding between FHA vs conventional loans, the right choice depends on your finances, your long-term financial goals, and the property type you wish to purchase.
Factors Influencing the Choice
Your credit score and ability to make a down payment are key considerations when weighing conventional loan vs FHA loan. If you have a lower credit score or a higher debt-to-income (DTI) ratio, an FHA loan could be a better bet for its flexible credit requirements and more competitive interest rate. However, borrowers with strong credit could qualify for a conventional loan with a down payment of just 3%.
Long-Term Financial Considerations
FHA loans can be more affordable upfront due to lower interest rates and down payment requirements. But borrowers will be on the hook for paying mortgage insurance for the full loan term unless they put 10% down or refinance later on.
If you’re able to qualify for a conventional loan and put 20% down on a house, not having to pay private mortgage insurance can save money in the long run. Conventional loans also offer more flexible repayment terms, whereas FHA loans are either 15- or 30-year mortgages.
Flexibility in Property Choices
FHA loans require occupancy within 60 days and the property must be the borrower’s primary residence. These loans also have strict rules for property conditions. For instance, a manufactured home built prior to 1976 is not eligible for an FHA loan. On the other hand, conventional loans can be used for second homes and a greater range of property types.
💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.
The Takeaway
Deciding between an FHA loan vs a conventional loan depends on your specific financial situation and the property type. An FHA loan could be a better option if you have a higher DTI ratio, lower credit score, or less money to put toward a down payment. Whereas a conventional loan could be a better fit if you have strong credit and can afford a larger down payment.
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
What are the main differences between FHA and conventional mortgages?
FHA loans are insured by the Federal Housing Administration, whereas the lender assumes the risk for a conventional loan. For the borrower, an FHA mortgage typically has a lower credit-score requirement. It may also allow a lower down payment than some conventional loans.
Can I qualify for both an FHA loan and a conventional mortgage simultaneously?
It is possible to qualify for both an FHA loan and a conventional mortgage simultaneously. Note that lenders will look at your finances closely to ensure you can afford both loans.
How does property type affect the choice between FHA and conventional loans?
FHA loans are restricted to primary residences, while conventional loans can be used for second homes, such as investment properties or vacation homes. FHA loans also have stricter property condition requirements compared to conventional loans.
Photo credit: iStock/FotoDuets
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SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*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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¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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Home renovations can be expensive. But the good news is that you don’t have to pay out of pocket.
Home improvement loans let you finance the cost of upgrades and repairs to your home.
Some — like the FHA 203(k) mortgage — are specialized for home renovation projects, while second mortgage options — like home equity loans and HELOCs — can provide cash for a remodel or any other purpose. Your best financing option for home improvements depends on your needs. Here’s what you should know.
Check home improvement loan options and rates. Start here
In this article (Skip to…)
What is a home improvement loan?
A home improvement loan is a financial tool that allows you to borrow money for various home projects, such as repairs, renovations, or upgrades.
Unlike a secured loan like a second mortgage, home improvement loans are often unsecured personal loans, meaning you don’t have to put up your home as collateral. You get the money in a lump sum and pay it back over a predetermined period, which can range from one to seven years.
Now, you might be wondering how this is different from a home renovation loan. While the terms are often used interchangeably, there can be subtle differences.
Home improvement loans are generally more flexible and can be used for any type of home project, from installing a new roof to landscaping. Home renovation loans, on the other hand, are often more specific and may require you to use the funds for particular types of renovations, like kitchen or bathroom remodels.
How does a home improvement loan work?
So, you’ve decided to spruce up your home, and you’re considering a home improvement loan. But how does it work? Once you’re approved, the lender will give you the money in a lump sum. You start repaying the loan almost immediately, usually in fixed monthly installments. The interest rate you’ll pay depends on various factors, including your credit score and the lender’s terms.
Be mindful of additional costs like origination fees, which can range from 1% to 8% of the loan amount. Unlike a credit card, where you can keep using the available credit as you pay it off, the loan amount is fixed. If you find that you need more money for your project, you’ll have to apply for another loan, which could affect your credit score.
Home improvement loan rates
Interest rates for home improvement loans can vary widely, generally ranging from 5% to 36%. Your credit score plays a significant role in determining your rate—the better your credit, the more favorable your rate. Some lenders even offer an autopay discount if you link a bank account for automatic payments.
You can also prequalify to check your likely interest rate without affecting your credit score, making it easier to plan for the loan purpose, whether it’s a new kitchen or fixing a leaky roof.
So, whether you’re dreaming of solar panels or finally fixing up your master bedroom, a home improvement loan can be a practical way to finance your projects. Just make sure to read the fine print and understand all the terms, including any potential autopay discounts and bank account requirements, before you apply.
Types of home improvement loans
1. Home equity loan
A home equity loan (HEL) is a financial instrument that lets you borrow money using the equity you’ve built up in your home as collateral. The equity is determined by subtracting your existing mortgage loan balance from your current home value. Unlike a cash-out refinance, a home equity loan “issues loan funding as a single payment upfront. It’s similar to a second mortgage,” says Bruce Ailion, Realtor and real estate attorney. “You would continue making payments on your original mortgage while repaying the home equity loan.”
Check home equity loan options and rates. Start here
This kind of loan is particularly useful for big, one-time expenditures like home remodeling. It offers a fixed interest rate, and the loan terms can range from five to 30 years. You could potentially borrow up to 100% of your home’s equity.
However, there are some cons to consider. Since you’re essentially taking on a second loan, you’ll have an additional monthly payment if you still have a balance on your original mortgage. Also, the lender will usually charge closing costs ranging from 2% to 5% of the loan balance, as well as potential origination fees. Because the loan provides a lump-sum payment, careful budgeting is necessary to ensure the funds are used effectively.
As a bonus, “a home equity loan, or HELOC, may also be tax-deductible,” says Doug Leever with Tropical Financial Credit Union, member FDIC. “Check with your CPA or tax advisor to be sure.”
2. HELOC (home equity line of credit)
A Home Equity Line of Credit (HELOC) is another option for tapping into your home’s equity without going through the process of a full refinance. Unlike a standard home equity loan that provides a lump sum upfront, a HELOC functions more like a credit card. You’re given a pre-approved limit and can borrow against that limit as you need, paying interest only on the amount you’ve actually borrowed.
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While there’s more flexibility because you don’t have to borrow the entire amount at once, be aware that by the end of the term, “the loan must be paid in full. Or the HELOC can convert to an amortizing loan,” says Ailion. “Note that the lender can be permitted to change the terms over the loan’s life. This can reduce the amount you can borrow if, for instance, your credit goes down.”
The pros of a HELOC include minimal or potentially no closing costs, and loan payments that vary according to how much you’ve borrowed. It offers a revolving balance, which means you can re-use the funds after repayment. This kind of financial instrument may be ideal for ongoing or long-term projects that don’t require a large sum upfront.
“HELOCs offer flexibility, and you only pull money out when needed, within the maximum loan amount. And the credit line is available for up to 10 years, which is your repayment period.” Leever says.
3. Cash-out refinance
A cash-out refinance is a viable option if you’re considering home improvements or other significant financial needs. When opting for a cash-out refinance, you essentially take on a new, larger mortgage than your existing one and then pocket the difference in cash.
This cash comes from your home’s value and can be used for various purposes, including home improvement projects like finishing a basement or remodeling a kitchen. However, the money can also be used for other things, like paying off high-interest debt, covering education expenses, or even buying a second home. Importantly, a cash-out refinance is most beneficial when current market rates are lower than your existing mortgage rate.
Check your eligibility for a cash-out refinance. Start here
The advantages of going for a cash-out refinance include the opportunity to reduce your mortgage rate or loan term, which could potentially result in paying off your home earlier. For instance, if you initially had a 30-year mortgage with 20 years remaining, you could refinance to a 15-year loan, effectively paying off your home five years ahead of schedule. Plus, you only have to worry about one mortgage payment.
However, there are downsides. Cash-out refinances tend to have higher closing costs that apply to the entire loan amount, not just the cash you’re taking out. The new loan will also have a larger balance than your current mortgage, and refinancing effectively restarts your loan term length.
4. FHA 203(k) rehab loan
The FHA 203(k) rehab loan is backed by the Federal Housing Administration that consolidates the cost of a home mortgage and home improvements into a single loan, which makes it particularly useful for those buying fixer-uppers.
Check your eligibility for an FHA 203(k) loan. Start here
With this program, you don’t need to apply for two different loans or pay closing costs twice; you finance both the house purchase and the necessary renovations at the same time. The loan comes with several benefits like a low down payment requirement of just 3.5% and a minimum credit score requirement of 620, making it accessible even if you don’t have perfect credit. Additionally, first-time home buyer status is not a requirement for this loan.
However, there are some limitations and downsides to be aware of. The FHA 203(k) loan is specifically designed for older homes in need of repairs, rather than new properties. The loan also includes both upfront and ongoing monthly mortgage insurance premiums. Renovation costs have to be at least $5,000, and the loan restricts the use of funds to certain approved home improvement projects.
According to Jon Meyer, a loan expert at The Mortgage Reports, “FHA 203(k) loans can be drawn out and difficult to get approved. If you go this route, it’s important to choose a lender and loan officer familiar with the 203(k) process.”
5. Unsecured personal loan
If you’re looking to finance home improvements but don’t have sufficient home equity, a personal loan could be a viable option. Unlike home equity lines of credit (HELOCs), personal loans are unsecured, meaning your home is not used as collateral. This feature often allows for a speedy approval process, sometimes getting you funds on the next business day or even the same day.
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The repayment terms for personal loans are less flexible, usually ranging between two and five years. Although you’ll most likely face closing costs, personal loans can be easier to access for those who don’t have much home equity to borrow against. They can also be a good choice for emergency repairs, such as a broken water heater or HVAC system that needs immediate replacement.
However, there are notable downsides to consider. Unsecured personal loans generally have higher interest rates compared to HELOCs and lower borrowing limits. The short repayment terms could put financial strain on your budget. Additionally, you may encounter prepayment penalties and expensive late fees. Financial expert Meyer describes personal loans as the “least advisable” option for homeowners, suggesting that they should be considered carefully and perhaps as a last resort.
6. Credit cards
Using a credit card can be the fastest and most straightforward way to finance your home improvement projects, eliminating the need for a lengthy loan application. However, you’ll need to be cautious about credit limits, especially if your renovation costs are high.
You might need a card with a higher limit or even multiple cards to cover the costs. The interest rates are generally higher compared to home improvement loans, but some cards offer an introductory 0% annual percentage rate (APR) for up to 18 months, which can be a good deal if you’re sure you can repay the balance within that time frame.
Check home improvement loan options and rates. Start here
Credit cards might make sense in emergency situations where you need immediate funding. For longer-term financing, though, they’re not recommended. If you do opt for credit card financing initially, you can still get a secured loan later on to clear the credit card debt, thus potentially saving on high-interest payments.
How do you choose the best home improvement loan for you?
The best home improvement loan will match your specific lifestyle needs and unique financial situation. So let’s narrow down your options with a few questions.
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Do you have home equity available?
If so, you can access the lowest rates by borrowing against the equity in your home with a cash-out refinance, a home equity loan, or a home equity line of credit.
Here are a few tips for choosing between a HELOC, home equity loan, or cash-out refi:
Can you get a lower interest rate? If so, a cash-out refinance could save money on your current mortgage and your home improvement loan simultaneously
Are you doing a big, single project like a home remodel? Consider a simple home equity loan to tap into your equity at a fixed rate
Do you have a series of remodeling projects coming up? When you plan to remodel your home room by room or project by project, a home equity line of credit (HELOC) is convenient and worth the higher loan rate compared to a simple home equity loan
Are you buying a fixer-upper?
If so, check out the FHA 203(k) program. This is the only loan on our list that bundles home improvement costs with your home purchase loan. Just review the guidelines with your loan officer to ensure you understand the disbursement of funds rules.
Taking out just one mortgage to cover both needs will save you money on closing costs and is ultimately a more straightforward process.
“The only time I’d recommend the FHA203(k) program is when buying a fixer-upper,” says Meyer. “But I would still advise homeowners to explore other loan options as well.”
Do you need funds immediately?
When you need an emergency home repair and don’t have time for a loan application, you may have to consider a personal loan or even a credit card.
Which is better?
Can you get a credit card with an introductory 0% APR? If your credit history is strong enough to qualify you for this type of card, you can use it to finance emergency repairs. But keep in mind that if you’re applying for a new credit card, it can take up to 10 business days to arrive in the mail. Later, before the 0% APR promotion expires, you can get a home equity loan or a personal loan to avoid paying the card’s variable-rate APR
Would you prefer an installment loan with a fixed rate? If so, apply for a personal loan, especially if you have excellent credit
Just remember that these options have significantly higher rates than secured loans. So you’ll want to reign in the amount you’re borrowing as much as possible and stay on top of your payments.
How to get a home improvement loan
Getting a home improvement loan is similar to getting a mortgage. You’ll want to compare rates and monthly payments, prepare your financial documentation, and then apply for the loan.
Check home improvement loan options and rates. Start here
1. Check your financial situation
Check your credit score and debt-to-income ratio. Lenders use your credit report to establish your creditworthiness. Generally speaking, lower rates go to those with higher credit scores. You’ll also want to understand your debt-to-income ratio (DTI). It tells lenders how much money you can comfortably borrow.
2. Compare lenders and loan types
Gather loan offers from multiple lenders and compare costs and terms with other types of financing. Look for any benefits, such as rate discounts, a lender might provide for enrolling in autopay. Also, keep an eye out for disadvantages, including minimum loan amounts or expensive late payment fees.
3. Gather your loan documents
Be prepared to verify your income and financial information with documentation. This includes pay stubs, W-2s (or 1099s if you’re self-employed), and bank statements, to name a few.
4. Complete the loan application process
Depending on the lender you choose, you may have a fully online loan application, one that is conducted via phone and email, or even one that is conducted in person at a local branch. In some cases, your mortgage application could be a mix of these options. Your lender will review your application and likely order a home appraisal, depending on the type of loan. You’ll get approved and receive funding if your finances are in good shape.
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Home improvement loan lenders
When considering a home improvement loan, it’s necessary to explore various lending options to find the one that best suits your needs. The lending landscape for home improvement is diverse, featuring traditional banks, credit unions, and online lenders. Each type of lender offers different interest rates, loan terms, and eligibility criteria.
It’s advisable to prequalify with multiple lenders to get an estimate of your loan rates, which generally doesn’t affect your credit score. This way, you can compare offers and choose the most favorable terms for your renovation project.
Among the popular choices in the market, Sofi and LightStream stand out for their competitive rates, easy online application, and customer-friendly terms. Both are equal housing lenders, ensuring they adhere to federal anti-discrimination laws. In addition to these, other lenders like Wells Fargo and LendingClub also offer home improvement loans with varying terms and conditions.
How can I use the money from a home improvement loan?
When you do a cash-out refinance, a home equity line of credit, or a home equity loan, you can use the proceeds on anything — even putting the cash into your checking account. You could pay off credit card debt, buy a new car, pay off student loans, or even fund a two-week vacation. But should you?
It’s your money, and you get to decide. But spending home equity on improving your home is often the best idea because you can increase the value of your home. Spending $40,000 on a new kitchen remodel or $20,000 on finishing your basement could add significant value to your home. And that investment would be appreciated along with your home.
That said, if you’re paying tons of interest on credit card debt, using your home equity to pay that off would make sense, too.
Average costs of home renovations
Home renovations can vary widely in cost depending on the scope of the project, the quality of the materials used, and the region where you live. However, here’s a general idea of what you might expect to pay for various types of home renovations.
Renovation Type
Average Cost Range
Kitchen Remodel
$10,000 – $50,000
Bathroom Remodel
$5,000 – $25,000
Master Bedroom Remodel
$1,500 – $10,000
New Roof
$5,000 – $11,000
Exterior Paint
$6,000 – $20,000
Interior Paint
$1,500 – $10,000
New Deck
$15,000 – $40,000
Solar Panel Installation
$15,000 – $25,000
Window Replacement
$5,000 – $15,000
The information is based on data from HomeGuide.com and is current as of August 2023.
Please note that these are just average figures, and the actual costs can vary. For instance, a high-end kitchen remodel could cost significantly more, especially if you’re planning to use custom cabinetry and high-end appliances. Similarly, the cost of a new deck can vary depending on the size and type of materials used.
Home improvement loans FAQ
Check home improvement loan options and rates. Start here
What type of loan is best for home improvements?
The best loan for home improvements depends on your finances. If you have accumulated a lot of equity in your home, a HELOC, or home equity loan, might be suitable. Or, you might use a cash-out refinance for home improvements if you can also lower your interest rate or shorten the current loan term. Those without equity or refinance options might use a personal loan or credit cards to fund home improvements instead.
Should I get a personal loan for home improvements?
That depends. We’d recommend looking at your options for a refinance or home equity-based loan before using a personal loan for home improvements. That’s because interest rates on personal loans are often much higher. But if you don’t have a lot of equity to borrow from, using a personal loan for home improvements might be the right move.
What credit score is needed for a home improvement loan?
The credit score requirements for a home improvement loan depend on the loan type. With an FHA 203(k) rehab loan, you likely need a good credit score of 620 or higher. Cash-out refinancing typically requires at least 620. If you use a HELOC, or home equity loan, for home improvements, you’ll need a FICO score of 680–700 or higher. For a personal loan or credit card, aim for a score in the low-to-mid 700s. These have higher interest rates than home improvement loans, but a stronger credit profile will help lower your rate.
What is the best renovation loan
If you’re buying a fixer-upper or renovating an older home, the best renovation loan might be the FHA 203(k) mortgage. The 203(k) rehab loan lets you finance (or refinance) the home and renovation costs into a single loan, so you avoid paying double closing costs and interest rates. If your home is newer or of higher value, the best renovation loan is often a cash-out refinance. This lets you tap the equity in your current home and refinance into a lower mortgage rate at the same time.
Is a home improvement loan tax deductible?
Home improvement loans are generally not tax-deductible. However, if you finance your home improvement using a refinance or home equity loan, some of the costs might be tax-deductible.
Disclaimer: The Mortgage Reports do not provide tax advice. Be sure to consult a tax professional if you have any questions about your taxes.
Shop around for your best home improvement loan
As with anything in life, it pays to compare all your options. So don’t just settle on the first loan offer you find.
Compare lenders, mortgage types, rates, and terms carefully to find the best loan for home improvements.
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