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Taking out a mortgage comes with many costs — some upfront and some paid over long lengths of time. On a $300,000 mortgage, those costs might surprise you.
In fact, on a traditional 15- or 30-year loan of this size you might pay anywhere from $72,000 to $155,000 just in interest.
Learn more about how much a $300,000 mortgage will cost you in the long run:
Monthly payments for a $300,000 mortgage
Monthly mortgage payments always contain two things: principal and interest. In some cases, they might include other costs as well.
Here’s what typically makes up a mortgage payment:
Principal: This money is applied straight to your loan balance.
Interest: The cost of borrowing the money. How much you’ll pay is indicated by your interest rate.
Escrow costs: If you opt to use an escrow account (or your lender requires it), you’ll also have your property taxes, mortgage insurance, and homeowners insurance rolled into your monthly mortgage payment, too.
On a $300,000 mortgage with a 6% APR, you’d pay $2,531.57 per month on a 15-year loan and $1,798.65 on a 30-year loan, not including escrow. Escrow costs vary depending on your home’s location, insurer, and other details.
Here’s a quick look at what the monthly payment (principal and interest) would be for a $300,000 mortgage with varying interest rates:
Annual Percentage Rate (APR)
Monthly payment (15 year)
Monthly payment (30 year)
$2,531.57
$1,798.65
$2,572.27
$1,896.20
$2,613.32
$1,896.20
$2,654.73
$1,945.79
$2,696.48
$1,995.91
$2,738.59
$2,046.53
$2,781.04
$2,097.64
$2,823.83
$2,149.24
$2,866.96
$2,201.29
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Check out: 20- vs 30-Year Mortgage: Is an Unusual Option Right for You?
Where to get a $300,000 mortgage
To get a $300,000 home loan, you’ll want to get quotes from at least a few different lenders. Though this can be done by reaching out to each mortgage company directly, you can also compare lender options with an online marketplace like Credible.
Once you receive your quotes, you’ll want to compare them line by line. You should look at the interest rate, total costs on closing day, any origination fees, mortgage points you’re being charged, and more.
After you determine the best offer, you can move forward with that lender’s application and submit any required documentation.
Credible makes the process of comparing lender options easier — and it only takes a few minutes.
Credible makes finding a mortgage easy
Compare prequalified mortgage rates from top lenders in just 3 minutes.
Personalized rates, not generic
One simple, safe TLS-encrypted form
No spam calls from lenders
Checking rates is free, with no commitment
Find My Rate
Learn More: How to Know If You Should Buy a House
What to consider before applying for a $300,000 mortgage
Before taking out a mortgage of this size (or any home loan for that matter), you’ll want to have a good handle on the total costs of the loan. That includes your closing costs, the down payment, the total interest you’ll pay, and the monthly payment the loan comes with.
Total interest paid on a $300,000 mortgage
You’ll always pay more interest on longer-term loans. So, for example, a 30-year loan would cost more in the long haul than a 15-year one would (though the 30-year loan would have a smaller monthly payment).
With a 30-year, $300,000 loan at a 6% interest rate, you’d pay $347,514.57 in total interest, and on a 15-year loan with the same rate, it’d be $155,682.69 — a whopping $191,831.88 less.
Use the below calculator to see how much interest you’ll pay, as well as what your home will cost you every month.
Enter your loan information to calculate how much you could pay
Total Payment
$
Total Interest
$
Monthly Payment
$
With a $
home loan, you will pay $
monthly and a total of $
in interest over the life of your loan. You will pay a total of $
over the life of the
mortgage.
Amortization schedule on a $300,000 mortgage
An amortization schedule breaks down how much you’ll pay in interest and principal for every year of your loan’s term.
At the start of your loan, the bulk of your monthly payments will go toward interest, but as you get further into the loan term, more will be applied to the principal balance.
Here’s what an amortization schedule looks like for a 30-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$1,798.65
$17,899.78
$3,684.04
$296,315.96
2
$296,315.96
$1,798.65
$17,672.56
$3,911.26
$292,404.71
3
$292,404.71
$1,798.65
$17,431.32
$4,152.50
$288,252.21
4
$288,252.21
$1,798.65
$17,175.21
$4,408.61
$283,843.60
5
$283,843.60
$1,798.65
$16,903.29
$4,680.53
$279,163.07
6
$279,163.07
$1,798.65
$16,614.61
$4,969.21
$274,193.86
7
$274,193.86
$1,798.65
$16,308.12
$5,275.70
$268,918.16
8
$268,918.16
$1,798.65
$15,982.72
$5,601.10
$263,317.06
9
$263,317.06
$1,798.65
$15,637.26
$5,946.56
$257,370.50
10
$257,370.50
$1,798.65
$15,270.49
$6,313.33
$251,057.17
11
$251,057.17
$1,798.65
$14,881.10
$6,702.72
$244,354.45
12
$244,354.45
$1,798.65
$14,467.69
$7,116.13
$237,238.32
13
$237,238.32
$1,798.65
$14,028.78
$7,555.04
$229,683.28
14
$229,683.28
$1,798.65
$13,562.80
$8,021.02
$221,662.27
15
$221,662.27
$1,798.65
$13,068.08
$8,515.74
$213,146.53
16
$213,146.53
$1,798.65
$12,542.85
$9,040.97
$204,105.57
17
$204,105.57
$1,798.65
$11,985.22
$9,598.59
$194,506.97
18
$194,506.97
$1,798.65
$11,393.20
$10,190.61
$184,316.36
19
$184,316.36
$1,798.65
$10,764.67
$10,819.15
$173,497.21
20
$173,497.21
$1,798.65
$10,097.37
$11,486.45
$162,010.76
21
$162,010.76
$1,798.65
$9,388.91
$12,194.91
$149,815.85
22
$149,815.85
$1,798.65
$8,636.75
$12,947.06
$136,868.78
23
$136,868.78
$1,798.65
$7,838.21
$13,745.61
$123,123.17
24
$123,123.17
$1,798.65
$6,990.41
$14,593.41
$108,529.76
25
$108,529.76
$1,798.65
$6,090.32
$15,493.50
$93,036.26
26
$93,036.26
$1,798.65
$5,134.71
$16,449.11
$76,587.16
27
$76,587.16
$1,798.65
$4,120.17
$17,463.65
$59,123.51
28
$59,123.51
$1,798.65
$3,043.05
$18,540.77
$40,582.73
29
$40,582.73
$1,798.65
$1,899.49
$19,684.32
$20,898.41
30
$20,898.41
$1,798.65
$685.41
$20,898.41
$0.00
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Here’s what an amortization schedule looks like for a 15-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance
Monthly payment
Total interest paid
Total principal paid
Remaining balance
1
$300,000.00
$2,531.57
$17,653.84
$12,725.00
$287,275.00
2
$287,275.00
$2,531.57
$16,868.99
$13,509.85
$273,765.15
3
$273,765.15
$2,531.57
$16,035.74
$14,343.11
$259,422.04
4
$259,422.04
$2,531.57
$15,151.08
$15,227.76
$244,194.27
5
$244,194.27
$2,531.57
$14,211.87
$16,166.98
$228,027.30
6
$228,027.30
$2,531.57
$13,214.72
$17,164.12
$210,863.17
7
$210,863.17
$2,531.57
$12,156.08
$18,222.77
$192,640.41
8
$192,640.41
$2,531.57
$11,032.14
$19,346.71
$173,293.70
9
$173,293.70
$2,531.57
$9,838.88
$20,539.97
$152,753.73
10
$152,753.73
$2,531.57
$8,572.02
$21,806.83
$130,946.90
11
$130,946.90
$2,531.57
$7,227.02
$23,151.83
$107,795.08
12
$107,795.08
$2,531.57
$5,799.06
$24,579.78
$83,215.29
13
$83,215.29
$2,531.57
$4,283.04
$26,095.81
$57,119.49
14
$57,119.49
$2,531.57
$2,673.51
$27,705.34
$29,414.15
15
$29,414.15
$2,531.57
$964.70
$29,414.15
$0.00
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How to get a $300,000 mortgage
Finding a mortgage can be quite simple — especially when using a tool like Credible.
When filling your mortgage application out, you’ll want to have some financial details on hand, including your income, estimated credit score, homebuying budget, and info regarding your assets and savings.
Credible makes finding a mortgage easy
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Here’s a step-by-step guide on how the mortgage process usually goes:
Estimate your homebuying budget. Take a look at your finances, including your earnings, debts, and monthly expenses, and determine what you can afford in terms of home price, down payment, and monthly payments. A good mortgage calculator can help you here.
Do a credit check. Both your credit history and your credit score will play a major part in your loan application, so pull your credit report and evaluate your standing. If you have late payments, collections efforts, or other negative events on your report, you may want to work on addressing those before applying, as they could hurt your chances.
Get pre-approved. Always get pre-approved for a mortgage before searching for a home. A pre-approval letter can give you a good price range to shop in, as well as give sellers more confidence in your offers.
Compare rates and mortgage offers. Next, you’ll want to compare options. Pay close attention to the interest rate and APR you’re being offered, the closing costs, and any fees the lender is charging.
Find and make an offer on a home. When you find that dream home, be sure to include your pre-approval letter in your offer, and work with an experienced real estate agent to get the best deal.
Complete the full mortgage application. After your offer has been accepted, fill out your lender’s full mortgage application and submit the documentation they require. This usually includes things like tax returns, bank statements, pay stubs, and more. You will also need to submit to a credit check.
Await approval. Your loan will then go into underwriting, which is when your lender verifies your income, savings, and other assets and makes sure you can repay the loan. The lender will also order an appraisal to gauge your home’s value (and make sure it’s worth the money you’re requesting to borrow for it).
Get ready for closing. Once your loan is nearing full approval, you’ll get a closing date, which is when you’ll sign the final paperwork and receive your keys. You’ll typically need proof of homeowners insurance by this day, so be sure to shop around for your policy early.
Close on your loan. When closing day rolls around, you’ll attend your appointment, sign the required paperwork, and pay for your down payment and closing costs (usually via cashier’s check or wire transfer).
Keep Reading: How Long It Takes to Buy a House
About the author
Aly J. Yale
Aly J. Yale is a mortgage and real estate authority. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
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Home » All » Mortgages » How Much a $300,000 Mortgage Will Cost You
A variety of notable mortgage rates slumped over the last seven days. While 15-year fixed mortgage rates moved higher, interest rates on 30-year fixed mortgages shrank. For variable rates, the 5/1 adjustable-rate mortgage sunk lower.
30-year fixed mortgage: 6.99%
15-year fixed mortgage: 6.47%
5/1 adjustable-rate mortgage: 6.12%
In November, the average rate for a 30-year fixed mortgage started making sustained drops from its earlier peak of 8%. The most common home loans are now in the 6% to 7% range. Yet the mortgage market always has some level of volatility, and rates have already started inching back up at the start of this year.
“It’s not uncommon to see a shift in the pattern for interest rates in January, sometimes positive, sometimes not,” said Keith Gumbinger, vice president of mortgage site HSH.com.
The current housing market is difficult. High mortgage rates, expensive home prices and tight inventory are keeping homebuying out of reach for many. If you’re looking to buy a home, don’t try to time the market. Instead, experts recommend patience and preparation: Figure out what you can afford and take steps to improve your financial situation.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Today’s average mortgage interest rates
If you’re in the market for a home, check out how today’s mortgage rates compare to last week’s. We use rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:
Today’s mortgage interest rates
Loan term
Today’s Rate
Last week
Change
30-year mortgage rate
6.99%
7.00%
-0.01
15-year fixed rate
6.47%
6.46%
+0.01
30-year jumbo mortgage rate
7.02%
7.05%
-0.03
30-year mortgage refinance rate
7.19%
7.21%
-0.02
Rates as of Jan. 26, 2024
How to choose a mortgage
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 6.99%, which is a decline of 1 basis point from seven days ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.47%, which is an increase of 1 basis point from the same time last week. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.12%, a fall of 25 basis points compared to last week. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
When mortgage rates will stabilize, according to experts
Mortgage rates were near record lows, around 3%, at the start of the pandemic. That changed as inflation surged and the Federal Reserve kicked off a series of aggressive interest rate hikes, which indirectly drove up mortgage rates. Now, mortgage rates are still more than double what they were just a few years ago.
However, with the central bank keeping interest rates steady since late July, mortgage rates finally saw some sustained decreases in the fall. With the Fed planning to announce its next policy move in late January (and again in mid-March), experts are waiting for the first interest rate cut. It may be months before that happens, but mortgage rates could stabilize and start inching even lower in the coming months.
““The history of economic cycles has taught us that when the markets believe the Fed is done hiking rates, [mortgage rates] make a big move lower before rate cuts happen,” said Logan Mohtashami, lead analyst at HousingWire.
What affects mortgage rates?
Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
Mortgage rate forecasts from experts
While mortgage forecasters base their projections on different data, most predict rates will remain near or above 7% for the rest of 2023. Here’s a look at where some of the major housing authorities expect average mortgage rates to land at the end of the year.
How to find the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
Inside: Escape the cycle of being broke with insightful tactics. Learn to invest, save smartly, spot financial traps, and build secure money habits today.
You are desperate right now. You want to know why I am broke.
I get it. This is a situation I have been in before and just recently when I lost my main source of income.
The feelings of you can’t afford anything may send you down a steep spiral of depression.
So, how do we escape?
Here are the tips I used before and plan to use again.
Top Reasons for Why I am Broke
#1 – The Mindset Traps That Keep You Broke
A mindset that cultivates a sense of scarcity rather than abundance can be a massive roadblock to financial prosperity. When you’re shackled by thoughts like “I am always broke,” you unwittingly set the stage for a self-fulfilling prophecy.
The mental narrative that convinces you wealth is unattainable can keep you trapped in a loop of missed opportunities and poor financial decisions.
You may inadvertently sabotage your potential to earn more, save, or invest wisely by clinging to a defeatist paradigm.
Fixing a broken mindset is about shifting from a state of helplessness to one of deliberate, empowering action.
It starts with self-awareness and is further built through intentional positive affirmations and financial education.
Overcome By: Remember, the mind is powerful—it can be your greatest ally or your most formidable adversary. Change your money mindset.
#2 – Living Beyond Your Means: A Fast Track to Empty Pockets
Living beyond your means is akin to constantly filling a sieve with water, hoping it will someday retain more than it loses—a surefire way to financial drought. It’s a lifestyle where your outflow far exceeds your inflow, and every paycheck evaporates into the ether of consumerism.
With the advent of credit cards and buy-now-pay-later schemes, the temptation to spend money we don’t have has never been greater.
The façade of affluence conceals the grim reality of financial instability.
Acknowledging this trap is step one. Living within one’s means doesn’t imply sacrificing joy or reverting to asceticism; it’s about striking a harmonious balance between the lifestyle you desire and the one you can sensibly afford.
Overcome By: Making choices aligned with your financial reality, finding contentment in simplicity, and prioritizing financial health over transient pleasures.
#3 – Chronic Debt: Borrowing from Tomorrow for Today
Chronic debt is a pervasive issue, ensnaring individuals in a vicious cycle of borrowing today and worrying about repayment tomorrow. This pattern often stems from an urgency to fulfill immediate desires or needs without adequate financial resources.
Alarmingly, the trend of increasing consumer debt signals a culture obsessed with instant gratification as consumer debt is $16.84 trillion in Q2 2023, according to Experian. 1
Being in debt should not be normal.
The onus of breaking free from chronic debt lies in reevaluating your relationship with money. It means slowing down the urge to splurge, meticulously planning for future financial obligations, and carving a path towards debt repayment.
Overcome By: Find the discipline to not only stop accumulating debt but also to aggressively tackle existing debts through methods like debt snowball or debt avalanche strategies.
#4 – You Haven’t Learned to Plan and Budget for a Brighter Tomorrow
The lack of a strategic financial plan and a detailed budget is tantamount to navigating unknown terrain without a map. Without these critical tools, your finances are left to chance rather than choice, leaving you vulnerable to the whims of circumstance.
Budgeting is perhaps the most fundamental step toward taking ownership of your financial future. It gives you a clear snapshot of where your money is going, which is essential for making informed spending decisions.
However, many avoid the budgeting process, perceiving it as restrictive or complex. The truth is that budgeting liberates you from the anxiety that comes with uncertainty. It empowers you to align your spending with your financial goals and to find a balance between today’s necessities and tomorrow’s aspirations.
Overcome By: Choose a budgeting method whether it be the zero-based budget, the 50/30/20 rule, or the envelope system, the key is to find a method that resonates with your lifestyle and stick to it.
#5 – No Emergency Fund to Weather Financial Storms
An emergency fund is an essential bulwark against the financial tempests life invariably hurls your way. Without it, a single unforeseen event—a job loss, a medical emergency, or an urgent car repair—can capsize an already precarious financial ship. The lack of an emergency cushion extends an open invitation to debt and financial strain.
The data tells a stark tale:
A statement from the Consumer Financial Protection Bureau highlights that nearly a quarter of consumers (24%) don’t have an emergency savings account. 2
Additionally, 39% have less than a month’s worth of income saved for emergencies, setting the stage for potential financial disaster. 2
This precarious situation has become more pronounced with the increasing cost of living and high inflation rates witnessed in 2021-2023.
Overcome By: Structured, automatic savings transfers to facilitate the gradual growth of your emergency fund without it feeling like a financial blow. The goal is to build a reservoir robust enough to cover several months of living expenses, providing a comfortable buffer that can help you bounce back from setbacks without the need to borrow money at high-interest rates or liquidate precious assets at inopportune times.
#6 – Lack of Understanding of The Power of Investing
Understanding the power of investing is key to grasping the potential of a seed. A seed, given the right conditions, can grow into a flourishing tree. Similarly, investing allows your finances to grow beyond the confines of stagnant savings.
Yet, many people fail to harness this power due to a lack of understanding or fear of the unknown. This was me for many years until I decided to learn to trade stocks.
A common misconception surrounding investing is that it’s solely the playground for the rich or financially savvy. This myth steers many away from multiplying their wealth via investments, leaving them to rely solely on their primary source of income. Moreover, a lack of understanding often leads to panic during market volatility, resulting in ill-timed decisions to buy high and sell low—contrary to sound investment strategies.
Overcome By: Invest money consistently into a low-cost mutual fund or ETF that tracks the overall S&P. Then, continue your investing education on how to invest in stocks.
#7 – Wasteful Spending Habits
Wasteful spending habits are the quiet thieves of financial security. They nibble away at your earnings, leaving you wondering where your money has gone at the end of each month. This pattern often goes unnoticed, as it’s usually composed of small, seemingly insignificant purchases that accumulate over time.
The danger of wasteful spending is its subtlety.
It’s the daily coffee on the way to work, the meal out because cooking feels like too much of an effort, or the impulse buys during the sale season.
Individually, these do not seem like considerable expenses, but together, they can consume a substantial portion of your budget.
To curtail this financial leak begins with recognizing and acknowledging these habits. Tracking every penny spent can be an eye-opening experience, illustrating just how quickly the ‘little things’ can add up. With this awareness, one can then consciously decide where to cut back.
Overcome By: Adopting a minimalist approach, where value and purpose become the benchmarks for every expense, can help combat wasteful spending. Questions like, “Do I really need this?” or “Will this purchase add value to my life?” can serve as useful filters. Take up a no spend challenge to see your mindless consumption.
#8 – Fail to Recognize the Patterns That Lead to a Near-Empty Wallet
Failing to recognize the patterns that deplete your wallet is akin to ignoring the signs of a leaking roof until it caves in—it’s a disaster in the making. Often, it isn’t one significant financial blunder, but rather a series of small, recurring missteps that lead to the near-empty wallet syndrome.
For instance, routinely underestimating monthly expenses can lead to a perpetual state of surprise when the bills pile up.
Similarly, neglecting to keep tabs on bank account balances may result in overdraft fees that, over time, take a sizable bite out of your funds.
Disregarding the accumulative effects of late payment charges or routinely paying only the minimum on credit card balances can exacerbate financial distress.
Overcome By: To reverse this trend, one must become a detective in their own financial mystery. Start by scrutinizing bank statements and tracking expenses. Look for patterns, like repeated late-night online shopping sprees or habitual dining out, which contribute to the thinning of your wallet. Use budgeting apps or spreadsheets to flag these patterns visually, making it easier to identify and amend them.
#9 – How Fear and Denial Contribute to Ongoing Money Issues
Fear comes in several forms: fear of failure, fear of taking risks, and even fear of facing the truth about one’s financial situation. It can immobilize individuals, preventing them from making necessary financial changes or taking action that could otherwise mitigate or reverse money woes.
For instance, the fear of losing money might dissuade one from investing in potentially lucrative opportunities, leaving them stuck in the low-yield safety of a savings account.
Further, there’s the psychological phenomenon of denial—a defense mechanism that numbs the pain of reality. When faced with mounting debt or budgetary failure, denial kicks in, allowing individuals to live as if the problem doesn’t exist. Unfortunately, ignoring overdue notices or dodging calls from creditors doesn’t make debts disappear.
Denial only deepens the financial hole, often leading to larger, more complex problems.
Overcome By: To confront these challenges, it’s crucial to adopt a stance of brutal honesty with oneself. This means acknowledging fears and confronting financial shortcomings head-on. Professional help, such as financial counselors or advisors, can provide support and guidance to navigate these tricky emotional waters.
#10 – No Clear Financial Goals and Plans
The absence of clear financial goals and plans is like embarking on a voyage without a destination. It not only leads to aimless wandering but also ensures that you miss out on the focus and motivation that well-defined objectives provide.
When you lack clarity on what you’re saving for or what you wish to achieve, there is little impetus to resist the temptations of immediate gratification or to weather the short-term sacrifices that long-term gains often require.
Setting clear and measurable financial goals lays the groundwork for creating effective plans to reach them.
Overcome By: To break this cycle, begin by reflecting on what you value most and where you would like to be financially in the future. Whether it’s achieving debt freedom, owning a home, funding education, or planning for retirement, having specific goals in mind will define the purpose of your financial activities. Craft a plan that outlines the steps needed to accomplish them.
#11 – Laziness is your Game
When you approach your finances with a laissez-faire attitude, it’s akin to ignoring the health of a garden; without regular attention and effort, it’s bound to wither. Financial laziness can manifest in various ways, from failing to review bank statements and ignoring budgeting to neglecting opportunities to cut costs or boost income.
Each act of omission is a step closer to the financial doldrums.
Procrastination or avoidance might seem less painful at the moment, but they ultimately compound the problem. Contrary to what some might think, simple acts of financial diligence, such as cash management or regularly doing household chores, do not require Herculean effort.
Moreover, they set a foundation for sound financial habits that thwart needless spending.
Overcome By: Schedule time for financial management much like an important meeting.
#12 – Keeping up with Others is Breaking Your Bank
The urge to keep up with others—often termed the ‘Keeping up with the Joneses’ or ‘Keeping up with the Kardashians’ phenomenon—is a profound pressure that exerts an invisible, yet powerful, force on financial habits. This social comparison can lead to an insidious form of competition, one that disregards personal financial realities in favor of an illusory social standing.
It’s an impulse driven by comparison, where the benchmark of success is set not by personal satisfaction, but by the possessions and lifestyles of others.
The decision to upgrade to a luxury car, splurge on designer clothes, or redo a perfectly functional kitchen stems not from need, but from a desire to project an image that matches or surpasses those in your social sphere.
Financial guru Dave Ramsey encapsulates this philosophy with his common saying, “Live like no one else will now, so in the future, you can live like no one else can.” This means making money moves that are right for you, not those dictated by social pressures, which can sometimes involve humbler living now for a wealthier future.
Overcome By: Breaking free from the shackles of this social competition requires introspection and a bold reaffirmation of personal values. Adjusting focus towards personal financial goals and aspirations, rather than mirroring others’ spending decisions, is key.
#13 – Need Help Differentiating Needs from Wants
The blurring line between needs and wants is a common financial pitfall that can lead individuals deeper into the morass of money woes.
Needs are essentials, the non-negotiable items necessary for survival—food, shelter, healthcare, and basic utilities.
Wants, on the other hand, include anything that is not vital for basic survival but enhances comfort and enjoyment of life.
The difficulty in distinguishing between the two often stems from habituation. What starts as a luxury, like eating out at restaurants, getting a high-end smartphone, or subscribing to multiple streaming services, can quickly become perceived as essential. This is particularly difficult in a consumer-driven society, where advertising and social media constantly inflate our perception of what we ‘need’ to lead a fulfilling life.
The result? A budget that’s stretched thin on non-essentials, leaving little room for savings or investment.
Overcome By: Regularly reassess expenses and ask the hard questions about whether a purchase is genuinely essential or merely a desire dressed up as a need.
#14 – You Don’t Make Enough Money to Cover Your Expenses
When your income doesn’t cover expenses, the strain can be relentless. This financial imbalance is often the stark root of the “I am broke” refrain. In such cases, every dollar becomes precious, and the financial breathing room feels nonexistent.
The reason is straightforward: if what comes in is less than what goes out, deficits and debt are the inevitable outcomes.
Addressing this challenge requires a two-pronged approach—increasing income and/or reducing expenses. For many, reducing expenses is the immediate reflex, and while it’s an essential strategy, there’s only so much you can save, but no limit to how much you can earn.
Overcome By: Focus on making more money. This could mean asking for a raise, seeking better-paying job opportunities, pursuing a side hustle, making money online, or acquiring new skills that offer higher income potential.
Long-Term Solutions to Build a Secure Financial Future
Building a secure financial future is an aspirational goal for many, but achieving it requires a strategic approach characterized by foresight, discipline, and an understanding of personal finance.
Becoming financially independent doesn’t happen by magic chance; it’s the result of deliberate actions taken with consistency over time.
Here are the foundational blocks for constructing a sturdy financial edifice:
Invest in Financial Literacy: Knowledge is power, and this is especially true in the realm of finance. Educate yourself about budgeting, investing, insurance, taxes, and retirement planning. Reliable resources include books, online courses, podcasts, and workshops.
Set Clear Financial Goals: Define what financial success looks like for you, whether it’s being debt-free, owning a home, or achieving financial independence. Detailed goals provide direction and motivation for your financial plan.
Create a Robust Budget: A flexible budget isn’t a one-time exercise but a living document that should evolve with your financial situation. It should reflect your income, fixed and variable expenses, and financial goals.
Establish an Emergency Fund: This is the bedrock of financial security. Aim to save three to six months’ worth of living expenses to protect yourself from unforeseen circumstances without falling into debt.
Pay Off Debt: High-interest debt is a major impediment to financial growth. Utilize strategies like the debt snowball or avalanche methods to tackle debts efficiently. Once you’re debt-free, avoid accumulating new debt.
Diversify Income Streams: Relying on a single source of income is a risk. Look for opportunities to create additional streams of income, such as side businesses, freelance work, or passive income from investments.
Invest Wisely: Make your money work for you through smart investments. Consider diversified portfolios, retirement accounts, and tax-efficient investment strategies to grow your wealth over time.
Plan for Retirement: The future is closer than you think. Contribute regularly to retirement accounts like 401(k)s or IRAs. Take advantage of employer match programs if available, as they’re essentially free money.
Protect Yourself with Insurance: Ensure you have adequate insurance coverage for health, life, property, and potential liabilities. This helps to guard against catastrophic financial losses.
Breaking the Cycle of Being Broke
Just like becoming broke is often a gradual process—a few uncalculated loans, hasty investments, and numerous credit card swipes. Suddenly, financial stability seems like a far-off dream.
The same goes for breaking the cycle of being broke. It is about moving from living paycheck to paycheck with no savings, drowning in debt, and making questionable spending decisions to become financially stable.
Even though our society may see being broke as normal, it is possible to embrace financial prudence to defy such norms. It’s time to delve into the reasons behind the perpetuation of brokeness and unveil practical steps toward lasting financial freedom.
What do I do if I’m broke?
Finding yourself in a financial predicament where the end of your money arrives before your next paycheck is a stress-inducing scenario.
When faced with the stark reality of being broke, here’s a step-by-step guide to help you navigate through and set the stage for a more stable financial future:
Assess Your Situation: Take stock of all your available assets and resources. This includes checking account balances, any savings, and items you could potentially sell for quick cash. Understanding what you have can help you gauge your immediate next steps.
Prioritize Your Expenses: Sort your expenses by urgency and necessity. Essentials like rent, utilities, and groceries come first. Non-essentials or discretionary spending should be paused or significantly reduced until your financial situation improves.
Reduce Costs Immediately: Eliminate any non-essential expenses. Cancel or suspend subscriptions, memberships, or services that are not vital. Consider cheaper alternatives for necessary expenses, and utilize community resources, such as food pantries, if needed.
Negotiate with Creditors: If you’re struggling to pay your bills, proactively reach out to creditors to discuss payment options. Many are willing to work with you on a revised payment plan to avoid defaults.
Seek Additional Income Sources: Consider taking on a side job, selling unused items, freelancing, or offering your skills for short-term gigs. Even small amounts of additional income can make a significant difference when you’re broke.
Consider Assistance Programs: Look into local, state, and federal assistance programs. You may be eligible for temporary aid to help with food, housing, or utility bills.
Borrow with Caution: If borrowing is unavoidable, be cautious and choose the most cost-effective options such as loans from family or friends, a personal loan with a low-interest rate, or a hardship withdrawal from your retirement account (as a last resort).
Remember, being broke can happen to anyone, so there’s no shame in it.
The key is to take swift, decisive action to mitigate the immediate crisis while also planning longer-term strategies to prevent recurrence. By addressing the issue head-on and adjusting your financial habits, you can initiate the journey from being broke to becoming financially buoyant.
FAQ: Navigating Away from Being Broke
Finding yourself consistently broke at the end of each month is an indicator that there’s a disconnect between your income and your spending habits.
It’s often the result of several factors or behaviors that, when combined, result in a cycle of financial scarcity. Here are common reasons why this might be happening:
No Budget or Poor Budgeting
Overspending
Impulse Purchases
Lack of Emergency Savings
Failure to Track Expenses
Living paycheck to paycheck
High Debt Payments
Remember, understanding why you’re broke at the end of the month is the first step towards financial stability.
Saving money when funds seem stretched to their limit is a challenge that requires creative strategy and discipline. Even with a tight budget, there are ways to eke out savings without significantly impacting your day-to-day life.
If saving a significant amount seems daunting, start by saving your change. Physically save coins or use apps that round up your purchases to the nearest dollar and save the difference. Check out my mini savings challenges.
Saving money when it seems there’s barely enough to cover the bills begins with a commitment to take whatever steps are necessary, however small they may initially seem. Every dollar saved is a step towards financial resilience and a buffer against future financial challenges.
Investing can be a powerful tool for building wealth over the long term, and it’s often considered a key component of achieving financial stability. However, for those who are currently struggling to make ends meet, the decision to invest should be approached with caution.
Investing typically involves committing money with the expectation of achieving a future financial return. It has the potential to outpace inflation and increase your wealth due to the power of compound interest. Nevertheless, it often carries the risk of losing the invested capital, a risk that those in financial distress may not be in the position to take.
Feeling Broke without Money – Time to Make A Change
Feeling broke is a stressful and demoralizing experience, but it’s also a clarion call for change. It signals that your financial health needs attention and that your money management strategies may require a significant overhaul.
However, the situation is not without hope; with determination and the right approach, it’s possible to transform your financial landscape.
The journey away from the precipice of being broke begins with honesty, introspection, and a willingness to adapt. It’s about confronting uncomfortable truths, devising a clear plan, and taking decisive action. From crafting and adhering to a precise budget, cutting unnecessary expenses, to seeking additional income streams—all these steps are essential in the path to financial stability.
Remember, feeling broke isn’t a permanent state. Mindset is everything.
It’s a challenge to be met, an opportunity for growth, and a chance to steer the course of your financial ship towards calmer and more abundant waters. Your future self will thank you for the changes you implement today, so take that first step now.
>>>It’s time to make a change—because you deserve the peace of mind that comes with financial security.
Source
Experian. “Experian Study: U.S. Consumer Debt Reaches $16.84 Trillion in Q2 2023.” https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/. Accessed January 25, 2024.
Consumer Financial Protection Bureau. “Emergency Savings and Financial Security.” https://files.consumerfinance.gov/f/documents/cfpb_mem_emergency-savings-financial-security_report_2022-3.pdf. Accessed January 25, 2024.
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Debt consolidation loans work by giving you access to a lump sum of money you use to pay off your unsecured debts, like credit cards, in one fell swoop. You’re then left with only one payment on your new debt consolidation loan.
Debt consolidation loans are a smart way to pay off debt if you can qualify for a lower annual percentage rate compared to the average rate across your existing debts. This lower rate means you’ll save money on interest, and you’ll likely get out of debt faster.
Debt consolidation loans also have fixed rates and terms, so you’ll pay the same amount every month, which makes the payment easier to budget for than revolving debts like credit cards. Plus, you’ll know exactly what day you’ll be debt-free, which can be especially motivating.
Where can I find debt consolidation loans?
You can find debt consolidation loans at banks, credit unions and online lenders.
Banks typically offer the lowest interest rates on debt consolidation loans, but you may need good or excellent credit (a score of 690 or higher) to qualify. If you already have a relationship with a bank, it’s worth asking what their loan options and qualification criteria are before considering other lenders.
Credit unions also offer lower-rate loans and may be more lenient to borrowers with fair or bad credit (a score of 689 or lower). You’ll need to join the credit union before applying for a loan, but the membership process is typically quick and affordable. You can usually fill out the application online, and you may need to make an initial deposit of $5 to $25.
Online loans are available to borrowers across the credit spectrum, and they’re often the most convenient option. Some online lenders can make immediate approval decisions and fund loans the same or next day. Many also let you pre-qualify, which means you can check your potential loan terms without hurting your credit score. Since online loans can have a higher cost of borrowing, it’s best to pre-qualify with multiple lenders to compare rates.
How do I qualify for a debt consolidation loan?
You qualify for a debt consolidation loan based on the information in your application. Lenders typically look at three core factors: credit score, credit history and debt-to-income ratio.
Some lenders may publish minimum credit score or minimum credit history requirements to apply. Most like to see a good credit score and two to three years of credit history that shows responsible repayment behavior.
You’ll also need to list your income. This gives lenders an idea of your debt-to-income ratio, which divides your total monthly debt payments by your gross monthly income, and helps lenders assess your ability to repay a debt consolidation loan.
How does a debt consolidation loan affect my credit score?
A debt consolidation loan should help build your credit score, as long as you use the loan to successfully pay off your debts and you pay back the new loan on time.
You’ll also undergo a hard credit check when you apply, which knocks a few points off your score, but this is temporary. Any missed payments on the loan can hurt your score.
Steps to getting a debt consolidation loan
1. Add up your debts
The first step to getting a debt consolidation loan is knowing how much debt you have. Make a list of unsecured debts you’d like to consolidate, since this is the loan amount you’ll need to apply for.
You can also calculate the average annual percentage rate across your current debts using a debt consolidation calculator. You’ll want to get a debt consolidation loan with a lower rate in order to save money on interest and pay off the debt faster.
2. Pre-qualify if you can
Not all lenders offer pre-qualification, so take advantage of those that do. This typically involves filling out a short application with basic personal information, including your Social Security number. The lender will run a soft credit check, which won’t hurt your credit score, and then display potential loan offers.
If your lender doesn’t offer pre-qualification, it doesn’t hurt to call and see what information they can tell you over the phone about applicant requirements, including minimum credit score.
3. Apply for the loan
Once you’ve pre-qualified or decided on a lender, it’s time to fill out your loan application.
A loan application asks for personal information — think name, birthdate, address and contact details — as well as information about the loan you want, including loan purpose, desired loan amount and repayment term. You may need to show proof of identity, address, employment and income. Once you submit your application, you’ll undergo a hard credit check.
Most applications are available online, but a smaller bank or credit union may ask you to visit a branch.
You can typically expect to hear back from the lender within a few days.
4. Get funded and pay off your debts
Once approved, funding time is typically within a week, though some lenders may offer same- or next-day funding. Lenders can deposit the loan funds in your bank account, but some may offer to send the money directly to your creditors on your behalf, saving you that step.
This is a convenient way to pay off your debts, but make sure to check your accounts to confirm your balances are $0. If the lender doesn’t offer direct payment, use the loan funds to pay off your debts yourself.
5. Pay back your new loan
Once your debts are paid off, you’re left with only your new loan payment. Your first payment is typically due one month after funding and will be due every month until the loan is paid off. Make sure you add this payment to your budget. Missing a loan payment can result in costly late fees and hurt your credit score.
When to avoid debt consolidation loans
Debt consolidation loans aren’t the right choice for everyone, and they can be risky, particularly if you’re someone who struggles to stay out of debt. For example, if you use a debt consolidation loan to pay off your credit cards, but then start using your credit cards again, you’ll have even more debt than you started with. This can hurt your credit score and leave you struggling to repay your loan.
Terms on debt consolidation loans can also be long — sometimes up to seven years, depending on the lender. If you have good or excellent credit, you may want to consider other types of consolidation, like balance transfer cards, which come with 0% promotional periods. This can help you pay off debt faster, since there’s no interest.
If you can’t qualify for a balance transfer card or for a low enough rate on a debt consolidation loan, it may be best to choose a different debt payoff method.
MoMo Productions/ Getty Images; Illustration by Austin Courregé/Bankrate
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
Key takeaways
VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members and surviving spouses.
VA loans can be used to purchase a primary residence, refinance a current mortgage or cover renovation costs.
VA loans offer several benefits, including no required down payment, no private mortgage insurance (PMI) and competitive interest rates.
A VA loan is a great option for you if you’re a qualifying active-duty military personnel or veteran. They often have more relaxed financial requirements than conventional loans, requiring no down payment or private mortgage insurance. They also typically have lower interest rates than FHA and conventional loans.
Here’s a breakdown of what VA loans are, how they work and how you can get one.
What is a VA loan?
A VA loan is a loan guaranteed by the U.S. Department of Veterans Affairs (VA). That’s not to say the VA provides these loans. Instead, mortgage lenders offer VA loans, knowing that the government guarantees them. This makes lenders more confident in lending, often offering a VA loan with a lower interest rate than a conventional mortgage.
The VA doesn’t officially set a credit score requirement for these loans. Instead, it leaves this up to the lender, with lenders requiring anywhere from a 580 to 640 minimum score. VA loans don’t require a down payment, which can make homeownership more attainable for those who qualify because you’ll need less money upfront.
How does a VA loan work?
Getting a VA loan is similar to securing a conventional loan.
Basically, you fill out paperwork from the VA that verifies your eligibility for the program. You also receive what’s known as your entitlement, which is the dollar amount guaranteed on each VA loan. While VA loans technically have no loan limit, lenders might be willing to loan up to four times the amount of your entitlement.
You can get a VA loan with no money down and, unlike other loans, you won’t have to pay for mortgage insurance. That’s because the government guarantees your loan. However, you’ll need to pay a funding fee, which costs a certain percentage of the loan total. This fee keeps the program functioning so future veterans and service members can use it.
Types of VA loans
VA loan type
Description
VA mortgage
Allows qualified service members to purchase a home with no minimum down payment.
VA construction loan
Eligible service members can use this loan to build the home of their dreams.
VA rate-term refinance
Allows service members without an existing VA loan to change their loan term or secure a lower interest rate.
VA cash-out refinance
Allows service members to swap their conventional mortgage with a VA loan, with an option to turn home equity into cash if needed.
IRRRL loan
Allows service members to replace a VA mortgage with a VA Interest Rate Reduction Refinance Loan (IRRRL), which can offer lower interest rates. It can also be used to change from an adjustable-rate loan to a fixed-rate loan.
VA rehab and refinance
Can be used by service members to finance the cost of improvements made to the home.
VA jumbo loan
Allows service members to finance a home with a sales price exceeding the conforming loan limits.
Native American loan
Available to Native American veterans to help them purchase, build, improve or refinance a home located on federal trust land.
Who qualifies for a VA loan?
The VA sets service requirements for active-duty military personnel and veterans to qualify for a VA loan. You can check the full eligibility requirements on the VA’s website, but the basics are:
You’re currently on active military duty, or you’re a veteran who was honorably discharged and met the minimum service requirements.
You served at least 90 consecutive active days during wartime or at least 181 consecutive days of active service during peacetime.
Or, you served for more than six years in the National Guard or Selective Reserve.
If your spouse died in the line of duty, you may qualify for a VA loan.
The first step in applying for a VA loan is getting a VA Certificate of Eligibility (COE). This certificate shows the lender that you meet the VA loan requirements for eligibility.
How to apply for a VA loan Certificate of Eligibility (COE)
You can get a VA loan Certificate of Eligibility by applying through your eBenefits portal online or applying through your lender.
To apply, you need to provide some data based on your current status. Veterans need to provide a DD Form 214, and active-duty service members need a signed statement of service. A statement of service should include:
Full name
Date of birth
Social Security number
The date you started duty
Any lost time
Name of the command providing the information
Different requirements may apply for National Guard or Reserve members, as well as surviving spouses. You can find more information through the VA’s benefits website, or by speaking to a qualified lender.
Other VA loan requirements
You should also keep these VA loan requirements and rules in mind:
VA loan limit: As of 2020, if you have full entitlement, there is no limit on the size of your loan. However, your lender may impose its own terms, and your entitlement will still be pegged to conforming mortgage limits.
You do have a home loan limit if you have remaining entitlement: You have an active VA loan you’re still paying back; or you paid a previous VA loan in full and still own the home; or you refinanced your VA loan into a non-VA loan and still own the home; or you had a compromise claim (or short sale) on a previous VA loan and didn’t repay it in full; or you had a deed in lieu of foreclosure on a previous VA loan; or you had a foreclosure on a previous VA loan and didn’t repay it in full.
If you have remaining entitlement, your VA home loan limit is based on the county loan limit where you live. This means that if you default on your loan, the VA will pay your lender up to 25 percent of the county loan limit minus the amount of your entitlement you’ve already used. Check your county loan limit here.
Property type: Investment properties and vacation homes cannot be purchased using VA loan proceeds. Furthermore, you must occupy the home and use it as your primary residence.
Credit score: The VA does not specify a minimum credit score requirement. However, borrowers might have a hard time getting approved by a lender if they don’t have at least a 620 FICO Score.
Income: Borrowers need to show they have the income to make the mortgage payments. It’s equally important to not have a huge debt load since the lender will assess your debt-to-income ratio (DTI), or the percentage of your monthly income that’s spent on debt payments.
Assets and down payment: There is no down payment requirement for VA loans, but the lender may have overlays (or specific criteria) that mandate a down payment in place for borrowers with lower credit scores.
Reserve funds: Many lenders require borrowers to have an adequate amount of reserves — generally two to three months of mortgage payments — before clearing you to close on your loan.
It’s also possible to use home loan benefits after bankruptcy, as long as sufficient time has passed, typically two years after filing for Chapter 7 bankruptcy or 12 months after Chapter 13 bankruptcy.
VA home loan pros and cons
For those who are eligible, VA loans have many benefits, but they also have drawbacks to consider.
Pros of a VA loan
Some of the key advantages of VA loans include:
Lower borrowing costs: VA loans can be cheaper than their conventional mortgage counterparts.
No down payment: VA loans allow you to purchase a home with zero down payment, making homeownership more accessible for those who may struggle to save a large lump sum. You need at least 3 percent down for a conventional mortgage.
No mortgage insurance: Unlike many other types of mortgages, VA loans do not require you to pay private mortgage insurance (PMI), potentially saving you hundreds of dollars per month.
Competitive interest rates: Because the government guarantees these loans, lenders are able to offer lower interest rates than you’d typically find with conventional loans.
Capped lender fees: The VA limits lender fees (like loan origination fees) to 1 percent of the loan amount. This can result in lower closing costs than other loan types.
Cons of a VA loan
Despite the many benefits, VA loans also have a few downsides to consider:
VA funding fee: VA loans come with a funding fee that can vary depending on your military category, down payment amount and whether you’ve previously used a VA loan. You can finance this fee into the loan amount, adding to the total cost of the loan, or you can pay it upfront at closing.
Limited to primary residences: You can only use VA loans to purchase a primary residence, not vacation homes or investment properties. However, you can buy up to a four-unit property with a VA loan as long as one unit is your primary residence.
Not all properties qualify: Not every property will meet the VA’s minimum property requirements (MPRs), which can limit your potential housing options.
Longer closing process: The VA loan process can take slightly longer than other loan types due to extra steps such as the VA appraisal.
How to apply for a VA loan
After you’ve obtained your COE and are ready to apply, there are a few steps you need to take:
Gather your financial paperwork.
Look for lenders that offer VA loans.
Get approved for a VA loan through at least three lenders.
Compare each lender’s offer and choose the best option.
Shop for a home and submit an offer.
Have a seller accept your offer and get a signed purchase agreement with the seller.
Get a VA home appraisal and inspection.
Work with the lender through the underwriting process, promptly responding to questions and requests for documentation.
If you’re struggling with your VA loan, there’s extra help available. The VA can help you negotiate with your lender if you can’t make payments. With the help of the VA, it’s possible to avoid foreclosure through loan modification or other repayment plans. Call 877-827-3702 if you need help.
VA loan FAQ
VA loans can have term lengths of 10 to 30 years. In addition, they can be fixed-rate or adjustable-rate mortgages (ARMs). The interest rates for VA loans are typically lower than those for conventional loans, mainly because the VA guarantees a portion of the loan, which reduces the risk for the lender. These rates change frequently, so check Bankrate’s VA home loan rates to compare offers from different lenders.
A key feature of VA loans is the entitlement. This is the amount of the loan that the VA will guarantee to the lender if you default. There are two types of entitlement:
Basic entitlement: Up to $36,000 for loans worth less than $144,000, or 25 percent for loans of that amount or more.
Bonus entitlement: Up to 25 percent of the Federal Housing Finance Agency (FHFA) loan limit, minus the basic entitlement.
If you’re purchasing a loan that costs more than $144,000, the bonus entitlement can be used.
No, VA loans don’t require PMI or any other mortgage insurance. That’s because the VA loan entitlement usually amounts to more than 20 percent of the home’s value. However, while you won’t need to pay for mortgage insurance, you will have to pay a funding fee.
As with any mortgage, different lenders have various closing costs. You might need to pay for discount points, a credit check, VA appraisal fees, title insurance and other costs, including local and state taxes. While you don’t have to worry about PMI, you do have to pay a VA funding fee. Your VA funding fee depends on the size of your VA loan down payment, and whether it’s your first-time use of the benefit.
Down payment
First-time use
Subsequent use
0%-5%
2.15%
3.30%
5%-9.99%
1.50%
1.50%
10% or more
1.25%
1.25%
So, while a VA loan down payment isn’t required, it can save you money to make a down payment.
Quick note: Disabled veterans who receive disability benefits are exempt from the VA funding fee.
Also, it’s possible to wrap your VA closing costs into the loan amount. However, that increases how much you need to borrow and can cost you more.
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Depending on how much you need to borrow, you may choose a conforming or jumbo mortgage.
If you can’t get a conforming mortgage, you may still be eligible for an FHA, VA, or USDA mortgage.
You’ll need to choose between a fixed-rate mortgage and an adjustable-rate mortgage.
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When buying a home, you’ll need to decide which type of mortgage is the best fit.
Your decision may come down to how much you need to borrow and how strong your finances are. If you don’t qualify for one type, you may be able to find another one that’s a good match.
1. Conforming mortgage
A conforming mortgage is a type of conventional mortgage, or a mortgage not backed by a government agency such as the FHA.
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These mortgages meet the conforming loan limits set by the Federal Housing Finance Agency (FHFA). The FHFA sets the limit for conforming loans every year, and in 2024, the limit is $766,550 in most parts of the US. In areas with a higher cost of living, the limit goes up to a ceiling of $1,149,825.
Many mortgage lenders require a 620 credit score and a maximum debt-to-income ratio between 36% to 50% to get a conforming loan. You’ll need at least a 3% down payment if your mortgage is backed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, though individual lenders may require more.
You’ll pay for private mortgage insurance on a conforming mortgage if you have less than 20% for a down payment. PMI typically costs between 0.2% and 2% of your mortgage amount. You can cancel PMI once you have at least 20% equity in your home.
2. Jumbo mortgage
A jumbo mortgage, also known as a nonconforming mortgage, is another type of conventional loan. You’ll need a jumbo mortgage to borrow more than the FHFA borrowing limit.
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As discussed above, in 2024, the limit is $766,550 in most parts of the US., up to a ceiling of $1,149,825 in areas with a higher cost of living. A jumbo mortgage is for an amount higher than these limits.
Eligibility requirements for jumbo mortgages are a bit stricter than for conforming mortgages, because lenders are taking a greater risk by lending you more money. Each lender has its own requirements for nonconforming mortgage, but you’ll likely need a higher credit score, lower debt-to-income ratio, and bigger down payment than you would for a conforming mortgage.
3. FHA mortgage
There are three types of government-backed mortgages, or home loans backed by federal agencies: FHA, VA, and USDA. If you default on your mortgage payments, the agency compensates the lender. This makes the loans less risky for your lender, and therefore more accessible for you.
An FHA mortgage is a government-backed mortgage insured by the Federal Housing Administration. You can get an FHA mortgage with a 3.5% down payment if your credit score is 580 or higher, or with 10% down if your score is 500 to 579. Most FHA mortgage lenders require a debt-to-income ratio of 43% or lower.
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You don’t have to pay for PMI with an FHA mortgage, but you do have to pay for a different type of mortgage insurance. It will cost you 1.75% of your mortgage at closing. Then you’ll pay an annual premium of 0.45% to 1.05% of your mortgage.
4. VA mortgage
A VA mortgage is a government-backed mortgage guaranteed by the US Department of Veterans Affairs, and it’s for military families only. VA mortgages typically come with lower interest rates than conforming mortgages, and you don’t need a down payment.
You will need at least a 660 credit score and 41% debt-to-income ratio to qualify for a VA mortgage.
You won’t have to pay for mortgage insurance, but you will pay a funding fee. The fee is 2.3% of the amount borrowed if this is your first VA loan, or 3.6% if you’ve used a VA loan before. The fee will be lower if you have money for a down payment, though.
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5. USDA mortgage
A USDA mortgage is a government mortgage backed by the US Department of Agriculture. It’s for low-to-middle-income families buying a home in a rural or suburban area. The qualifying income limit depends on where you live in the US. The population restrictions are 20,000 for some counties and 35,000 for others.
Like a VA mortgage, a USDA mortgage comes with lower interest rates and doesn’t require a down payment. Most lenders require a 640 credit score and 41% debt-to-income ratio.
You will have to pay for mortgage insurance, but it should cost less than what you might pay for PMI or for insurance on an FHA mortgage. You’ll pay 1% of your principal at closing, then an annual premium of 0.35% of your remaining principal.
6. Fixed-rate mortgage
When it comes to locking in an interest rate, you’ll choose between two types of mortgages: fixed-rate or adjustable-rate.
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Depending on which type of mortgage you get, you may get to pick between the two types or be limited to just one. For example, you can select either a fixed or adjustable rate for a conforming mortgage, but you can only get a fixed rate on a USDA mortgage.
A fixed-rate mortgage locks in your rate for the duration of your loan. Although US mortgage rates will increase or decrease over the years, you’ll still pay the same interest rate in 30 years as you did on your very first mortgage payment.
7. Adjustable-rate mortgage
An adjustable-rate mortgage, commonly referred to as an ARM, keeps your rate the same for the first few years, then periodically changes over time — typically once a year. For example, if you have a 5/1 ARM, your introductory rate period is five years, and your rate will go up or down every year.
8. Construction loan
You might need a construction loan if you build a house and need financing to cover permits, supplies, and labor.
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Construction loans are short-term loans (usually for one year) that carry higher interest rates than regular mortgages. You may choose to pay off your loan once construction is completed, or roll it into a regular mortgage.
If you want to buy a home and make significant changes to it, you can apply for a renovation loan. The money you borrow for renovations will be rolled into your mortgage.
9. Balloon mortgage
With a balloon mortgage, you’ll make monthly payments as you would for any other type of mortgage for the first five years or so. At the end of that initial payment period, you’ll pay off the total amount you still owe in one lump sum.
Balloon mortgages come with low interest rates, but they’re risky. You might like a balloon mortgage if you expect to move out of your home or refinance before the initial payment period ends. This way, you’ll benefit from the low rate without paying a ton of money all at once later.
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You also may prefer a balloon mortgage if you expect to receive a lot of money in the time between getting the mortgage and paying off the total amount. But this mindset can be dangerous, especially if the money you were expecting doesn’t come through.
Balloon mortgages are risky for both the buyer and lender, so finding a lender that offers one may be difficult.
10. Interest-only mortgage
With an interest-only mortgage, you borrow money as you would with any other type of mortgage, and you make monthly payments. But you only pay off the interest charged by the lender, not the principal (the amount of money you borrow).
Interest-only mortgages have a set period, such as ten years, where you’ll make interest-only payments. Once that period is up, you’ll start paying both principal and interest.
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Some people like this type of mortgage for the low monthly payments. But interest-only mortgages typically have adjustable interest rates, so your rate will fluctuate from year to year. You also won’t build equity in your home, because you won’t be paying down the principal.
Each lender sets its own eligibility requirements for interest-only mortgages, but you’ll likely need a higher credit score, lower debt-to-income ratio, and bigger down payment than you would for a conforming mortgage.
11. Piggyback loan
A piggyback loan involves taking out two mortgages, one large and one small. The smaller mortgage “piggybacks” on the larger one. The primary loan is a conventional mortgage. The other is a home equity loan or home equity line of credit.
There are several types of piggyback loans, but an 80-10-10 loan is probably the most common. The first mortgage is for 80% of the purchase price, the second is for 10%, and you provide 10% cash for the down payment. By combining the second mortgage and the money you already have saved for the down payment, you’ll have 20% total to put down. This way, you don’t have to pay for private mortgage insurance.
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12. Reverse mortgage
A reverse mortgage is a type of home loan for people age 62 or older. Unlike most of the other mortgages on our list, a reverse mortgage isn’t the first mortgage you’ll take out on your home. It’s for people who have gained equity in their home since originally buying it, and likely have paid off their mortgage already.
A forward mortgage — which you probably think of as a regular mortgage — is a type of loan you’d use to buy a home. You make monthly payments to the lender until the home is paid off, and over time, your debt decreases.
A reverse mortgage, on the other hand, is used after you’ve already bought the home. The lender pays you, and the money comes out of the equity you’ve acquired in the house. Over time, your debt increases.
When you eventually sell the home (whether you’re living or dead), the proceeds go to the lender to pay off your debt from the reverse mortgage. Any additional money from the sale will go to you if you’re living, or to your estate if you’re dead.
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If your heirs want to keep the property, then they can pay off the reverse mortgage themselves.
13. Mortgage refinance
When you refinance your home, you replace your initial mortgage with a new one. There are multiple potential benefits to refinancing: locking in a lower mortgage refinance rate, making lower monthly payments, or canceling private mortgage insurance are just a few.
Because you’re just applying for a new mortgage, much of the process will be the same as it was the first time around. The lender will still look at your credit score and debt-to-income ratio. But instead of determining your interest rate by looking at your down payment, the lender will consider how much equity you’ve accumulated in your home.
Types of mortgages frequently asked questions
By far, conventional mortgages are the most popular mortgage type. In 2022, lenders originated more than 4.1 million conventional loans, according to Home Mortgage Disclosure Act data. By contrast, there were over 1.3 million nonconventional mortgage originations in 2022, including all FHA, VA, and USDA mortgages.
VA mortgages often have the lowest interest rates, though FHA interest rates are also relatively low and occasionally dip below average VA mortgage rates. However, if you have a great credit score, a low debt-to-income ratio, and a large down payment, you may be offered a better rate on a conventional mortgage.
Generally, an FHA mortgage would probably be considered the “easiest” mortgage to get, but you’ll still need to meet certain criteria if you want to qualify. FHA mortgages are geared toward those with lower incomes or rocky credit histories, so if you aren’t able to qualify for a conventional mortgage, you might want to see about getting approved for an FHA mortgage.
Not all mortgages are created equal. Here are the different types of mortgages you should know about:
Conventional mortgages
Conventional home loans adhere to the maximum limits set by Fannie Mae and Freddie Mac, which are the agencies that back most U.S. mortgages. As mentioned, you’ll pay PMI if you fail to put down 20% on a conventional mortgage, but you may be able to put down as little as 3%. The borrowing limits for conventional mortgages change from year to year. In most of the U.S., the maximum conforming mortgage for one-unit properties is $510,400 in 2020.
FHA loans
These mortgages are backed by the Federal Housing Administration and are geared toward applicants who don’t have great credit or don’t have the funds for a substantial down payment. You can put as little as 3.5% down with an FHA loan if you have a 580 credit score or above. But, you pay certain premiums with an FHA loan (similar to PMI) that can make your mortgage more expensive.
VA loans
These mortgages are available to active members of the U.S. military as well as veterans. VA loans don’t require a down payment and don’t charge PMI. There are, however, funding fees involved that get tacked onto your mortgage costs.
USDA loans
Backed by the U.S. Department of Agriculture, USDA loans help lower-income borrowers buy homes in rural areas. If you qualify, you won’t have to make a down payment on your home, but that home must be located in a designated zone (buying in a suburb alone does not guarantee that you’ll qualify).
Jumbo mortgages
These are conventional mortgages that exceed the maximum borrowing limits. Jumbo mortgages are harder to qualify for than conventional mortgages, and you’ll generally need at least a 10% down payment, if not 20%.
While the economy continues to expand and added 2.7 million jobs in 2023, signs point to a normalization in the labor market as job growth is expected to moderate in 2024. MORE
While mortgage rates have moved sideways since mid-December, housing continues to be impacted by higher mortgage rates with total home sales on track to be the lowest since 2012. MORE
Facing higher borrowing costs, borrowers are paying more discount points to buy down their mortgage rate, but they may not be getting the benefit. MORE
Recent developments
U.S. economy: According to the latest estimate of U.S. economic growth for Q3 2023, the economy grew at a seasonally adjusted annualized rate (SAAR) of 4.9%, slightly slower than the second estimate but still the fastest since Q4 2021— and among the fastest growth in the last 20 years. Consumption spending growth was revised down from a SAAR of 3.6% in the second estimate to 3.1% in the final estimate. This was mainly led by a decline in spending on services but remained the largest contributor to growth at 2.1 percentage points. After nine consecutive quarters of negative growth, residential investment growth came in much stronger than the initial estimates at a SAAR of 6.7%.
The labor market remained much stronger than expected in 2023 and defied expectations of a slowdown. The economy added 216,000 jobs in December, bringing the total jobs added in 2023 to 2.7 million.1 While total jobs added in 2023 was lower than the historical highs of 2021 and 2022, job growth was still remarkable given the high interest rate environment the economy faced. The unemployment rate remained unchanged in December at 3.7% compared to November 2023, but moved up 0.3 percentage points over the year.
While job growth remained significant over the year, some indications of a softer labor market are starting to creep in. The labor force participation rate as well as employment to population ratio decreased 0.3 percentage points over the month to 62.5% and 60.1% respectively. Downward revisions to October and November job growth meant the 3-month average job gain in the fourth quarter of 2023 was the lowest since the third quarter of 2019, if we exclude the 2020 recession. However, the torrid pace of job growth was unlikely to be sustained and employment growth is approaching levels consistent with a balanced labor market. Heading into 2024, we might see a moderation in job growth, which would be more consistent with long-run growth in the U.S. labor force. Job openings edged down slightly to 8.8 million in November 2023, according to the Bureau of Labor Statistics (BLS) Job Openings and Labor Turnover Survey. The ratio of job openings to unemployed, a metric that the Federal Reserve has been tracking to gauge the strength of the labor market, declined from a high of around 1.8 in January 2023 to 1.4 in November.
Inflation continues to trend towards the Federal Reserve’s target rate of 2%. The preferred measure of inflation of the Federal Reserve, the Core Personal Consumption Expenditure (PCE) measure increased at a rate of 3.2% year over year, the smallest annual increase since May 2021.2 While inflation has been moderating as the labor market normalizes, a reacceleration of home prices along with still high average hourly earnings growth at 4.1% year over year, could mean that getting to the 2% target might take longer than expected.
U.S. housing market: The housing market felt the impact of higher rates in 2023 with total annual home sales on track to be the lowest since 2012. Total (existing and new) home sales reached 4.4 million units in November 2023, down 1.2% as compared to October 2023 and 6.2% below November 2022. Total home sales averaged around 4.8 million from January through November 2023. Existing home sales were at 3.8 million as of November 2023 and averaged 4.1 million through November 2023.3 The existing housing inventory grew 15.3% year to date in November but the level of inventory (1.1 million homes available for sale in November) remains extremely low by historical standards.4 The rate-lock effect, which was the main driver of the lack of existing inventory, continued to push buyers towards the new home market. The number of new homes available for sale increased 2.7% year-to-date and was up 2.5% from the previous month. Overall, the sales of new homes averaged 666,000 in 2023 as compared to 637,000 in 2022.5
Falling interest rates have spurred the confidence of both potential homebuyers as well as the homebuilders. The Housing Market Index, which had decreased since August increased in December 2023. While existing home sales increased in November, pending home sales for November were still weak and saw a 5.2% decrease from the previous year. The FHFA Purchase-Only Home Price Index indicated that as of October of 2023, home prices rose 6.1% year to date, and as more home buyers enter the market amidst the lack of inventory, the pressure on prices could increase further.
U.S. mortgage market: Mortgage rates were on an upward trajectory for most of 2023, reaching 23-year highs in October. However, since the last week of October, rates have been declining mainly on the expectation of rate cuts by the Federal Reserve along with easing inflationary pressures. The average 30-year fixed-rate mortgage, as measured by Freddie Mac’s Primary Mortgage Market Survey® (PMMS®), fell almost one percentage point from the last week in October through mid-December. Despite the decline in recent weeks, mortgage rates are 13 basis points higher than they were at the beginning of the year. Mortgage activity also declined with purchase applications down almost 12% in 2023 and total applications down 7% even as refinance applications increased 15% over the year.6
Tighter financial conditions and higher overall interest rates are starting to impact mortgage delinquency rates. Total mortgage delinquency rates were up 0.25 percentage points from 3.37% in Q2 2023 to 3.62% in Q3 2023 according to the MBA’s National Delinquency Survey. The delinquency rate on conventional mortgages increased from 2.29% to 2.5% in Q3 2023 while the delinquency rate of VA loans was up from 3.7% to 3.76% over the same period. The largest increase was in the delinquency rate of FHA loans which increased 0.55 percentage points from 8.95% in Q2 to 9.5% in Q3. Interestingly, serious delinquency rates (90+ DQs) went down across the board between Q2 and Q3. Foreclosure starts increased from 0.13% in Q2 to 0.19% in Q3 2023 but remain low compared to its historical average.
Outlook
The U.S. economy exhibited tremendous resilience last year on strong consumer spending. We expect economic growth to slow this year as consumer spending starts to fade. Under our baseline scenario, with a slowing economy, the unemployment rate will see a modest uptick, and inflation will continue to moderate.
With inflation remaining above the Federal Reserve’s target rate of 2%, we do not expect the Federal Reserve to start cutting the federal fund rates immediately. However, it will continue to pause on interest rate hikes. We expect rate cuts in the second half of the year if the job market cools off enough to keep inflation muted. Under this scenario, we expect mortgage rates to ease throughout the year while remaining in the 6% range.
Falling rates will breathe some life into the housing market with some recovery in home sales. However, home sales are expected to grow only modestly due to a lack of inventory in the market. The demand for housing, however, will remain high based on a large share of Millennial first-time homebuyers looking to buy homes, which will push home prices up. We forecast home prices to increase 2.8% in 2024 and 2.0% in 2025 nationally.
Under our baseline scenario, we expect increases in both purchase and refinance volumes this year and into 2025. On purchase originations, higher home sales and growth in home prices will drive the dollar volumes of purchase originations up. However, we do not expect purchase origination volumes to reach the levels seen in 2021 and 2022 as lack of inventory will limit home sales. The drop in mortgage rates will push refinance originations up, as buyers who obtained higher interest rates in 2023 will likely refinance into lower rates. However, rates remaining around the 6% range will not provide enough refinance incentives to millions of homeowners who currently have rates below 6%. And therefore, we expect refinance volume to grow only modestly this year. Overall, we forecast total origination volumes to improve this year and into the next.
January 2024 SPOTLIGHT:
Declining affordability led borrowers to pay more discount points to buy down rates, but our research suggests it may not be worth it
Mortgage rates, as measured by Freddie Mac’s PMMS®, increased significantly in 2023 compared to the record lows of the past few years. On October 26, 2023, the average 30-year fixed-rate mortgage stood at 7.79%, a 23-year high. Since then, mortgage rates have moderated, but remain high by recent historical standards. These higher mortgage rates led many borrowers to make the decision to pay points in order to lower the rate when purchasing a house or refinancing an existing mortgage. During the low interest rate environment, few borrowers opted to pay discount points when obtaining a mortgage, but as rates started creeping up in the early 2022, we saw more borrowers paying discount points to lower their rate.
Using Freddie Mac closing data, we examined how often borrowers pay discount points and how many points they pay. For this analysis, the points we are focusing on are for permanent interest rate reductions throughout the life of the loan.7 To that end, we looked at a borrower profile that roughly matches our PMMS® population: mortgage for a home purchase or refinance of a one-unit, single-family owner-occupied property with a fully amortizing 30-year fixed-rate mortgage. We further restricted our sample to borrowers with conforming loans, and with credit scores 740 or above and a loan-to-value (LTV) ratio between 75 and 80 (inclusive).
We found that the share of borrowers who paid discount points increased in 2023 (Exhibit 1). For example, about 58.8% of purchase mortgage borrowers paid discount points in 2023, compared to 31.3% and 53.6% of purchase borrowers in 2021 and 2022 respectively. The share paying discount points was higher for noncash- out and cash-out refinance borrowers, 59.9% and 82.4%, respectively. Also, conditional on paying points, refinance borrowers tended to pay much higher points: 0.99 points for purchase borrowers compared to 1.16 and 1.76 points for non-cash-out and cash-out refinance borrowers, respectively.
It is interesting to note, however, that the interest rate differential between borrowers who pay discount points and those who do not pay discount points is very small. Through November 2023, the average effective rate on purchase loans for borrowers who did not pay discount points was 6.69% versus 6.86% for those who did pay points. This result seems to suggest that paying discount points may not be worth it from the consumers’ point of view. Indeed, some academic research8 has shown that in many circumstances paying discount points can be a poor financial decision. However, while our tabulation shows that borrowers who do not pay points generally receive lower mortgage rates compared to similar borrowers who do pay points, we do not control completely for borrower observed and unobserved attributes. Therefore, we cannot say with certainty that for any particular borrower, the relationship between discount points paid and interest rate is negative.9
Exhibit 2 compares the quarterly average discount points paid by Freddie Mac borrowers (home purchase, owner occupied, one-unit properties). From 2018 through 2021, borrowers that matched the PMMS® profile, (borrowers with origination LTV between 75 and 80 and FICO score 740 or higher) paid about the same average amount of points compared to all purchase borrowers. Starting in 2022 and continuing through 2023, higher credit quality borrowers tended to pay fewer points compared to all borrowers. In 2023, borrowers that matched the PMMS® profile paid on average about 0.06 less points or about 10% less compared to all purchase borrowers.
Prime borrowers who pay discount points on average have higher incomes and are obtaining higher loan balances when purchasing a home compared to borrowers who do not pay points. For example, in 2023 the average loan amount for purchase loans with points paid at origination was $360,000, compared with an average loan amount of $370,000 for mortgages where the borrowers did not pay points. In 2023, the average annual income of a “no discount points” borrower was $148,000, higher than the $140,000 average annual income for borrowers who paid points.
Our analysis on the closing files data shows that there is a difference in borrower behavior across the U.S. when it comes to paying discount points and origination fees. For example, in 2023 over 70% of prime purchase borrowers in HI, NM, WV, OR, WA, and DE paid discount points when closing on their mortgage while less than 50% of borrowers paid discount points in VT, IA, MA, IL, NE, ND, and WI. Exhibit 3 below shows the breakdown by state in 2023.
Our analysis shows that mortgage borrowers in 2023 were more willing to pay discount points than in previous years, and that the likelihood of paying points was greater for lower credit quality borrowers compared to the high-quality mortgage borrowers captured in our PMMS® profile population. We also saw that borrowers in the Midwest were less likely to pay points compared to borrowers in the Pacific and Mountain West. If interest rates stabilize in 2024, it will be interesting to observe whether borrowers opt to pay fewer points, or if the recent uptick in paying discount points is a more permanent shift in the mortgage market.
Footnotes
1 Non-Farm Employment, Bureau of Labor Statistics
2 BEA
3 National Association of Realtors (NAR)
4 From January 1999 through December 2019 the average number of existing homes available for sale averaged 2.2 million, about double the number of homes available for sale in November 2023.
5 U.S. Census Bureau and U.S. Department of Housing and Urban Development
6 Mortgage Bankers Association (MBA)
7 For an analysis of temporary buydowns see our previous Research Brief: https://www.freddiemac.com/research/insight/20230731-temporary-mortgage-rate-buydown-activity-spiked-in.
8 See for example: Agarwal, S., Ben-David, I. and Yao, V., 2017. Systematic mistakes in the mortgage market and lack of financial sophistication. Journal of Financial Economics, 123(1), pp. 42-58.
9 For a more detailed analysis see: Mota, N., Palim, M. and Woodward, S., 2022. Mortgages are still confusing… and it matters—How borrower attributes and mortgage shopping behavior impact costs. Fannie Mae Working Paper. https://www.fanniemae.com/media/45841/display
A number of closely followed mortgage rates fell over the last week. Average 15-year fixed mortgage rates climbed, while average 30-year fixed mortgage rates trailed off, while
For variable rates, the 5/1 adjustable-rate mortgage decreased.
30-year fixed mortgage: 7.00%
15-year fixed mortgage: 6.46%
5/1 adjustable-rate mortgage: 6.37%
In November, the average rate for a 30-year fixed mortgage started making sustained drops from its earlier peak of 8%. The most common home loans are now in the 6% to 7% range. Yet the mortgage market always has some level of volatility, and rates have already started inching back up at the start of this year.
“It’s not uncommon to see a shift in the pattern for interest rates in January, sometimes positive, sometimes not,” said Keith Gumbinger, vice president of mortgage site HSH.com.
The current housing market is difficult. High mortgage rates, expensive home prices and tight inventory are keeping homebuying out of reach for many. If you’re looking to buy a home, don’t try to time the market. Instead, experts recommend patience and preparation: Figure out what you can afford and take steps to improve your financial situation.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Today’s average mortgage interest rates
If you’re in the market for a home, check out how today’s mortgage rates compare to last week’s. We use rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the US:
Today’s mortgage interest rates
Loan term
Today’s Rate
Last week
Change
30-year mortgage rate
7.00%
7.02%
-0.02
15-year fixed rate
6.46%
6.39%
+0.07
30-year jumbo mortgage rate
7.05%
7.06%
-0.01
30-year mortgage refinance rate
7.21%
7.15%
+0.06
Rates as of Jan. 19, 2024
How to choose a mortgage
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The average interest rate for a standard 30-year fixed mortgage is 7.00%, which is a decrease of 2 basis points from one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.46%, which is an increase of 7 basis points from seven days ago. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.37%, a slide of 4 basis points compared to last week. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
What is influencing mortgage rates right now
Mortgage rates were near record lows, around 3%, at the start of the pandemic. That changed as inflation surged and the Federal Reserve kicked off a series of aggressive interest rate hikes, which indirectly drove up mortgage rates. Now, mortgage rates are still more than double what they were just a few years ago.
However, with the central bank keeping interest rates steady since late July, mortgage rates finally saw some sustained decreases in the fall. With the Fed planning to announce its next policy move in late January (and again in mid-March), experts are waiting for the first interest rate cut. It may be months before that happens, but mortgage rates could stabilize and start inching even lower in the coming months.
““The history of economic cycles has taught us that when the markets believe the Fed is done hiking rates, [mortgage rates] make a big move lower before rate cuts happen,” said Logan Mohtashami, lead analyst at HousingWire.
What affects mortgage rates?
Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
Mortgage rate forecasts from experts
While mortgage forecasters base their projections on different data, most predict rates will remain near or above 7% for the rest of 2023. Here’s a look at where some of the major housing authorities expect average mortgage rates to land at the end of the year.
How to find the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
Macro Trends Advisors founding partner Mitch Roschelle joins ‘Varney & Co.’ to discuss the housing market under the Biden administration as monthly mortgage payments continue to soar.
New U.S. home construction fell in December for the first time in four months, despite a sharp drop in mortgage rates.
Housing starts decreased 4.3% last month to an annual rate of 1.46 million units, according to new Commerce Department data released Thursday. Refinitiv economists had projected a pace of 1.42 million units. The decline stemmed from a substantial drop in single-family home construction, which fell by the most since July 2022.
However, applications to build – which measures future construction – rose in December, increasing 1.9% over the course of the month to an annualized rate of 1.49 million units. When compared with the same time last year, building permits are up about 6.1%.
“Building permits, a leading indicator of future construction, accelerated in December as builders expect the housing market to improve as borrowing costs fall,” said Jeffrey Roach, chief economist at LPL Financial.
HOME FORECLOSURES ARE ON THE UPSWING NATIONWIDE
Homes are under construction in Sacramento, California, on July 3, 2023. (David Paul Morris/Bloomberg via / Getty Images)
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose five points to 44. The increase followed a three-point increase in December.
Any reading below 50 is considered negative.
MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama.
A sign outside a home for sale in Atlanta on Sept. 6, 2023. (Elijah Nouvelage/Bloomberg via / Getty Images)
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Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers. But borrowing costs have retreated over the past two months as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign – and will soon pivot to cutting rates.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.66%, according to Freddie Mac, down from a high of 7.79% at the end of October but well above the pre-pandemic average of 3.9%.
The recent decline has prompted a burst of optimism among homebuilders that the worst may be over. However, the housing market is facing new headwinds heading into 2024, including higher prices and shortages of labor and lumber.