Reverse mortgages can be an attractive option for seniors who want to supplement their retirement income, pay off debts, or make home improvements. However, they should be carefully considered as they can have significant financial and legal implications.
Here’s how reverse mortgages work, the pros and cons, and what to consider before deciding if it’s right for you.
What is a reverse mortgage?
A reverse mortgage offers a unique financial option for homeowners aged 62 and older, enabling them to utilize the equity in their home without the obligation to make monthly mortgage payments.
Through this arrangement, homeowners have the flexibility to receive funds in several ways: a single lump sum, as ongoing monthly payments, or through a line of credit that can be accessed as needed. The defining characteristic of a reverse mortgage is its payment structure; rather than the homeowner paying the lender, the lender pays the homeowner based on the equity built up in the home.
This type of loan is specifically designed for seniors looking for additional income streams during retirement, leveraging the equity they have accumulated in their property over the years. The loan balance, including interest and fees, is deferred until the home is sold, the homeowner permanently relocates, or in the event of the homeowner’s death, at which point the estate is responsible for repayment.
Understanding How a Reverse Mortgage Works
Reverse mortgages enable senior homeowners to access their home’s equity in a flexible and strategic manner. This financial tool is especially beneficial for those who wish to remain in their home while supplementing their retirement income, covering healthcare expenses, or funding home improvements, all without the requirement to make monthly loan repayments. The process is straightforward and designed to provide seniors with financial relief by tapping into the value of their most significant asset—their home.
Step 1: Assess Your Eligibility
To kick things off, confirm your eligibility for a reverse mortgage. Requirements include being at least 62 years old, owning your home (or at least having a significant amount of equity in it), and using the home as your primary residence. You’ll also need to demonstrate that you can handle ongoing costs like property taxes, homeowners’ insurance, and regular maintenance.
Step 2: Calculate Your Home Equity
Your home’s equity is central to determining your reverse mortgage potential. Simply, it’s the difference between your home’s market value and any outstanding mortgage balance. The greater your equity, the more you might receive from a reverse mortgage.
Step 3: Select the Right Reverse Mortgage Product
Explore the different types of reverse mortgages available, including the federally insured Home Equity Conversion Mortgage (HECM), proprietary reverse mortgages for higher-value homes, and single-purpose reverse mortgages from certain state and local governments. Each type caters to specific needs and financial scenarios.
Step 4: Get a Professional Home Appraisal
An essential step in the process is obtaining a professional appraisal of your home. This assessment determines your home’s market value based on factors such as location, condition, and the sale prices of similar homes nearby.
Step 5: Undergo Counseling
A crucial step is to undergo counseling from a HUD-approved agency. This ensures you fully understand the reverse mortgage process, its financial implications, and how it fits into your overall estate planning.
Step 6: Decide How You’ll Receive the Funds
Reverse mortgages offer several options for receiving your funds: as a lump sum, in monthly payments, as a line of credit, or a mix of these methods. Your choice should align with your financial objectives and needs.
Step 7: Know When and How Repayment Works
No monthly payments are required with a reverse mortgage. The loan is repaid when the last borrower dies, sells the home, or the home is no longer used as the primary residence. Typically, the home is sold, and the proceeds are used to pay off the loan balance, including interest and fees.
Real-Life Example: Maximizing Loan Amount Through Equity
Imagine homeowners John and Mary, who own a home worth $300,000 clear of any mortgage. They qualify for a reverse mortgage that grants them access to $150,000. Opting for monthly payments, they supplement their retirement income, demonstrating how equity determines borrowing capacity and the flexibility in receiving funds.
Choosing the Right Type of Reverse Mortgage
When considering a reverse mortgage, it’s crucial to understand the different types available to you. Each type comes with its own set of features, benefits, and limitations.
Here, we’ll delve into the three primary types of reverse mortgages: the Home Equity Conversion Mortgage (HECM), proprietary reverse mortgages, and single-purpose reverse mortgages. By comparing these options, you can make a more informed decision that aligns with your financial situation and retirement goals.
Home Equity Conversion Mortgage (HECM)
Pros:
Federally insured, offering a layer of security.
Flexible payout options, including lump sum, line of credit, or fixed monthly payments.
Can be used for any purpose, without restrictions.
Cons:
Higher upfront costs, including mortgage insurance premiums.
Requires counseling from a HUD-approved agency, which may be seen as an extra step.
The loan amount is capped, which may limit access to equity for homeowners with higher-valued properties.
Proprietary Reverse Mortgages
Pros:
Designed for higher-valued homes, potentially offering access to more significant loan amounts.
May have lower upfront costs than HECMs.
Not subject to the same insurance and borrowing limits as HECMs, offering more flexibility.
Cons:
Not federally insured, which might pose additional risks.
May come with higher interest rates and fees.
Less regulatory oversight, requiring thorough due diligence by the borrower.
Single-Purpose Reverse Mortgages
Pros:
Typically the lowest cost option available.
Offered by state and local government agencies and some non-profits, intended for a specific purpose like home repairs or property taxes.
Interest rates may be lower than other reverse mortgages.
Cons:
Limited availability, as not all states and municipalities offer them.
The loan must be used for a specific, lender-approved purpose.
Not suitable for those looking for flexibility in how they use their funds.
Making the Right Choice
Choosing the right type of reverse mortgage depends on several factors, including your financial needs, the value of your home, and how you plan to use the funds. HECMs offer flexibility and security, but come with higher costs.
Proprietary reverse mortgages can provide access to larger sums for those with high-value homes but lack the insurance and sometimes the stability of HECMs. Single-purpose reverse mortgages are cost-effective for specific needs but offer limited flexibility.
Before deciding, it’s recommended to consult with a financial advisor or a HUD-approved counselor. They can provide personalized advice based on your financial situation and help you navigate the complexities of each option, ensuring you choose the reverse mortgage that best fits your retirement planning needs.
Eligibility Criteria for Reverse Mortgages
The FHA insures certain reverse mortgages, as long as borrowers meet certain requirements:
Be at least 62 years of age.
Live in the home as a primary residence (or your spouse, listed on the mortgage, must live in the home.)
Be capable of paying property taxes and homeowners insurance, as well as other maintenance costs and fees while you live in the home.
Meet FHA property requirements for the home.
Are you willing to attend a counseling session about home equity conversion mortgages (HECMs).
There are no delinquent federal debts on your account.
You’re more likely to get the money you need if you own your home outright, or if your loan balance is small so that you have a great deal of equity.
Reverse Mortgage Borrowing Limits
When you apply for a reverse mortgage loan, your lender will consider a few factors that will influence the amount of money you receive, including:
Your age
Value of your home
Equity available in your home
Interest rate
FHA mortgage limit for home equity conversion mortgages
Whether your fees are rolled into the loan
How you choose to receive your money
The older you are, and the more equity you have in your home, the more you’re likely to be approved for. Keep in mind, too, that fees associated with reverse mortgages are often much higher than fees for other types of home equity loans. That’s going to eat into how much you actually receive — even if you have a lot of equity in your home.
One of the perks of FHA-insured reverse mortgages is the fact that you don’t have to pay back more than the home is worth. So, if the value drops, and you owe more than it’s worth, you (or your heirs) might have to sign a deed in lieu of foreclosure turning it over to the bank. This is one reason many reverse mortgage lenders won’t actually lend you the entire amount of your equity.
You can use the money for whatever you want, whether it’s paying off debt, covering living expenses, or going on a vacation.
Accessing Your Reverse Mortgage Funds
If you get a fixed-rate reverse mortgage, you’ll receive a lump-sum payment. You can then take that money and do whatever you want with it. However, when it runs out, it’s gone. Some retirees use a lump sum to fund a retirement investment portfolio or purchase an immediate annuity. Others use the money to pay off debts or cover other expenses.
With an adjustable-rate HECM, you have different options available. You can choose to receive set monthly payments for a specific period of time or get payments for as long as you or an eligible spouse live in a house.
If you choose an open-ended payment schedule, you’ll likely get a smaller amount each month. However, you can be reasonably sure that you’ll continue to receive money until you pass on or move into a long-term care facility. With a fixed-term payment schedule, you could see higher cash flow every month. However, you run the risk of outliving the payments and trying to figure out what to do next.
Finally, you can also choose to use your reverse mortgage as a line of credit. You can withdraw funds as needed, up to the credit limit. This is a little more flexible and can be useful if you have other sources of income, and just want the HECM in case you need to fill a gap on occasion.
Pros and Cons of a Reverse Mortgage
If you’re considering a reverse mortgage, it’s a good idea to start with an FHA-approved lender so you receive protection. You can use an online locator to find a counselor who can help you with the process, or you can call 800-569-4287.
Carefully consider the pros and cons, too.
Pros
There are some ways to benefit from a home equity conversion mortgage that you wouldn’t see with a more “traditional” home equity loan.
No monthly payments as a borrower
Improve monthly cash flow
Pay off debt (including an existing mortgage on the home)
Non-borrowing spouse can remain in the home
Loan is paid off by selling the house when you pass on or move out
Cons
While a home equity conversion mortgage might seem like a no-brainer, there are some downsides to consider before you proceed.
High closing costs and other fees
You might not be able to pass the home on to your heirs
Costs associated with property taxes, mortgage insurance, and maintenance must still be paid
You’re draining a major asset—and you might still outlive your money
How to Spot and Avoid Reverse Mortgage Scams
Scams related to reverse mortgages are a serious concern, as they often target vulnerable seniors who may be seeking financial relief or have cognitive impairments. These scams can come in the form of dishonest vendors or contractors who promise home improvements in exchange for a reverse mortgage. However, they then either fail to deliver quality work or outright steal the homeowner’s money.
Similarly, family members, caregivers, and financial advisors may use a power of attorney to obtain a reverse mortgage on a senior’s home and then steal the proceeds. They may also try to convince seniors to buy financial products that they can only afford through a reverse mortgage, which may not always be in the senior’s best interest.
It’s important to be cautious and do thorough research to protect yourself from these types of scams.
Is a reverse mortgage right for you?
With a reverse mortgage, you can use your home as an asset if you know you’ll stay in it for a long time and need a little extra income for retirement. Borrowers who don’t intend to pass the home to heirs may benefit financially from the home during retirement. That is, as long as you can keep up with the costs of maintaining the home and pay property taxes.
In contrast, getting a reverse mortgage loan might not make sense if you can’t afford home maintenance or if you wish to leave your home to your heirs. When you’re no longer living in the home, your heirs will need to sell the home to pay off the loan. If not, they’ll have to pay the loan themselves to keep the house. If there’s enough money in the estate to pay it off, it will reduce how much ready cash they receive when you pass on.
Carefully consider your situation and your priorities before you decide to get a reverse mortgage. Then, make the decision most likely to benefit you in retirement and increase the chance that you’ll outlive your money.
Purchasing a home can be a daunting task, especially for first-time homebuyers. There is often a great deal of pressure to find a home that meets your preferences and is in good condition, as well as obtaining approval for a mortgage. Even those with experience in real estate may feel overwhelmed by the process.
Plus, even if you find the home of your dreams, you still have to put in an offer and hope that it’s accepted with no competition from other buyers.
Luckily, there’s a way to not only stand out from other home buyers, but also to expedite your mortgage approval process. By getting preapproved for a mortgage before you even put in an offer on a home, you can significantly increase your chances of having your offer selected.
The Basics of Mortgage Preapproval
A mortgage preapproval refers to a letter from your lender indicating that you meet the standards for a mortgage loan within a certain price range.
The lender has thoroughly reviewed your credit history, income, and other financial indicators and put them through the automated underwriting system. Mortgage preapprovals are typically valid between 60 and 90 days.
Why Mortgage Preapproval Matters for Homebuyers
There are a couple of benefits to getting preapproved in advance of viewing houses. One of the most significant factors is that it strengthens your offer when bidding on a home that you love.
Many deals fall through because of financing issues, even after the seller accepts an offer. If you have a preapproval letter to submit as well, the seller knows that the deal is more likely to close by accepting your offer than someone else’s.
Furthermore, real estate agents typically want to see that you’ve been preapproved before they show you houses. They don’t want to waste their time showing clients houses if they cannot buy a home.
Mortgage Preapproval Letter
Getting a mortgage preapproval letter also gives you a chance to see how large of a home loan you’ll be approved for, helping to narrow down your home search to the suitable price range.
You’ll also find out what types of home loans you qualify for, whether it be a conventional, FHA, VA, or other type of mortgage. Some of these loans have certain restrictions on the type of property you can purchase and what condition it must be in. Some also require a certain down payment percentage.
The content of a preapproval letter may vary depending on the lender. Generally, the letter includes details such as the purchase price, loan program, interest rate, origination fees, loan amount, down payment amount, expiration date, and property address. This letter is typically included with an offer to purchase a new home.
Private Mortgage Insurance
If your down payment is less than 20%, you’ll likely have to pay private mortgage insurance (PMI), which is also based on the loan amount. Getting preapproved helps you financially prepare for the full cost of your new home and your monthly mortgage payment.
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Once you determine your target loan amount, you’ll know what your monthly principal, interest, and mortgage payments will look like. When you know that, you can then look at individual properties to determine how much property tax and even homeowner’s insurance you’ll need to tack on to each month’s payment.
You need to consider all of your fees before finalizing your maximum home price. Otherwise, you could be unpleasantly surprised when you get your first mortgage bill.
Getting Ready for Mortgage Preapproval
Before you talk to a lender about getting preapproved for a mortgage, the best thing to do is to check both your credit report and credit score.
Get Your Free Credit Report
You can access your credit reports from each of the three credit bureaus for free once every twelve months. So get started a few months before you’ll be house hunting to give yourself time to address any issues.
Dispute Negative Inaccuracies
You might have outdated information lingering on your credit report or even incorrect items. The dispute process can take some time. You want to make sure your credit score is as strong as possible. That way, you can get approved and get the best mortgage rates possible when the time comes.
Check Your Credit Score
There are a couple of free websites like Credit Karma that provide you with access to your credit score. It might not be the same credit score your lender will use, but it still lets you know what ballpark you’re in. If your credit score is lower than you’d like to see, you have time to make some quick fixes.
For example, you can get a higher credit card limit to decrease your credit utilization ratio or pay down extra debt to lower your debt-to-income ratio. A little planning can help strengthen your chances for preapproval before you even contact a lender.
How to Get Preapproved for a Mortgage
When you’re ready to start the mortgage preapproval process, the loan officer will ask you for several pieces of information. You will need to provide income tax returns from the past two years, pay stubs to verify your employment and gross monthly income, and bank statements.
You’ll also have to provide your Social Security number and sign a form giving the lender permission to perform a hard inquiry on your credit report.
At that time, the lender will also perform a credit check and review your credit score to use in the evaluation process. Because underwriting systems are now automated, you can get preapproved in a matter of minutes.
Possible Outcomes
When the underwriting process is completed, you’ll either receive one of four responses.
Here’s what they are and what they mean:
Approved: your initial mortgage preapproval has gone through with no conditions.
Approved with conditions: you must complete additional steps before getting approved (for example, providing extra income verification to the lender.)
Suspended: you must answer additional questions before the underwriter determines whether you’re approved.
Declined: your application did not get approved.
Many mortgage lenders state that it’s actually quite rare to be preapproved for a mortgage with no conditions on your first attempt. So, don’t be disheartened if this happens to you—you’re in good company!
Even a suspended application isn’t the end of the road. And if the lender declines your mortgage preapproval, make sure to ask them why so that you can take targeted steps to improve the weak areas in your application.
Mortgage Prequalification vs. Preapproval: Clarifying the Differences
When you first contact a lender about qualifying for a mortgage, you’ll probably discuss your basic financial picture to help you determine how much of a loan you’re likely to get approved for.
Mortgage Prequalification
This is referred to as prequalification for a home loan. The mortgage lender doesn’t access your credit report or request financial documentation. Instead, they give you an idea of loans you’d qualify for based on the information you provide.
If you provide false information, your mortgage application will definitely fall apart in the underwriting process, so it’s important to be honest and as accurate as possible. Otherwise, it’s a waste of your time. Getting prequalified is a smart move to inform yourself of your mortgage options, but it’s not strong enough to submit with an offer on a house.
Mortgage Preapproval
On the other hand, getting preapproved for a mortgage prove to sellers that you’ve already been through the preliminary underwriting process, and your financing is likely to go through all the way.
In this instance, you submit all necessary financial documentation to your lender. Not only does it strengthen your offer when you find a home you like, but it also speeds up the next steps in the mortgage process so that you can close more quickly.
Choosing the Right Mortgage Lender
Getting a prequalification before a preapproval may seem like an unnecessary step, but it’s a great way to interview the lender as much as they’re interviewing you.
At the end of the day, mortgage lenders compete for your business, so don’t just choose the first one who gives you a prequalification or preapproval. There are several factors to consider before you make this critical decision. You should speak to multiple lenders and compare interest rates and loan options to find the best one for your financial situation.
Comparing Interest Rates
Start with an interest rate comparison. You should be able to get quotes based on your basic financial information without the lender performing a hard pull on your credit report.
Furthermore, consider how much money the lender says you can afford. They don’t know how much your other bills are or how much you’re comfortable spending.
If they try to pressure you into a loan amount that seems like it would be too expensive based on the monthly payments, they may not have your best interests at heart. A good lender wants to make sure you can afford your payments every month and is transparent about costs beyond your principal and interest.
Mortgage Rate Lock Float Down
You can also ask lenders what kind of perks they offer. For example, some give their clients one free float down before closing. This means, if interest rates have dropped since you locked in your rate, you can get that lower rate without having to pay any additional fees or points.
Others offer discounts on closing costs to clients in public service professions, such as teachers, police officers, and firefighters. Even if a particular lender doesn’t offer any of these services, you can reference another one that does to negotiate your own special deal.
Mortgage Preapproval Checklist
Check your credit report and credit score.
Find a trustworthy lender.
Get prequalified to find out what types of loans you’re eligible for.
Gather financial documentation, such as pay stubs, bank statements, W-2s, and income tax returns from the last two years.
Apply for a preapproval letter to seriously begin your home search.
Frequently Asked Questions
What factors are considered for mortgage preapproval?
Lenders will take a look at your credit score and verify your employment and income. They will also consider your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes towards paying off debts.
To get a mortgage, it is generally advisable to have a DTI of 50% or lower. The required DTI for a loan may vary depending on the type of loan you are seeking.
Why should I get preapproved by more than one lender?
By applying to multiple lenders, you can compare interest rates and fees to find the deal with the most favorable terms. This can save you a lot of money over the life of the loan.
To find a mortgage that works for your financial situation, you should do your research and weigh all of your options.
Can I get preapproved for a mortgage online?
Yes, it is possible to get preapproved for a mortgage online. Many lenders allow you to provide your financial information and documentation through the lender’s website or over the phone.
You will typically need to provide the lender with information such as your monthly income, monthly debts, and credit history. After reviewing this information, the lender will determine how much they are willing to lend you and provide you with a preapproval letter.
Does mortgage preapproval guarantee a loan?
No, getting preapproved for a mortgage does not guarantee that you will receive a loan. The lender will still need to evaluate the property you are interested in buying and your financial information at the time of the loan application.
How much house can I afford?
There are several factors to consider when determining how much house you can afford, including your income, debts, down payment, and the type of mortgage you can qualify for. A general rule of thumb is to aim for a home that costs no more than three to five times your annual household income.
To calculate how much you can afford, you’ll need to consider your debt-to-income ratio (DTI). This is a measure of how much of your income goes towards paying off debts. Lenders typically look for a DTI of 50% or lower when determining how much you can borrow.
You’ll also need to consider your down payment and the type of mortgage you qualify for. A larger down payment can help you qualify for a better mortgage rate, and a shorter loan term (such as a 15-year mortgage) can also lower your monthly payments.
It’s a good idea to work with a lender to get a more detailed assessment of how much you can afford. They can help you understand your options and guide you towards a mortgage that works for your budget.
Can I get preapproved for a mortgage with bad credit?
It may be more difficult to get mortgage preapproval with bad credit, but it is not impossible. Some lenders may require a higher down payment or charge a higher interest rate for borrowers with lower credit scores.
Do you know the return on investment (ROI) of your renovation project?
Some renovations can make your home more valuable. However, other projects may provide very little or no return. If you’re investing in a home renovation in hopes of recouping that money when you sell, it’s important to research and plan ahead before you begin to ensure you’re spending your money wisely.
Home renovation projects of all types are on the rise. In a recent study, 55% of homeowners reported renovating a part of their home in the past year.
But how many of these homeowners will see a return on their investment?
It depends. Getting a full recoup of remodeling costs isn’t very likely. And while smaller DIY projects probably won’t break the bank, homeowners should address whether a project is worth its weight in salt — especially before diving into large-scale remodels.
Keep in mind, though, that you can still potentially increase your home’s equity even if you don’t fully recoup the cost of certain improvements. Equity is the difference between your home’s current market value and the amount you owe on your mortgage. A home upgrade that doesn’t fully pay for itself dollar-for-dollar in terms of increased home value may still boost your home’s overall market value, thereby increasing your equity.
10 Home Improvements That Add Value
A way to determine whether a home improvement makes sense is to look at a project’s cost vs. its value assessment. This resulting renovation-to-resale value assessment number, “cost recouped,” can then be used to rank the financial benefit of comparable projects across the country.
Take a look at these popular home improvement projects and their ROI values. You may be surprised at what tops the list.
HVAC Conversion | Electrification
Job Cost: $17,747
Resale Value: $18,366
Cost Recouped: 103.5%
Garage Door Replacement
Job Cost: $4,302
Resale Value: $4,418
Cost Recouped: 102.7%
Manufactured Stone Veneer
Job Cost: $10,925
Resale Value: $11,177
Cost Recouped: 102.3%
Entry Door Replacement | Steel
Job Cost: $2,214
Resale Value: $2,235
Cost Recouped: 100.9%
Siding Replacement | Vinyl
Job Cost: $16,348
Resale Value: $15,485
Cost Recouped: 94.7%
Siding Replacement | Fiber-Cement
Job Cost: $19,361
Resale Value: $17,129
Cost Recouped: 88.5%
Minor Kitchen Remodel | Midrange
Job Cost: $26,790
Resale Value: $22,963
Cost Recouped: 85.7%
Window Replacement | Vinyl
Job Cost: $20,091
Resale Value: $13,766
Cost Recouped: 68.5%
Bath Remodel | Midrange
Job Cost: $24,606
Resale Value: $16,413
Cost Recouped: 66.7%
Window Replacement | Wood
Job Cost: $24,376
Resale Value: $14,912
Cost Recouped: 61.2%
Source
Pre-Renovation Checklist
Long before you start tearing down walls or ripping up floors, you should consider the following:
Have you budgeted for the renovation costs?
Is the remodel a temporary fix or a long-term lifestyle change?
How long do you plan to live in the home?
Can you afford the renovation without recouping a full or near-full ROI?
How long will the renovation last?
Will the improvements add value to your home equity?
Still unsure if your project is worth the cost? Here’s a more in-depth look at the questions above.
Don’t Guesstimate Your Renovation Budget
No matter how much you try to nail down a renovation budget, there will likely be unforeseen costs along the way. Plan ahead by getting a clear view of how much you can spend.
Talk to contractors, compare their rates and get your priorities in check. It’s easy to spring for granite countertops over laminate when you’re visiting the showroom, but if you need to rewire your electrical system to install the new kitchen appliances later, you might need more funds.
Quick Fix or Lifestyle Upgrade?
While the size of a project is largely dependent on budget, in some cases, a quick-fix repair may cost more money over time than a large-scale renovation that solves a major headache.
For example, if mold is growing on your first-floor ceiling due to a leak in an upstairs shower, you may consider replacing the grout as a short-term, low-cost solution. However, you should have the house inspected to determine the best way to address the issue — mold can be a more extensive problem than first meets the eye. Depending on the damage, you may need to completely redo the tile, drain and pipes and you could require professional mold remediation.
Getting professional advice now will help you pass an inspection later in case you decide to sell.
Will You Stay — A Forever Home or Prepping for a Sale?
If you’re preparing to put your home on the market, ensure your renovations appeal to buyers. One of the biggest misconceptions among homeowners is that major home improvements equate to more money in the final sale. That’s not always the case. If you’re planning to stay in your home for several years, make sure you can realistically live with the changes long term.
Research Your Project’s Regional ROI
It’s essential to consider the value of renovations in your region — not just on a national scale. In colder climates, energy efficiency projects may reap more value, while a swimming pool may dissuade buyers. On the other hand, in warmer regions, a pool may attract buyers to your home.
Adding additional rooms or square footage is one of the most impactful ways to increase your home’s value. An appraiser will be able to compare your home to those in your area who fall into the larger square footage category. Additional space can be used as an office, playroom or entertainment area, making it a worthwhile investment.
Considerations of Living Onsite While Renovating
Home improvement projects can get stressful and can’t always be completed over the weekend. Be sure to plan a realistic project timeline and make arrangements to get through the renovation chaos. With major renovations, it’s often pragmatic to set aside funds. If you’ll have to spend several hours away from home while the contractors complete their work, you may need to stay overnight in a hotel or plan a fun day out.
Also, be aware that when renovating or doing major construction on your home, you will be unable to refinance during that time. This is because an appraisal is typically required, and the home must be in safe and functional condition.
Increased Home Equity Benefits
Sometimes, home improvement projects solely benefit you — and that’s OK! Increasing your home’s value has several benefits. If you’re staying in your home, you might be able to apply the equity to secure a home equity line of credit (HELOC), a home equity loan (HEL) or even a cash-out refinance to help pay off debts, pay for college tuition or purchase a new car, for example.
If your home is on the market, your home improvements could help it sell faster and for more money. However, keep in mind that if you want to attract investors, most require a home listing to be off the market for a certain period of time before they can consider investing in it. Typically, this time ranges anywhere from six months to a year, even if the home was only listed on the market for one day.
Remodeling Mistakes to Avoid
When it comes to making home improvements, too often, homeowners rely on instinct rather than research to decide which projects to embark on. So, while converting the garage to an extra bedroom might seem like a good idea, the inconvenience of street parking isn’t likely to entice a potential homebuyer anytime soon.
Some other remodeling mistakes to avoid:
Underestimating project costs. It’s important to fully understand your project’s size, scope and complexity. Consider the supplies, skilled professionals, inspections and permits that may be required, and any systems, such as electrical or plumbing, that will be affected and impact your costs.
Not anticipating issues. Things don’t always go according to plan. Ensure you have a buffer of funds to manage unexpected issues that may arise.
Having an unrealistic timeline. Major gut renovations can take months to design and build, which leads to higher labor costs. Can you live in your home through the renovation if it takes longer than anticipated? Do you have a contingency plan?
Not doing your research. If you want to enhance your home’s resale value, do your homework to ensure your upgrades will help you maximize your investment.
Don’t Rely on Reality TV for Ideas
Did you know that one of the most valuable home investments is adding fiberglass insulation to a home’s attic?
Probably not. But watching contractors stuff the ceiling with insulation on popular home improvement shows just isn’t as interesting as watching designers discuss the layout of a total kitchen overhaul, complete with high-end fixtures, granite countertops and top-of-the-line commercial-grade appliances.
An overly pricey, sophisticated kitchen may backfire once a home is back on the market. A minor kitchen remodel, on the other hand, such as painting the cupboards or replacing laminate flooring with ceramic tiling, not only provides a more cost-effective solution for homeowners, but may also yield a higher return on their investment. Painting kitchen cabinets is an inexpensive cost to a homeowner because they can be painted on-site instead of at a warehouse and then shipped.
Make Your Home Improvement Plan
Whether you’re a first-time homebuyer with a growing family or a near-retiree looking to sell and downsize, it’s important to understand which home improvement projects make the most sense for you.
If you’re renovating with ROI in mind, consider how prospective homebuyers will view your interior, exterior, outdoor space and landscaping. Focus on projects that improve your home’s functionality and appeal to a wide range of buyers. And remember, even relatively small renovations can still increase your home’s value and equity.
Talk to a real estate agent to get their guidance on which projects may have the biggest impact on your home’s value. If you’re ready to begin your next exciting remodeling project, inquire about a home equity loan that turns your current home equity into cash. Reach out to a Pennymac Loan Expert and find the option that’s right for you.
Inside: Learn the roadmap to financial freedom with no money. Surpass debt, embrace millionaire habits, invest wisely & start a victorious journey to become financially independent!
Navigating the road to wealth can feel daunting, especially without a financial head start. But the journey to becoming a millionaire isn’t reserved for the lucky few with an inheritance at their heel.
It’s about strategy, perseverance, and making informed decisions.
Reaching the status of a millionaire is possible. I have done it and many other Money Bliss readers as well.
You have to change your mindset to make this happen. Becoming financially stable is of utmost importance.
Now, if you are serious about making seven figures in your net worth, then keep reading on how to do it.
Foundations of a Millionaire Strategy with No Money
Building a wealthy future from the ground up demands a strong and comprehensive financial plan. This isn’t something super fancy and you don’t need crazy knowledge.
You just have to start and be determined.
Step 1: The Essential First Steps Toward Financial Growth
Before plotting any course, assess your current circumstances candidly. Are you battling debts? Barely managing expenses? Or perhaps saving inconsistently? Acknowledging your starting point is critical.
A financial plan acts as your roadmap. It outlines not only your current standing but also sets the destination: your millionaire goal. This is not a figure plucked from thin air but rather a calculated estimate determined by your aspirations and timeframe.
Structure your plan to encompass these elements:
Income Assessment: Calculate your total annual income, be it from your primary job or any side gigs you maintain.
Expense Analysis: Track every expense. From the daily coffee to the monthly rent, understand where your money is going.
Debt Strategy: High-interest debts can cripple financial growth. Prioritize paying off these debts to alleviate financial pressure.
Savings Plan: Start with achievable goals. Perhaps saving $100 a month initially, then incrementally increasing as your earnings grow.
Investment Consideration: Every dollar saved should be working for you.
Ultimately, keep your plan documented and visible. Regular interaction with your strategy keeps the vision of financial growth at the forefront of your daily choices.
Step 2: Harness a Mindset Crafted for Success
Maintaining a positive mindset can significantly amplify your success with money, empowering you to manifest your financial ambitions with clarity and confidence.
This positivity helps to reframe financial obstacles as opportunities for growth. To cultivate this prosperous mindset:
Practice gratitude by acknowledging and appreciating what you already possess, which can create a sense of wealth beyond the monetary value.
Counteract negative thoughts about money by consciously redirecting them into positive money affirmations, reinforcing your belief in your financial acumen and capabilities.
Focus on your ultimate goals and align your behaviors accordingly.
Step 3: Starting Small: Saving with Limited Means
When funds are scarce, saving can seem impossible. However, even the most modest savings habits can blossom into significant wealth over time. The key is to start – no matter how small, and to remain consistent.
Implement these techniques to save effectively on a tight budget:
Automate Savings: Set up a direct deposit from your paycheck to a savings account.
Savings Challenges: Engage in one of my popular money saving challenges.
Save Raises and Bonuses: Save at least half of any raises, bonuses, or tax refunds you receive rather than increasing your spending.
Micro-Saving Apps: Consider using apps that round up your purchases to the nearest dollar and save the difference.
Saving is habitual. Even with a limited budget, adapting ways to make saving a consistent part of your financial behavior is crucial.
Start with a small percentage that won’t strain your daily living but will quietly accumulate in the background. These mini saving challenges are perfect!
Step 4: Handling Debt: Strategies for Minimizing Financial Burdens
Tackling debt is a pivotal stage on the road to financial freedom and accumulating wealth. Personally, this is exactly what happened to me. Once we paid off our debt, we were able to increase our net worth substantially.
Simply put… When debt is left unchecked, it can blossom into an insurmountable challenge, thwarting efforts to acquire wealth. The cash flow killer.
Consider these tactics to manage and minimize your debt:
Debt Audit: Begin by evaluating all your debts. Take note of balances, interest rates, and minimum payments. Understanding the total sum of your debts is essential for forming a repayment strategy.
Prioritize High-Interest Debts: High-interest debts such as credit cards can quickly grow beyond control. Prioritizing these debts for repayment can save you a significant amount in interest over time.
Debt Snowball vs. Avalanche: Choose the method that will keep you motivated and align with your financial goals.
Negotiate with Creditors: If you’re in financial hardship, reach out to your creditors to negotiate for lower interest rates or modified payment plans. Many creditors prefer to work out a payment plan rather than risk not being paid at all.
Avoid Accumulating New Debt: As you pay off existing debts, it’s crucial not to accrue new ones. Stick to your budget and avoid temptations that could lead to further debt.
Remember, every debt you free yourself from is one step closer to letting your money work for you, not against you.
Step 5: Identifying Skills That Pay: Turning Talents into Revenue
In the evolving economy, capitalizing on your skills can be a powerful way to generate additional revenue streams. The beauty of skill-based earning is that it can fit around a traditional job and can be scaled up or down as your situation changes.
Here are possible avenues to pursue:
Demand for Your Skills: Look at the market and find out if you can outsource your skills
Start Freelancing: Platforms like Upwork, Fiverr, and Freelancer can connect you with clients looking for your specific skillset. Begin with competitive pricing and build up your portfolio and rates as your experience grows.
Teach Others: If you’re knowledgeable in a particular area, consider creating an online course or conducting workshops. With platforms like Teachable or Udemy, you can reach a global audience.
Networking: Leverage social media, professional networking sites like LinkedIn, and community forums. This builds your professional presence and can lead to job opportunities.
Lastly, do not be afraid to ask for a pay raise. Thus, will help you fast-track your path to six figures.
Step 6: Side Hustles and Entrepreneurship: Growing Your Earnings
To build real wealth, especially with no initial capital, earning income from multiple streams can be a game-changer. Side hustles and entrepreneurship are about leveraging your time, talents, and sometimes minimal financial investments to grow your income outside of your primary job.
Almost every millionaire I know has a side hustle or business that helped them to get to that point.
Here’s how you can expand your earnings with side hustles and entrepreneurship:
Make money online: The fastest growing area is knowing how to make money online. Even seemingly mundane skills can be lucrative.
Choose the Right Side Hustle: You can choose to make money or chill and watch TV. Pick on the popular side hustles to get started today.
Start Small Business Ventures: Consider creating a small business. It could start as simple as lawn care services, homemade goods, or consulting. Validate your business idea with minimal investment before scaling up.
As financial expert and entrepreneur Ramit Sethi states, “There’s a limit to how much you can save, but there’s no limit to how much you can earn.”
By actively growing your earnings and establishing additional income streams, you accelerate your trajectory toward millionaire status.
Step 7: Investment 101: Basics for the Beginner Investor
Investing is the escalator to wealth, turning your savings into passive income generators.
For beginners, the world of investing can seem labyrinthine, but with foundational knowledge and strategic baby steps, you can begin to navigate it confidently.
Don’t be afraid of the stock market as you are giving up way too much money! This was the stupid mistake I made in my 30s. Now, my investment portfolio is the primary way I am growing my wealth today.
Here’s what you need to know to get started with investing:
Start with a Retirement Account: If your employer offers a retirement plan, like a 401(k), especially with matching contributions, take full advantage of it. This is often a beginner’s first, and potentially most profitable, investment.
Low-Cost Index Funds: As a beginner, it’s wise to invest in low-cost index funds, which are designed to mimic the performance of a particular market index. They are diversified and typically have lower fees.
Automatic Investing: Set up automatic transfers to your investment account to facilitate regular contributions without having to actively think about it. Don’t forget to select which fund to invest in.
Educate Yourself: Take advantage of online resources, books, and courses to understand the basics of stocks, bonds, and other investment vehicles. This is what I did – invest in my stock market knowledge and it has paid off big time!
Understand the Rule of 72: A simple formula to estimate the doubling time of an investment. For example, at a 7% average annual return, your money could potentially double every roughly 10 years.
Understand Risk vs. Reward: All investments carry some level of risk. Typically, higher risk could mean higher potential returns, but also greater potential losses. Assess your risk tolerance before investing and use those stop losses!
Investing isn’t a sprint; it’s a marathon with compound interest serving as the tailwind to push you forward over time. Learn how to invest in stocks for beginners.
Step 8: Retirement Accounts: Why Maxing Out Early Matters
By maximizing contributions to retirement accounts, you not only safeguard your golden years but also capitalize on tax-advantaged growth, which can be substantial over time.
Just because you are in your 20s or 30s, don’t say I’ll invest later. You are missing the boat.
Here’s why it’s beneficial to start maxing out your retirement accounts as soon as possible:
Compounding Interest: The earlier you start, the more you benefit from compounding interest.
Tax Benefits: Contributions to retirement accounts like 401(k)s and traditional IRAs are made each year, but they come with limits and potential tax-deferred (IRA) or tax-free (Roth IRA) accounts.
Employer Match: Many employers offer a match on 401(k) contributions up to a certain percentage. Failing to contribute at least enough to get the full match is akin to leaving free money on the table.
Higher Contribution Limits: The earlier you start maxing out, the less you have to play catch-up later. The IRS sets annual contribution limits, and consistently hitting those maximums can mean a considerable difference in your retirement savings over time.
By comprehensively engaging with your retirement accounts from an early age, you start an assured path towards the millionaire echelon.
Yes, it is possible to have multiple Roth IRA accounts.
Step 9: Adopting the Growth Attitude: Learning from Millionaire Mentors
The difference between those who accumulate wealth and those who don’t can often be traced back to mindset and mentorship. Adopting a growth attitude and learning from successful individuals can accelerate your path to prosperity.
Millionaires, with their experience and results-driven approaches, often provide valuable insights into effective wealth-building strategies.
Here’s how tapping into the wisdom of millionaire mentors can benefit your financial growth:
Learning from Their Experiences: Millionaires can share their triumphs and tribulations, offering you a roadmap that highlights what to do and what pitfalls to avoid. Cultivate these millionaire habits in your life.
Networking Opportunities: Millionaire mentors often have expansive networks. By building a relationship with a mentor, you may be introduced to key connections that can lead to lucrative opportunities.
Mindset Shift: Interacting with successful individuals can shift your perspective from a fixed mindset to one that embraces challenges, persists in the face of setbacks, sees the effort as the path to mastery, and learns from criticism.
Innovative Thinking: Mentors can inspire innovative approaches to income generation, investment, and savings. They can encourage out-of-the-box thinking that may lead to financial breakthroughs.
Emulating Success: By observing the habits and tactics of millionaires, you can emulate strategies that have proven successful while avoiding practices that may lead to failure. Start these billionaire morning routines to help you.
By adopting a growth attitude and learning from the insights and experiences of millionaire mentors, you sharpen your financial acumen and enhance your ability to create and capitalize on wealth-building opportunities.
Step 10: Community Counts: Surround Yourself with Success
The people you surround yourself with can significantly influence your thoughts, actions, and ultimately, your success. By intentionally building a community of hard-working, success-oriented individuals, you can foster an environment that promotes wealth accumulation.
Here is why it’s crucial to immerse yourself in communities that align with your aspirations:
Shared Success Mindset: In a like-minded success-oriented community, you’ll find individuals who have goals similar to yours and an attitude that is conducive to financial growth. This collective mindset can reinforce your own ambitions.
Peer Learning: Being a part of a community allows for collaborative learning. Exchange insights, experiences, and tactics with peers who are also on a path of financial growth. I love my masterminds!
Accountability: Just as with individual mentors, a community can keep you accountable. Regular interactions with people who take financial success seriously can encourage you to do the same.
Cross-Pollination of Ideas: Varied perspectives in a group can lead to a cross-pollination of ideas, sparking creativity and innovation in your own wealth-building strategies.
Increased Confidence: As you witness others achieving success, it instills a belief that you can do the same. This confidence can push you to take calculated risks that lead to greater rewards.
This adage stresses the importance of being selective with the company you keep, as their attributes frequently rub off on you, influencing your path to becoming a self-made millionaire. Likely you want friends who are millionaires or striving to be, too.
Step 11: Steer Clear of Debt: Remaining Unshackled as You Ascent
The gravitational pull of debt can be a formidable force, impeding one’s ascent toward the zenith of financial independence. But, you can overcome this by using these debt free living habits.
Here are strategies to remain unshackled by debt:
Budget Religiously: A budget constrains overspending and reduces the temptation to rely on credit.
Build an Emergency Fund: A substantial emergency fund can cover unforeseen expenses, diminishing the need to fall back on credit cards or loans that could exacerbate your financial situation.
Spend Less Than You Make: This may sound simple, but this helps you to live within your means and avoid going into debt.
Discern Needs from Wants: Be meticulous in distinguishing true needs from mere wants.
Ultimately, your ability to evade debt not only safeguards your financial stability but also amplifies your capability to invest and save, propelling you firmly on the trajectory toward millionaire status.
Step 12: The Lifestyle Inflation Trap: Keeping Expenses in Check
Success and salary hikes can often lead to lifestyle inflation, a phenomenon where spending increases as income rises, negating the potential for savings and investments. Keeping lifestyle inflation at bay is pivotal to ensuring that growing income translates into growing wealth.
Here’s how you can avoid the lifestyle inflation trap and keep expenses in check:
Stick to Your Budget: Even as your income grows, maintain the budget that facilitates your savings habits.
Identify Trigger Points: Be aware of what prompts you to spend more. Sometimes, seeing others upgrade their lifestyle can trigger the same desire. Stay focused on your financial goals rather than external influences.
Automate Savings Increases: When you receive a raise or bonus, immediately update your automatic transfers to increase the amount going into your savings or investment accounts.
Value Experiences Over Possessions: Studies have shown that experiences bring more lasting happiness than material goods. Opt for a modest increase in experiences rather than expensive goods as your income grows.
Embrace Minimalism: Adhering to minimalist principles can reduce the urge to accumulate non-essential items, keeping spending down and savings rates up.
Avoiding lifestyle inflation doesn’t mean living as frugally as possible regardless of how much you earn. It’s about finding a balance that allows for a comfortable yet modest lifestyle, wherein you can enjoy the fruits of your labor without compromising your long-term wealth goals.
Billionaire investor Warren Buffett exemplifies this principle by still living in the house he bought in 1958 for $31,500 and driving a reasonably priced car. Buffett’s lifestyle choices display an astute awareness of the perils of unnecessary spending and emphasize the importance of consistency in financial discipline.
Step 13: Compounding: The Wonder that Builds Big Balances Over Time
Compounding interest is a powerful tool that has the potential to turn modest savings into vast sums over time.
The principle behind compounding is straightforward: the returns you earn on your investments generate their own returns in the next cycle, leading to exponential growth given enough time.
Here’s how the wonder of compounding works to build big balances:
Start Early: The magic of compounding is maximized by time. The sooner you start investing, the more cycles of compounding your money can go through, and the larger your balance can grow.
Reinvest Your Returns: To truly harness the power of compounding, reinvest the interest, dividends, and any capital gains you receive, rather than spending them. This increases your investment balance, which in turn means more significant potential returns in the next cycle.
Regular Contributions: Make regular contributions to your savings and investments. Consistent additional deposits can significantly amplify the effects of compounding over the long term.
Step 14: Procrastination and Perils: Why Immediate Action is Crucial
Procrastination is often the thief of time and opportunity, especially when it comes to financial decisions. Postponing essential actions like saving, investing, or paying down debt can have compounding negative effects, making it harder to achieve financial goals.
Understand the perils of procrastination and the importance of immediate action:
The Cost of Waiting: In the realm of investment, the longer you wait to begin, the more you miss out on the potential compounding returns. Delayed action can mean the difference between a comfortable retirement and a financially insecure one.
Opportunity Loss: Procrastination can lead you to miss out on time-bound opportunities, such as market dips that are ideal for purchasing investments at lower prices or missing the deadline for a tax-advantaged account contribution.
Paying More on Debt: By putting off debt repayment, you accrue more interest, which only increases the total amount you’ll eventually have to pay. Acting quickly to pay off high-interest debt saves money in the long run.
Increased Stress: Delaying important financial actions can lead to an accumulation of stress and anxiety, which can, in turn, impair your ability to make sound financial decisions.
Potential for Rash Decisions: When you constantly procrastinate, you might eventually rush into decisions without adequate research or consideration, leading to poor financial outcomes.
Recognize this type of behavior and set weekly money meetings with yourself to help you move forward – one task at a time. Grab an accountability partner too!
Step 15: Long-Term Vision: Setting Up For Sizeable End Gains
The journey to becoming a millionaire is often a marathon, not a sprint.
Nurturing a long-term vision for your financial future is essential in guiding your daily decisions and motivating you to stay the course.
To ensure sizeable end gains, you need to establish and maintain a future-oriented mindset:
Set Long-Term Financial Goals: Establish clear, achievable long-term financial goals that align with your desired = future. Whether it’s attaining a specific net worth, owning property outright, or securing a comfortable retirement, these goals should inspire your action plan.
Strategic Planning: Develop a comprehensive financial plan that includes savings, investments, retirement accounts, and estate planning. This plan should act as a living document that you can adjust as your circumstances and goals evolve.
Patience is a Virtue: Recognize that wealth typically accrues over time, and not without fluctuation. Stay patient and avoid knee-jerk reactions to short-term market swings or temporary setbacks.
Regular Investments: Commit to making regular investments, even in small amounts. Over time, consistent contributions can result in substantial wealth through compounding interest.
It’s about creating financial disciplines that compound over time, ensuring that with each day, month, and year, you’re progressively building towards a considerable nest egg.
FAQ: Climbing the Financial Ladder Without a Silver Spoon
Getting rich with no money might seem like a paradox, but it’s a trajectory that many self-made millionaires have pursued successfully. The blueprint involves a combination of mindset shifts, disciplined financial habits, and strategic action.
You have to take proactive steps to increase wealth even when starting from zero.
Starting from nothing and achieving millionaire status requires a multifaceted strategy, encompassing personal development, financial planning, and an entrepreneurial approach to income generation.
Wealth creation is a journey, and starting from zero means that progress may be slow initially.
However, by adopting these steps and maintaining a disciplined and proactive approach, you incrementally increase your chances of accumulating significant wealth.
Ready to Become a Millionaire with Nothing?
Are you ready to become a millionaire with nothing but your ambition, intellect, and unwavering resolve? If your answer is a resounding yes, then it’s time to take the first step.
With every small victory and learned lesson, you inch closer to your ultimate goal.
Your journey starts with dedication, a commitment to yourself that from this day forward, you will work relentlessly toward the life you envision.
Wealth is not just about the money you accumulate but also the knowledge, experience, and relationships you develop along the way. Wealth creation is often not a straight line but a series of strategic moves and consistent behaviors that, collectively, lead to financial success.
Remember, your current financial position is just a starting point – with the right mindset and actions, significant financial growth is within the realm of possibility.
Your next step is working towards becoming financially independent.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
For some, the new tax season might serve as a stressful reminder of past taxes that have yet to be filed and paid. Taxpayers owed over $120 billion in back taxes, penalties and interest in 2022, according to the IRS. And there soon may be more concrete reminders coming: The IRS resumed sending automated collection notices for unpaid taxes in 2024 after pausing them “due to the unprecedented effects of the COVID-19 pandemic” in February 2022.
If you’re one of the many taxpayers who owe tax debt this season, addressing the issue sooner rather than later can save you from penalties, interest and other more serious consequences. And you can get started even if you can’t afford to pay in full. Here’s what you can do to get back on track.
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If you get a notice, read it
The longer you delay reading and responding to unpaid tax notices, the more serious your tax situation could become.
“People come into our office, and they have all these unopened letters,” says Kenneth Portera, an enrolled agent and owner of Kenneth Portera and Associates in New Jersey who works with clients who owe back taxes. He wishes people would open these notices when they arrive, he notes. “If you do get a letter, open it up and find out what’s going on.”
If you continue to ignore notices, the IRS may resort to severe measures, including tax liens, wage garnishment, asset seizure and passport restrictions. And if you owe state taxes, you could face additional collections and garnishments.
However, the IRS and state tax agencies will always try to contact you before escalating to more extreme measures. If you show the agency that you’re willing to pay — even if it’s not the full amount — you can avoid the worst outcomes.
Set up a payment plan
Most taxpayers can set up short- or long-term payment plans, including installment agreements, through the IRS website. To apply for one online, you must owe less than $50,000 in combined tax, penalties and interest for a long-term plan or less than $100,000 for a short-term plan. The agency waives setup fees for low-income taxpayers and has options for businesses, too.
Once you contact the IRS and set up a plan, the government will stop sending notices about your tax debt because collection has already been accomplished, Portera says.
If you have an existing payment plan, you can update it to account for this year’s taxes.
Contact a pro
Not everyone with overdue taxes needs a tax attorney. But if you’re dealing with tax authorities, owe large amounts of money or have a tax situation that you feel unable to handle on your own, Portera recommends enlisting the help of a licensed tax professional, such as a certified public accountant, enrolled agent or tax attorney.
When you don’t file your return, the IRS puts together a substitute return for you with a proposed assessment of what you owe. This tax return the IRS files for you is “almost always going to be not in your favor,” says Robert Persichitte, a CPA at Delagify Financial in Colorado who has experience working with clients in urgent tax situations.
According to Persichitte, some tax preparers will look at your substitute return for free and tell you if it needs to be amended. Sometimes, a licensed tax professional can negotiate with the IRS to reduce the amount you owe. In serious cases, they may help you apply for an offer in compromise, an agreement with the IRS that settles your tax liability at a lower amount.
Remember, though, that tax relief isn’t usually a quick fix — and promises of a dramatic cut to your tax debt may be a scam.
“If it sounds too good to be true, guess what? It usually is,” Portera says. The process for negotiating a reduced tax bill is complicated, he notes. If a tax relief company can’t deliver and fumbles communications, he adds, it could result in more interest and penalties for you, and no resolution.
For low-cost options, contact the Taxpayer Advocate Service or your local Low Income Taxpayer Clinic, which provides free or low-cost assistance for low-income taxpayers.
Simple tax filing with a $50 flat fee for every scenario
With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you’ll get free support from tax experts. Sign up for access today.
for a NerdWallet account
Transparent pricing
Hassle-free tax filing* is $50 for all tax situations — no hidden costs or fees.
Maximum refund guaranteed
Get every dollar you deserve* when you file with this tax product, powered by Column Tax.
Faster filing
File up to 2x faster than traditional options.* Get your refund, and get on with your life.
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Don’t forget about current tax returns
When taking care of overdue taxes, don’t forget to file taxes for 2023.
Even if you have overdue penalties — or don’t have the funds to pay this year’s fees in full — stay compliant with the IRS by filing your returns annually. The agency is much more likely to waive your penalties or even agree to reduce your tax debt if you have a history of compliance.
Claire Tsosie, an assigning editor at NerdWallet, contributed reporting to this article.
This article was written by NerdWallet and was originally published by The Associated Press.
Sure… rates moved a bit higher this week as the bond market continued the process of a modest correction against the Nov/Dec exuberance. But Nov/Dec was just that: exuberant. Most of it was justified, but things got a bit too optimistic by the time the Fed’s dot plot came out. Moreover, additional gains would have required the type of economic data that we just didn’t see over the past 4 weeks. With all that in mind, what is the Fed going to be able to say to surprise us next week? Probably not much, but markets will immediately begin extrapolating any big beats/misses in the big economic reports to its assessment of what the Fed will say next time.
monthly CORE PCE
0.2 vs 0.2 f’cast, 0.1 prev
annual CORE PCE
2.9 vs 3.0 f’cast, 3.2 prev
08:53 AM
Flat overnight. 2-way volatility after PCE data. MBS roughly unchanged. 10yr down less than 1bp at 4.112
11:19 AM
position-driven selling into the 9:30am NYSE open, but recovering a bit since then. 10s up 2.3bps at 4.143. MBS down 3 ticks (.09).
12:58 PM
sideways after modest recovery. MBS down 2 ticks (.06) and 10yr still at 4.143.
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
The real estate market is often characterized by ups and downs, with certain seasons being more popular for buying and selling homes than others. While the spring and summer months may traditionally steal the spotlight, homebuyers increasingly recognize the advantages of purchasing a home during the off-season. These are the often-overlooked benefits of buying a home during the real estate off-season.
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Reduced Competition
One of the most significant advantages of buying a home in the off-season is the reduced competition. With fewer buyers actively searching for homes, you’re less likely to find yourself in bidding wars or facing multiple offers on the same property. This diminished competition allows you to negotiate more effectively and potentially secure a better deal.
Motivated Sellers
During the off-season, sellers are often more motivated to close deals quickly. Whether they are relocating for work, downsizing, or have personal reasons prompting the sale, motivated sellers are likely to be more flexible when it comes to negotiations. This increased willingness to negotiate can translate into a lower purchase price, additional concessions, or favorable terms for the buyer.
Lower Prices
Historically, home prices have been known to dip during the off-season due to decreased demand. Sellers may be more willing to lower their asking prices to attract potential buyers and facilitate a faster sale. This affordability factor can be particularly appealing for budget-conscious homebuyers looking to maximize their investment.
Faster Closing Processes
The off-season often means a more streamlined real estate process. With fewer transactions taking place, mortgage lenders, real estate agents, and other professionals involved in the home buying process may have more time and resources to dedicate to your transaction. This can result in a smoother and faster closing process, saving you time and reducing stress.
Accurate Property Inspection
Off-season homebuyers have the advantage of inspecting properties under less-than-ideal weather conditions. This allows for a more accurate assessment of the property’s condition, including its performance during colder months. From checking the heating system to evaluating insulation, winter or rainy season inspections provide a comprehensive understanding of the home’s functionality throughout the year.
While the idea of house hunting in the off-season may seem unconventional, it comes with benefits that can make the experience more enjoyable and financially advantageous. By exploring the market during the off-season, you may just find your dream home at a dreamier price!
Are you looking for a home this winter?Give us a call today!One of the experienced real estate agents at Zoocasa is happy to help you along your exciting home-buying journey!
In 2024, the world of design is evolving — the 2023 design trends that once seemed evergreen are proving themselves out of fashion fast. Designers are leading a creative revolution, saying goodbye to certain decor trends that have been around for too long. Let’s explore the shifts and innovations that will redefine our living spaces this year.
The saturation of grays, greiges and beiges
The subdued palette that dominated 2023 is now experiencing a sense of saturation. While these neutrals are timeless, their overuse, especially within the realm of minimalism, has rendered them somewhat uninspiring. Consider infusing vitality into your color scheme with bold and saturated hues. Also, explore the rich spectrum of nature-inspired tones to breathe life into your living spaces. Jewel tones also contrast beautifully against most gray wall colors and add more personality.
Checkered pattern play and chevron prints have a checkered past
The once-revitalizing checkered pattern in home decor has become a victim of its own popularity. We have to say the same for the once-popular chevron print that found its way onto rugs, walls and decor items, too. Instead of continuing with this trend, opt for textural fabrics like natural linen. This shift provides a refreshing departure from the ubiquitous checkered aesthetic while maintaining a touch of vintage charm.
Overly coordinated decor
The meticulous coordination of every element in a space, a hallmark of 2023, is now on the wane. Beyond the significant investment of time and money, overly coordinated decor tends to create impersonal and somewhat sterile living environments. Embrace maximalism, which encourages an eclectic and personalized approach. It injects warmth and character, transforming spaces into inviting havens. While we can’t really say that minimalism itself is out, the aesthetic’s leaning toward over-coordination is.
Saying sayonara to impersonal spaces
Hiding personal touches within homes, a trend of 2023, is giving way to a more authentic and open expression of individuality. In 2024, the focus is on showcasing personal style, memories and uniqueness through decor. Consider creating a gallery wall that tells your story with pride. This departure from impersonal spaces contributes to a more emotionally resonant and visually captivating living environment.
Overestimating our green thumb
While plants undoubtedly enhance interiors, the misconception of universal gardening expertise can lead to the neglect of these green companions. Instead of overestimating our green thumbs, we recommend taking an honest assessment of how much plant care you can handle. Start small with low-maintenance plants like succulents, gradually incorporating them into your decor for a harmonious and vibrant atmosphere.
Style over comfort
The dominance of style over comfort in 2023 is evolving. The realization that a truly inviting living space should prioritize comfort and functionality is gaining traction. Investing in multifunctional furniture is a key shift, ensuring that pieces look good while enhancing the overall living experience. This move towards comfort signifies a departure from purely aesthetic-driven choices.
Choosing trendy over timeless
The inclination to chase trends is losing ground to a preference for timeless design elements, such as the transitional design style. The recognition that trendy pieces can quickly make a space feel outdated and impersonal is driving a shift towards enduring choices. Embrace mid-century modern design, sustainable pieces and neutral rugs for a timeless and enduring aesthetic.
Is gold gaudy in 2024?
Gold, as a timeless element, remains in vogue, but the gaudy and flashy manifestations are making way for more subdued and sophisticated design choices. The desire for a balanced and refined atmosphere has prompted a departure from the excessive use of brassy gold pieces everywhere — instead choosing a more burnished gold look. Opt for timeless and versatile gold accents that contribute to an elegant and harmonious living space.
Image source: ELLE Decor
Embracing bold statements of 2024
As we bid farewell to our once-beloved 2023 design trends, there’s a resounding call to embrace designs that have a striking impact. Vibrant color choices, daring patterns and eye-catching focal points are becoming central to creating memorable aesthetics.
This movement invites individuals to step into the role of interior designers, breaking free from the mundane and infusing spaces with a daring, expressive approach. The power of bold statements is set to elevate our living spaces and leave a lasting impression in the unfolding narrative of 2024.
Make a new statement with a new apartment
If you’re still on the quest for a new living space, explore the available apartments and homes for rent. It’s an opportunity to infuse your creative touch and turn your dream rental into a personalized haven.
If you’re considering a loan on a home you own outright, it’s important to note that when you own your home without any current mortgage, its entire value is equity.
You can utilize this equity by securing a loan against the home’s worth. Multiple mortgage loan options are available, such as a cash-out refinance, home equity loan, or HELOC.
To make the most informed decision, delve deeper into each option and discover which suits your needs best.
Check your loan options. Start here
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Can I get a loan on a house that’s paid for?
Yes, you can get a loan on a home you own outright through a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.
A home equity loan allows you to borrow a fixed amount of money using your home as collateral and pay it back with interest over a set term. A HELOC, on the other hand, works like a credit card where you can borrow money as you need it up to a certain amount, and pay it back with interest.
When you take out a home equity loan or a HELOC, the lender will determine the amount of equity you have in your home and use that as collateral for the loan. The amount of equity you have is determined by the difference between the current value of your home and the outstanding balance on your mortgage
Cash-out refinancing allows you to borrow up to 80% of your home’s appraised value. You’ll repay the loan via monthly payments, just like you did before you paid off your mortgage balance
Keep in mind that taking out a loan on a paid-off house puts your home at risk if you are unable to make payments. If you default on the loan, the lender may foreclose on your home to recoup their losses.
So, before taking out a home equity loan, or HELOC, make sure you can comfortably make the monthly payments and understand the risks involved.
Verify your eligibility. Start here
Home equity loans for a paid-off house
Getting a loan on a house you already own lets you borrow against the value of your home without selling.
The type of loan you’ll qualify for depends on your credit score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), and other factors. But assuming your personal finances are in good shape, you can likely choose from any of the following loan options that we summarized above.
Check your loan options. Start here
1. Cash-out refinance
Cash-out refinancing typically involves applying for a new mortgage to replace an existing one and borrowing cash from your home equity. When you already own your home outright, you aren’t paying off an existing mortgage. So most or all of the loan will come to you as a lump sum of cash.
You can typically borrow up to 80% of your home’s value using a cash-out refinance. However, with the VA cash-out refi, you could potentially get up to 100% of your home’s value. But only veterans and active-duty service members have VA loan eligibility.
Refinancing requires a home appraisal to measure your home’s market value. Unless your home is worth over $1 million, in which case you may be able to get an appraisal waiver. You’ll also pay closing costs, ranging between 2% and 5% of your loan balance.
You can pay closing costs out of pocket, or your lender might be willing to cover part of them in exchange for a higher interest rate. Alternatively, you could roll the closing costs into your loan balance.
Cash-out refinancing typically requires a credit score of at least 620. But a higher score (720 and up) will earn you a lower mortgage rate and help you save on interest costs.
2. Home equity loan
Another option is a home equity loan. As with a cash-out refinance, the amount you can borrow is based on your home’s value. Your loan terms will also depend on your credit score.
Homeowners can typically borrow up to 80% of their home’s equity with a home equity loan, which is also known as a second mortgage. However, some smaller banks and credit unions may allow you to pull out up to 100% of your equity.
Once approved, you’ll receive the entire loan amount in cash to use as you wish. Then you’ll repay the loan with interest by making monthly payments.
Home equity loans have higher interest rates than refinancing but lower interest rates than credit cards or personal loans. Since it’s an installment loan with a fixed interest rate, you’ll also have a fixed monthly payment.
Many lenders set their minimum credit score for a home equity loan between 620 and 700.
Verify your home equity loan eligibility. Start here
3. Home equity line of credit (HELOC)
A home equity line of credit is similar to a home equity loan. But rather than receiving a lump sum of cash, borrowers can draw from a line of credit as needed.
Home equity lines of credit often have a draw period of 10 years, meaning you can borrow from the credit line and repay it as often as you want within that time frame. After the draw period ends, there’s typically a repayment period of up to 20 years, during which you cannot borrow from the HELOC and must repay any outstanding balance with interest.
Check your HELOC options. Start here
A HELOC is a revolving account, like a credit card, so the amount borrowed determines your monthly payment. HELOCs usually have variable interest rates.
How to choose a loan on a home you own outright
Although you have several options when getting a loan on a home you own outright, the right mortgage depends on your specific goals. Here’s how to choose the best loan for your financial situation.
Talk to a lender about your mortgage options. Start here
You need cash to buy another property. You can purchase a new property with the aid of a cash-out refinance or a home equity loan. Both loans give you a lump sum payment up front and let you extend the fixed repayment term over a longer period of time. HELOCs can have higher interest rates and variable rates, leaving you with less certainty about your future rate and monthly payments HELOCs can have higher interest rates and variable rates, leaving you with less certainty about your future rate and monthly payments
You want to make home improvements. Home equity loans and HELOCs can be used to improve your home by making renovations or repairs. A home equity loan is great for a single project, while a HELOC is better for completing several projects over many years. You can also use a cash-out refi, but if you extend your loan term, you may pay more in interest over the life of the loan. This could make it harder for you to pay off your mortgage and add value to your home.
You want to consolidate high-interest debts. A cash-out refinance is a way to use home equity to pay off high-interest debts, such as credit card debt or personal loans. It can be a smart way to save money on interest, but it has risks, such as a risk of foreclosure and using a long-term asset, the value of your real estate, to pay for shorter-term needs
Regardless of the type of loan you choose, request quotes from at least three mortgage lenders to compare interest rates, discount points, and upfront fees. This will help you get the best deal.
Pros and cons of getting a loan on a home you already own
Leveraging a fully paid-off home for a loan comes with its own set of benefits and drawbacks. Here’s what you should consider before opting for a home equity loan.
Verify your home equity loan eligibility. Start here
Pros
Enjoy cost-effective borrowing. Home loans, when taken against a fully-owned property, typically offer more competitive interest rates than personal loans or credit cards. This is due to the house acting as a guarantee. Moreover, when opting for a new loan like a refinance, the associated closing expenses might be on the lower side
Unlock most of your home’s value. With no existing liens on your property, such a loan lets you access a large part of your equity. Lenders find this arrangement favorable, knowing you’ve successfully cleared a first mortgage. It’s important to keep in mind that the property’s valuation and your credit history will still determine the loan amount
Benefit from fixed-rate repayments. Such home loans usually come with fixed interest rates, ensuring consistent monthly outflows throughout the loan’s tenure
Flexibility in how you use your money. The loan amount can be channeled into various needs, be it home refurbishments, debt clearance, or any significant expenditure
Potential tax benefits. If the loan amount is reinvested into property enhancements, the interest might be deductible, giving it an edge over other financial products like personal loans or credit cards
Cons
Your property is on the line. If you default on the home equity loan repayments, you risk losing your fully owned home to foreclosure
It might cost more than other home loans. Generally, home equity loans have steeper interest rates compared to refinancing options and Home Equity Lines of Credit (HELOCs), making them potentially pricier
Be prepared for closing costs. Typically, these can range from 2% to 5% of the loan value, adding to the overall cost
Repayment terms might be rigid. Unlike some other options, such as HELOCs, which offer flexibility in repayment and re-borrowing, home equity loans have a fixed repayment schedule
Risk of the loan exceeding the property value. If you secure a loan on a home you own outright prior to a downturn in the property market, you might find yourself owing more than the property’s worth
3 things to consider before getting a loan on a home you already own
Considering taking a loan on a home you own outright? It’s an important decision with several facets to consider. Let’s delve into three key aspects:
1. Do you really need the liquidity?
What’s your primary motivation for tapping into equity? If you’re planning significant home improvements that could enhance its market value, that’s a strategic approach.
However, if the goal is to address other debts or make purchases that won’t hold their value, exercise caution. You wouldn’t want to jeopardize your home without good reason.
2. How much do you need to borrow and for how long?
The size of your loan will directly determine your monthly commitments. When considering a larger loan amount, it’s important to evaluate the monthly payments, interest rate, and the loan’s lifespan. If you’ve been enjoying a mortgage-free status for a while, it’s worth reflecting on whether you’re ready to recommit to a long-term debt.
3. Are you financially stable?
A few things to consider here. First, ensure that the monthly payments of the new loan align with your budget without overstretching. You should also ensure the offered rate is competitive and aligns with current market rates.
Lastly, always consider if there might be more suitable alternatives. Sometimes, continuing to save or exploring other financing avenues might be more beneficial.
Remember, leveraging your home’s equity is a significant step, and it’s essential to make decisions that resonate with your long-term goals and financial well-being.
How to get a loan on a home you own outright
Getting a home equity loan on home you own outright can be a smart financial decision, allowing you to tap into the equity you’ve built. It can be used for various purposes, such as home improvement, debt consolidation, or funding a significant purchase.
Verify your home equity loan eligibility. Start here
Here is a step-by-step guide on how to obtain a home equity loan on a fully paid-off house:
Determine your needs: Before applying for a home equity loan, identify why you need the loan and how much you want to borrow. Keep in mind that borrowing more than you need might lead to increased costs and interest rates.
Calculate your equity: Equity is the difference between your home’s current market value and any outstanding debts secured by the property. Since your house is paid off, your equity is equal to the current market value of your home. You can calculate your home’s equity using online tools or consulting a local real estate agent.
Check your credit score: A good credit score is essential for obtaining a home equity loan with favorable terms. Check your credit report for any errors and take steps to improve your credit score, if necessary, by paying off outstanding debts and ensuring timely bill payments.
Shop around for lenders: Research various financial institutions, including banks, credit unions, and online lenders, to find the best home equity loan terms and interest rates. Compare loan offers and choose the one that best suits your needs.
Gather necessary documents: Prepare the required documentation, including pay stubs, W-2 forms, bank statements, and tax returns.
Apply for the loan: Fill out the loan application and provide the required documentation. The lender will review your application and determine whether you qualify for the loan.
Close the loan: If you are approved for the loan, you will need to sign the loan documents and pay any closing costs or fees associated with the loan.
Once the loan is closed, you will receive the loan proceeds in a lump sum, which you can use for any purpose. Remember that you will be required to make monthly payments on the loan, and failure to do so could result in foreclosure on your home.
Alternatives to getting a loan on a home you own
Mortgages on your current home aren’t always necessary when buying a second home, vacation home, or investment property.
Verify your eligibility. Start here
“You may already have enough savings for a down payment without tapping into your equity,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.
Before getting a loan on a home you own outright, look into mortgage loans that allow low down payments. Home buyers should consider the following types of loans.
Conventional loans
If you’re buying a new home to use as your primary residence, conventional loans allow financing with as little as a 3% down payment. You could qualify with a credit score as low as 620.
At least a 10% down payment is required for a vacation home, 20% to avoid private mortgage insurance, and 20-25% for a rental or investment property.
Check your conventional loan eligibility. Start here
FHA loans
FHA loans require only a 3.5% down payment, allowing FICO scores as low as 580. You cannot use an FHA loan to purchase a vacation home or an investment property. But you can use one to buy a multi-unit property with up to four units, live in one of the units, and rent out the others.
Check your FHA loan eligibility. Start here
VA loans
VA loans are the best option for eligible veterans and service members due to their low mortgage rates, lack of mortgage insurance, and no down payment. However, they can only be used for a vacation or investment home when buying a multi-unit property with up to four units. You can also use a VA loan to buy a second home, but only if the second home becomes your primary residence.
Check your VA loan eligibility. Start here
Interest rates for a second home
If you’re using cash from your equity to buy another home, make sure you understand how interest rates work on a vacation home, second home, and investment property.
Check your loan options. Start here
Since the new home won’t be your primary residence, you can expect a slightly higher mortgage rate. This rate increase protects the lender because these properties have a higher risk of default. That’s because mortgage lenders know that in the event of financial hardship, homeowners prioritize paying the mortgage on their primary home before a second home or investment property.
But although you’ll pay a higher rate when buying a second home, shopping around and comparing loans can help you save. To see the impact of higher mortgage rates, you can experiment with a mortgage calculator.
FAQ: Loan on a home you own outright
How do you get a loan on a home you own outright?
To obtain a loan on a home you own outright, you can approach a financial institution or lender and apply for a home equity loan, HELOC, or cash-out refinance. The process typically involves an assessment of your property’s value, a review of your credit history, and verification of your income sources. Once approved, you can use your home as collateral to secure the loan.
What does it cost to get a loan on a house you own outright?
The costs associated with getting a loan on a house you own outright can vary based on the lender and the type of loan. Common expenses include appraisal fees to determine the home’s value, origination fees, title search fees, and potential closing costs. If you’re considering a reverse mortgage, there might be additional fees and insurance costs involved.
How much can you borrow against a house if you owe more than it’s worth?
If you owe more on your home than its current market value, you’re in a situation known as being u0022underwateru0022 on your mortgage. In such cases, borrowing additional funds against your home can be challenging. Lenders typically want the home’s value to exceed the loan amount to minimize their risk. However, some government programs might assist homeowners in this situation, but a reverse mortgage might not be an option unless there’s sufficient equity in the home.
What is the maximum amount I can borrow against a home that I own outright?
Typically, for home equity loans, lenders allow you to borrow up to 80-90% of your home’s value. But the maximum amount you can borrow against a home you own outright depends on several factors, including the home’s appraised value, your age (especially if considering a reverse mortgage), current interest rates, and lender-specific guidelines.
Should you mortgage the house you own?
Owning your home outright provides a valuable equity cushion, and it’s exciting when you no longer shoulder the burden of monthly mortgage payments. The good news is that you don’t have to sell your home to access your equity.
Using a cash-out refinance, home equity loan, or home equity line of credit, homeowners can pull cash from their equity and use the money for many different purposes.
Make sure you understand the pros and cons of each type of financing and choose the best one for you based on your specific goals.
Time to make a move? Let us find the right mortgage for you
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
While getting denied on a credit card application doesn’t impact your score, the hard inquiry from applying for credit may temporarily cause your score to drop a few points.
Not getting approved for a credit card can be a bummer, but does getting denied hurt your credit score? Read on to discover how getting denied affects your credit, potential reasons why your application was denied and the next steps to get approved in the future.
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How does applying for a credit card affect your credit?
After you submit a credit card application, the lender will likely perform a credit check to evaluate your credit history. This triggers a hard inquiry, which is a lender’s request to obtain your credit report from the credit bureaus.
Typically, a hard inquiry causes your credit score to drop around five points or so. While hard inquiries remain on your credit report for two years, the effect on your credit score only lasts a few months to a year. Remember that the effect on your credit is the same regardless of whether your application is approved or denied.
While scoring models provide rate shopping windows for auto loans, student loans and mortgages, these windows don’t apply to credit card applications. To lessen the effects of hard inquiries on your credit, try waiting at least six months between submitting credit card applications.
6 reasons why credit card applications are denied
Below are potential reasons why your credit card application was denied and tips to increase your chances of being approved in the future.
1. Insufficient credit history
Insufficient credit history means that there isn’t enough information in your credit file to determine your risk.
When applying for a credit card or loan, lenders look at your credit history to determine your track record as a borrower. A lack of a credit history is essentially a giant question mark for the lender, which prevents them from assessing your risk level.
Credit tip: Consider applying for a secured credit card or becoming an authorized user on someone else’s account to begin building credit.
2. Poor credit score
Many credit cards have credit score requirements for approval. While this varies from card to card, most require a credit score in good range or higher, which starts at 670 according to the FICO® model. The higher your credit score, the more likely lenders are to approve you and offer favorable interest rates and terms.
Credit tip: Take steps to improve your credit score, such as making timely payments, lowering your credit utilization and disputing inaccuracies on your credit report.
3. Late payments
A history of late payments may indicate to lenders that you might struggle to repay the credit they lend you. Not to mention that payment history is the most important factor in determining your credit score, so too many late payments can severely damage your credit.
Credit tip: Enroll in autopay or set reminders to pay your bills on time.
4. Too many hard inquiries
In addition to the effect that hard inquiries have on your credit score, applying for too many credit cards in a brief time frame might signal to creditors that you aren’t financially stable and, therefore, are a high-risk borrower.
Credit tip: While there is no hard and fast rule, consider waiting about every six months between each new credit card application.
5. High debt-to-income ratio
Your debt-to-income ratio is the amount of debt you owe each month divided by your monthly income. Generally, a low debt-to-income ratio indicates to lenders that you have a higher likelihood of being able to make payments.
Credit tip: To maintain a good debt-to-income ratio, aim to keep your total monthly debt payments under 36 to 43 percent of your monthly income.
6. Inaccuracies on your credit report
Having errors or inaccuracies on your credit report can stand in the way of getting approved for credit. To check for errors, download a free copy of your credit report at AnnualCreditReport.com and identify errors such as incorrect accounts, inaccurate balances or errors regarding your personal information.
Credit tip: If you find errors on your credit report, file a dispute with the credit bureau to potentially have the inaccurate information removed.
Steps to take after getting denied for a credit card
If your credit card application is denied, consider taking the following steps to increase your chances of approval:
Determine why your application was denied: Creditors must send you an adverse action notice that details why your application was denied.
Ask the creditor to reconsider: Most banks have a credit card reconsideration line you can call to plead your case. You may have been denied by mistake, so it never hurts to follow up.
Wait to reapply: While your first thought may be to reapply for the card, try waiting six months between submitting credit card applications.
Research alternative cards: Some credit cards are harder to get approved for than others. For example, platinum rewards cards have more stringent requirements than secured cards. Consider the card’s score requirements against your own score before applying.
Seek preapproval: Many creditors send preapproval letters after using soft inquiries to determine that you meet the initial criteria to get approved for the card. While preapprovals don’t guarantee approval, they can help you filter through cards you won’t get approved for without getting a hard inquiry on your credit report.
Monitor your credit: As you work to improve your credit, continue to check your credit score and report so you can determine when you have a better chance at approval.
At Lexington Law Firm, our team could help you manage and work to improve your credit to potentially get approved for credit cards and loans. To determine your current credit status, get your free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.