A home improvement loan is an unsecured personal loan that you use to cover the costs of home upgrades or repairs. Lenders provide these loans for up to $100,000. A home improvement loan comes in a lump sum, and you repay it in monthly installments, usually over two to 12 years.
How do home improvement loans work?
Unlike with home equity financing, home improvement loans do not require collateral. Whether you qualify and the loan’s interest rate are based on information like your credit and income. Missed or late home improvement loan payments will negatively impact your credit.
Home improvement loans vs. equity financing
A home improvement loan makes sense if you don’t have enough equity in the home or don’t want to use it as collateral. Equity is your home’s value minus what you owe.
If you have equity, you could get a lower monthly payment on a home equity loan or line of credit.
Home equity loan
Home equity loans come in lump sums and have fixed interest rates, so monthly payments never change. You repay this loan in monthly installments over a term as long as 15 years.
Compare to personal loans: Home equity loans work similarly to personal loans, but they often have lower rates and longer repayment terms.
Home equity line of credit
A HELOC is an open credit line that you draw on as needed during a renovation and pay interest only on what you borrow. This variable-rate option works best if you don’t mind a fluctuating monthly payment and need more borrowing flexibility.
Compare to personal loans: A HELOC lets you borrow at any time over a period of about 10 years, which can be ideal for long-term projects or unexpected expenses. A personal loan offers a one-time cash influx.
Home improvement loan pros and cons
Here are the pros and cons of using personal loans for home improvement projects:
Payments are fixed. Personal loans have fixed monthly payments, so you can reliably budget for them.
Funding is fast. Online applications typically take a few minutes, and funds are often available within a day or two, while funds from a HELOC or home equity loan can take a few weeks to become available.
No collateral required. Unlike an auto or home loan, unsecured personal loans don’t require collateral, so the lender can’t take your possessions if you don’t make the payments.
They can have high rates. Because the loan is unsecured, the interest rate may be higher than on a home equity loan or home equity line of credit, which typically have single-digit rates.
No tax benefits. You can’t claim a tax deduction on the interest paid on home improvement loans as you might be able to do with mortgage interest.
How to compare home improvement loans
Pre-qualify and compare offers from multiple lenders to find the right loan for your project. Here are important features to compare among home improvement loans:
Annual percentage rate: APRs represent the entire cost of the loan, including fees the lender may charge. If you’re a member of a credit union, that may be the best place to start. The maximum APR at federal credit unions is 18%.
Monthly payment: Even if you get a low rate, be sure the monthly payments fit into your budget. Use a home improvement loan calculator to see what loan amount, rate and repayment term you need to get an affordable monthly payment.
Loan amount: Some lenders cap amounts at $35,000 or $40,000. If you think your project will cost more than that, look for a lender that offers larger loans.
Loan term: A loan with a long repayment term may have low monthly payments, but you’ll pay more interest over the life of that loan than one with a shorter repayment term.
Ability to add a co-signer or co-borrower: Some lenders let you add a co-signer or co-borrower to your application. Adding someone with better credit or higher income to the loan application may help reduce your APR or increase the amount you can borrow.
Home improvement loan rates
Home improvement loan rates are 6% to 35.99%. Lenders decide your rate on a home improvement loan primarily by using your credit score, credit history and debt-to-income ratio.
Here’s what personal loan rates look like, on average:
Borrower credit rating
Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified in NerdWallet’s lender marketplace from Nov. 1, 2023, through Nov. 30, 2023. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 — are unlikely to qualify. Information in this table applies only to lenders with maximum APRs below 36%.
How to get a home improvement loan
To get a home improvement loan, first compare lender offers with other options, check your rate and monthly payments, prepare documents and apply.
Let’s break down those steps:
Compare options. Compare the best home improvement lenders against each other and with other financing options, like credit cards and home equity financing. You’re looking for the one that costs the least in total interest, has affordable monthly payments and fits your timeline.
Check your rate and monthly payments. Have a firm cost estimate for your project before this step. Many online lenders and some banks let borrowers pre-qualify to see potential personal loan offers before applying — but you’ll be asked how much you want to borrow. Pre-qualifying involves a soft credit pull.
Prepare documents. Once you’ve chosen a lender, gather the documents you’ll need to apply. This can include things like W-2s, pay stubs, proof of address and financial information.
Apply. You may have to apply in person at smaller banks and credit unions, but larger ones and online lenders have online applications. Many lenders can give you a decision the same day you apply. After that, expect to see the funds in your bank account in less than a week.
How to use a home improvement loan
Unsecured loans can cover almost any purchase. How much you need varies based on your location, home size and how extensive your plans are.
Here are some common projects and how much you could pay for each, based on the most recent cost estimates available:
Other types of home improvement financing
Starting in 2023, homeowners can get tax credits for some energy-efficient updates, like new doors, windows, insulation, heat pumps and air conditioners. The Energy Efficient Home Improvement Credit and Residential Clean Energy Credit are listed on the IRS website.
The North Carolina Clean Energy Technology Center maintains a database that includes state and local incentives for eco-friendly home improvement projects.
When it’s best: Consider applying if your project and finances meet the criteria outlined by these programs. They can help make upgrades more affordable.
When it’s best: Consider this option if mortgage rates are lower than the one you’re paying now.
You can strategically use a credit card to cover the cost of your upgrades. Rewards cards can get you paid as you upgrade, while a card with a 0% introductory APR can cover short-term home renovations.
When it’s best: Use a credit card for projects small enough that you won’t max it out. You should typically aim to pay your full balance every month. You’ll need good or excellent credit (690 credit score or higher) to qualify for a zero-interest or rewards card.
Homeowners almost certainly have homeowners insurance. It’s just part of the deal that comes with purchasing a home. However, have you ever thought about renters insurance to cover the space you’re renting or leasing? While it’s not always mandatory to have, it’s a smart and inexpensive investment to budget for and purchase.
So, how much is renters insurance and why do you need it? We’re going to answer all of your questions and hopefully convince you to get your own renters insurance policy.
What is renters insurance and why do I need it?
Like any insurance policy, renters insurance is a way to financially safeguard yourself and your property from damage, loss or theft.
When homeowners buy homeowners insurance, they are protecting the home itself and the contents inside. While renters don’t own the building that they live in, they do have personal property inside of the apartment that has monetary value. Renters insurance is an insurance type specifically for those who rent or lease that will cover their assets.
Landlords or apartment owners will have insurance policies in place that protect and cover their buildings and physical property. But, it won’t cover the tenant’s personal belongings if something happens. That’s why renters insurance is something you’ll want to have. Here are a few scenarios where renters insurance would come in handy:
Theft: If you experience a robbery or burglary, renters insurance would cover the cost of the stolen items
Vandalism: If someone vandalizes your apartment, renters insurance would cover the damage and repairs
Fire: If there is a house fire that damages the apartment, renters insurance covers the cost of loss
Plumbing issues: If you have major plumbing issues that damage the apartment, you’d be covered
Injuries that happen in your apartment: If someone else is hurt within your apartment, renters insurance covers their medical fees
These are some, not all, of the situations that renters insurance would cover. Keep in mind that renters insurance will cover a good variety of personal possessions, but it may not cover every single item in your place. It’s a good idea to know what is and isn’t covered and to protect yourself from the worst-case scenario as things happen to everyone, including renters.
How much is renters insurance?
Okay, so we’ve convinced you that renters insurance is a good idea, but you’re wondering how much renters insurance is per month? After all, if it’s a monthly expense you’ll need to budget for it. Good news — renters insurance cost is relatively inexpensive.
While there isn’t a flat rate for all renters insurance policies, generally, it costs $15 to $30 per month or up to $360 annually. When you think about the cost of everything you own— clothes, computers, TVs and tech — $30 a month isn’t too hefty a price to protect your possessions.
Depending on the insurance company, you can either pay monthly, bi-annually or annually. Sometimes, you’ll even get a discount if you pay for the full year in full, making the month-to-month cost even cheaper.
Factors that influence the cost of renters insurance
Renters insurance costs will vary by person, place and policy. If you’re considering purchasing a renters insurance policy, you can do some comparison shopping to make sure you’re getting the best bargain.
As you’re searching for a policy that fits your needs, here are a few things to keep in mind that’ll influence your cost:
The two most common types of renters insurance are personal property insurance and liability insurance. If you purchase a plan with both coverage types, you’ll pay more per month.
Personal property insurance
This type of plan covers your personal property and everything inside the apartment.
This type of plan covers you if an injury happens to someone in your apartment and they file a claim against you.
The cost of renters insurance varies by neighborhood, city and state. Generally, if the housing market itself is more expensive in a certain area, the cost of an insurance policy will probably be higher, too.
While dogs are man’s best friend, they aren’t when it comes to getting a renters insurance policy. Unfortunately, having a pet may increase the cost of your renters insurance policy because pets can cause additional damage to the apartment.
If you’ve had renters insurance in the past and filed several claims, your premium will likely be higher compared to people who have never filed claims.
Credit is king and a higher credit score will equal lower monthly payments.
With a renters insurance policy, you can choose how much coverage or protection you want. For example, let’s say you took inventory of your items and assessed that they added up to $10,000 worth of goods. You’d want to get a renters insurance policy with a coverage limit that was at least $10,000 to cover your losses. As your coverage limit increases, so will the cost of your monthly payment.
How do I find renters insurance?
Almost all insurance agencies will offer renters insurance policies. If you have car insurance or another type of insurance plan, you could bundle and save by adding an additional renters insurance policy.
You can get quotes from each of them to see where you’ll get the best deal. Here are a few insurance companies to consider when looking for a policy that fits your needs:
Secure your apartment with an insurance plan
You want to feel safe and secure in your apartment and know that you’re financially protected should something happen to your home.
Renters insurance is one way to secure your possessions and safeguard yourself from an emergency. At a relatively low cost, you can save yourself thousands of dollars and lots of stress in the worst-case scenario.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Sage Singleton is a freelance writer with a passion for literature and words. She enjoys writing articles that will inspire, educate and influence readers. She loves that words have the power to create change and make a positive impact in the world. Some of her work has been featured on LendingTree, Venture Beat, Architectural Digest, Porch.com and Homes.com. In her free time, she loves traveling, reading and learning French.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
A goodwill letter is a written correspondence that asks creditors to remove negative remarks from your credit reports.
A goodwill letter is more likely to work on smaller negative items, such as late or missed payments.
The creditor has no obligation to honor or even respond to a goodwill letter.
Write a goodwill letter as you would for any business-related correspondence—keep it professional, clear and concise.
Take the necessary steps to avoid incurring negative items in the future.
Negative items, such as late or missed payments, can have a considerable effect on your credit score and make it harder for you to secure loans in the future. Luckily, if your late payments are a one-time thing and you have an overall positive relationship with your lender, you may be able to send a goodwill letter to have these negative items removed.
Read on to learn more about goodwill letters and how you can use them when taking control of your credit.
What is a goodwill letter?
A goodwill letter is a request to creditors to remove negative remarks from your credit reports. As the name “goodwill” suggests, this request puts it on the creditor to make a good-faith effort to cooperate and work with a client or customer, and to establish a good business reputation with its clients. A creditor might be willing to take such action if you have good history with the individual creditor and have demonstrated effort on your part to handle credit and finances more responsibly.
Creditors are never obligated to remove accurate negative items simply because you ask. And in some cases, creditors may not be able to remove the items due to internal policies or agreements with the credit bureaus. Nevertheless, making the request only takes a bit of your time, so it might be worth a try.
When should you use a goodwill letter?
It’s best to send a goodwill letter when you have a logical reason for missing a payment. Potential reasons for sending a goodwill letter include:
You experienced an unforeseen financial hardship that temporarily prevented you from paying your bills.
You or a loved one had a medical emergency.
You recently changed banks and forgot a payment during the switch.
You moved locations, but they didn’t send the bill to your new address.
You were under the impression that you set up automatic payments, but there was a technical difficulty.
Whatever your reason for missing the payment, be sure to communicate to the creditor that you’re committed to getting your credit back on track.
What can goodwill letters remove?
Goodwill letters are more likely to work for smaller negative items, such as late or missed payments. That’s because many creditors have agreements with credit bureaus that they will not negotiate with individuals to have repossessions, collection accounts or charge-offs removed in exchange for payment.
While you’re free to send a goodwill letter any time, they are—generally—most effective when you want to get a mark related to a one-time negative issue removed.
How long will it take to get a response?
A goodwill letter is an unofficial letter sent to a creditor. As such, there’s no timeline requirement or even an obligation on the creditor to respond to the letter. How long the letter takes to generate a response—or whether any response is generated—varies.
A goodwill letter is not an official credit dispute letter. When someone finds an inaccurate item on their credit report, they can send a credit dispute or verification letter to the credit bureau. This prompts the credit bureau to launch an investigation, which comes with specific timelines that must be followed by the credit bureau and any creditor that is asked to provide documentation for the negative item.
Do goodwill letters work?
While there is never any guarantee that a goodwill letter will be successful, they have the best chance of working when the borrower and the lender have a good relationship. If you’re already in collections or have a long history of making late payments, you might not have good enough standing to successfully make the request.
How to write a goodwill letter
Write a goodwill letter as you would any business-related correspondence. Type and print it, and keep it professional, clear and concise.
While you can provide details about the reasons for a lapse in payment or another negative factor, a goodwill letter should not focus on the emotional aspects. The goal should be to show the creditor that the issue was not indicative of how you normally handle credit. You may also draft the letter in a way that shows that you have substantially improved how you handle credit.
This helps the creditor see you as a more valuable client, which can encourage them to do a goodwill favor for you. The goal of such a letter should not be to make the creditor feel sorry for you.
When writing your letter, include details that can help the creditor identify your account and the negative item in question. Then, provide a short description of why you think the creditor should remove the negative mark. You should include:
Your account number
The date and type of issue that occurred
Information that identifies the negative mark
Information about how long you have had a relationship with the creditor
Information that shows this is not habitual behavior for you
Sincere regret that this occurred
A specific call to action that explains what you are asking of the creditor
Example of a goodwill letter
If you’re unsure how to write a goodwill letter, check out this example to get started.
Re: Account No. [Account number]
1199 La Playa Street
San Diego, CA 91932
To Whom It May Concern:
I’m writing this letter to express my gratitude as a longtime customer of California Bank and to discuss a concern regarding my account. Specifically, I would like to discuss an item posted to my credit report regarding this account and request that it be revised.
My account with California Bank began on 2/10/2013. Since that time, I have enjoyed excellent customer service and benefits and have been happy with California Bank. I have also been a customer in good standing, paying my account in a timely manner while qualifying for loyalty programs.
However, in January, I was in a major car accident and spent a week in the hospital. This led to a temporary decrease in my income and an influx of medical bills. While I was able to bounce back financially and now am continuing to pay all my debts as owed and in a timely manner, the first month after my injury was financially difficult, and this is when I missed that single payment.
I wish I could have continued with normal payments during that time, and I regret that I wasn’t able to do so. Following that personal emergency, I’m working hard to repair any damage done to my credit and personal financial life, and I’m reaching out to you for support in that effort.
I’m asking that California Bank give me a second chance at a fully positive credit history with your organization by removing the late payment mark from my credit report with all three credit bureaus. Please let me know if there is anything else I can provide to support you as you consider my request. Thank you.
Goodwill letter sample + template
How to avoid incurring negative items in the future
As mentioned above, goodwill letters are most likely to work for one-off occurrences. So, if your goodwill letter is successful and a creditor agrees to remove a negative remark from your credit report, it’s important that you take the following precautions to avoid incurring negative items in the future:
Stay organized. Organizing your finances can help you remember to pay them on time.
Pay your bills automatically. If you frequently forget to make payments, set up automatic transfers to stay on top of your bills.
Update your contact information. If any personal information changes, like your address, be sure to update it on your statement.
Have an emergency fund. Building an emergency fund will hopefully allow you to keep making payments, even in the event of an unplanned expense.
If you’re looking to improve your credit, Lexington Law Firm may be able to help you. Lexington Law Firm’s credit repair services can help you address questionable negative items on your credit reports and to ensure that what is reported on your credit reports are accurate and substantiated pursuant to applicable laws.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Candace Begody was an Associate Attorney at Lexington Law.
Ms. Begody was born and raised in Arizona. She earned her juris doctor from Arizona State University’s Sandra Day O’Connor College of Law and her master’s in business from the W.P. Carey School of Business, also at ASU. Ms. Begody joined Lexington Law in 2022. Prior to that, she worked in transactional and business law in the Phoenix area. Ms. Begody is licensed to practice law in Arizona and was located in the Phoenix office.
Whether you’re a first-time homebuyer or selling and moving into a new house, you will most likely need to take out a home loan to finance your purchase. But choosing a loan can be more complicated than simply picking one off a list — there are myriad considerations that go into selecting and getting approved for the right mortgage.
Military members and veterans can take out a VA loan, which offers advantages like 0% down and no minimum credit score requirement. Still, it’s important to look into the specifics of VA loans and cross-compare with conventional loans to determine the best option for you and whether you should shop around for the best mortgage lenders or the best VA lenders.
This guide will break down the ins and outs of VA and conventional loans, explain their differences and help VA-qualifying homebuyers decide what type of loan to choose.
Ads by Money. We may be compensated if you click this ad.Ad
What is a conventional loan?
Conventional home loans are any type of mortgage not backed or insured by a government agency like the Federal Housing Administration or the Department of Veterans Affairs. They’re offered by private lenders like banks and mortgage companies, and they typically require a down payment between 3% and 20% of a home’s sale price.
Two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, set the guidelines and requirements for conventional loans. Conventional loans will usually require a strong credit history and score — as well as a certain income and stable finances — for borrowers to qualify for competitive interest rates and terms. Borrowers may have more flexibility when it comes to property type and loan amounts compared to government-backed loans.
Types of conventional loans
There are several types of conventional home loans to consider, each with its own terms and requirements.
Conforming vs. non-conforming loans
Conforming home loans have lending criteria set by Fannie Mae and Freddie Mac. These guidelines can include factors like credit and income requirements, down payment minimum, debt-to-income ratios, and more.
Conforming loans usually have lower interest rates because lenders consider them lower risk for their strict standard lending criteria. GSEs set a maximum limit on conforming loans, which can vary depending on location.
Non-conforming loans don’t adhere to the criteria established by Fannie Mae and Freddie Mac. These loans have higher maximum loan limits than conforming loans, often making them necessary for larger loan amounts. For instance, “jumbo loans” are a common type of nonconforming loan for properties that exceed the maximums set by GSEs.
Interest rates are generally higher for non-conforming loans because they are riskier for lenders, who may also demand a bigger down payment than they would for a conforming loan. Eligibility for non-conforming loans can be more flexible and they’re often underwritten manually, which means an underwriter will evaluate your documents and verify whether you’re qualified to borrow.
Fixed-rate vs. adjustable-rate loans
When choosing a home loan, you’ll also have to decide between a fixed-rate loan or an adjustable-rate loan (ARM). Your selection will depend on your financial situation, risk tolerance, and how long you expect to live in the home you purchase.
A fixed-rate loan (aka fixed-rate mortgage) stays the same throughout the entire term, while an ARM’s interest rate can change at designated points of a loan’s term after an initial fixed-rate period. Fixed-rate loans offer more stability, which can help you plan out your expenses and budget more easily. When interest rates are low, they allow borrowers to lock in a favorable rate for the long term.
ARMs often have lower initial interest rates, which means your monthly payments will also be lower during the fixed-rate period. However, interest rate adjustments are unpredictable, and those payments may increase, resulting in higher housing costs.
Ads by Money. We may be compensated if you click this ad.Ad
VA loans explained
VA loans are specifically designed to provide active-duty military, veterans and eligible spouses assistance in purchasing or refinancing a home. They’re backed by the U.S. Department of Veterans Affairs and offer various benefits, but you have to meet specific service requirements and provide a Certificate of Eligibility from the VA.
Key differences between a VA loan vs a conventional loan
There are a few advantages to VA loans, like a $0 down payment and competitive interest rates for eligible veterans and military personnel. While conventional loans are more widely available, you normally have to pay money down and meet more stringent criteria.
Loan eligibility requirements
Qualifying for a VA loan is primarily tied to your military service record and status. Active-duty service members, honorably discharged veterans, National Guard and Reserve members who meet service requirements and certain surviving spouses are typically eligible.
You will also need a Certificate of Eligibility from the VA as proof of your service. VA loans tend to be more flexible than conventional loans regarding credit requirements, but lenders can still look into your credit history and income to determine whether you can afford the loan you’re applying for.
The home you buy with a VA loan has to meet the VA’s standards for safety and habitability, and it must be your primary residence.
Conventional loan requirements vary but are typically more strict than government-backed loans. You will usually need a credit score of at least 700 to get the best interest rates. The stronger your credit history, the more likely you are to qualify — be prepared to provide documents that show proof of income, bank statements and more to prove financial stability.
You’ll also need to meet property standards for conventional loans and pay for an appraisal to determine the property’s condition and value.
Loan closing costs and fees
VA loans require a funding fee in most cases, a one-time payment that depends on factors like service status and whether you used a VA loan in the past. The amount of your fee depends on the amount of your loan and the type of loan you get.
Conventional loan closing costs also depend on the type of loan you get, your loan amount and where you live. Closing costs typically vary between 3% and 6% of your loan amount and can include appraisal fees, attorney fees and processing fees you pay your lender to process your loan.
Down payment requirements
Minimum requirements for conventional loan down payments usually start between 3% and 5% of a home’s sale price, though paying 20% is considered ideal by many lenders and can reduce the cost of your monthly mortgage payment.
VA loans do not require any down payment, which can make homeownership more affordable for qualifying borrowers. Paying money down can, however, reduce your funding fee and decrease your monthly mortgage payment and interest.
Loan limits are adjusted periodically to accommodate changes in the housing market — the baseline conventional conforming loan limit in the U.S. for 2023 is $726,200, according to the Federal Housing Finance Agency. It’s higher in Alaska and Hawaii ($1,089,300) because average home prices are more expensive in those regions.
The standard limit for VA loans also increased to $726,000 in 2023 for most U.S. counties.
Mortgage insurance requirements
With a conventional loan, if your down payment is less than 20%, your lender may require Private Mortgage Insurance (PMI) for protection against default. This adds to your monthly costs but can be removed once you reach a loan-to-value ratio of about 80% or lower.
VA loans do not require PMI or any other type of ongoing mortgage insurance.
The condition and characteristics of a property can impact whether you qualify for a conventional loan. Requirements vary, but typically, you must ensure the property meets specific safety and habitability standards — so if there is significant damage to the foundation or roof, you may be denied or need to make repairs before closing.
An appraisal is required to determine the property’s value and confirm that it meets lender and loan-to-value ratio requirements. Property type matters, too: Most single-family loans in sound condition qualify for conventional loans, but eligibility can vary for condominiums, townhouses or multi-unit properties.
Lenders usually require homeowner’s insurance to protect their investment, especially if the home is in a high-risk area. You’ll need to ensure there are no issues with the home’s title like outstanding liens or disputes.
Many of the same property requirements apply to VA loans, although there are some differences. The property you’re purchasing must be your primary residence and satisfy the VA’s Minimum Property Standards, which concern areas like structural integrity, roofing, HVAC, plumbing and more. You will need to have a VA appraisal to assess the property’s value and confirm that it meets the Minimum Property Standards set by the VA.
Other requirements specific to VA loans include stipulations regarding distance to military facilities and private road access. The lender may impose additional safety restrictions if you purchase a home near a military facility, such as an airfield. Properties located on private roads must be accessible year-round and well-maintained, and you will need to have a written road maintenance agreement.
Resale and refinancing
If you want to refinance with a conventional loan, lenders will evaluate your eligibility by looking at your credit score, income stability and debt-to-income ratio. In most cases, you can refinance as soon as you want, although you may have to wait several months to refinance with the same lender.
You’ll sign the new loan agreement, replacing the old one, if you are approved. There is no time requirement for reselling a home after purchasing it with a conventional loan.
Homeowners with a VA loan looking to refinance can do so with VA-backed cash-out refinance loans or the Interest Rate Reduction Refinance Loan (IRRRL).
Both refinancing options require you to wait about 240 days, or six to seven payments, whichever period is longer. The VA does not impose any time requirements if you have a VA loan and want to resell your home.
Ads by Money. We may be compensated if you click this ad.Ad
The benefits of a VA loan vs conventional loan
A VA loan can offer distinct advantages compared to a conventional loan, but only for active service members, veterans and qualifying spouses. Conventional loans typically require down payments of at least 3%, whereas VA loans do not.
Unlike conventional loans, VA loans can further reduce monthly costs because they don’t require private mortgage insurance and often have more lenient credit score requirements.
The benefits of a VA loan
No down payment required
No private mortgage insurance required
More lenient lending criteria
VA funding fee can be rolled into the loan amount, reducing upfront costs
Access to VA cash-out refinance and IRRRL loans
Low interest rates
More stringent appraisal process
Potentially longer closing timeline
The benefits of a conventional loan
Accessible to a wider pool of borrowers
Fewer property use restrictions
Competitive interest rates
Beneficial for buyers with strong credit
Diverse term options and potential for lower total interest cost
Down payment usually required
PMI requirements for down payments less than 20%
Stricter qualification requirements
Is a VA loan better than a conventional loan?
For those who qualify, VA loans can be more advantageous than conventional loans because of their low interest rates and no down payment requirement, which can mean significant long-term savings. Not having to pay any money down also makes homeownership more affordable for many people entering the market for the first time.
VA loans typically don’t require PMI, and they feature more lenient lending criteria than conventional loans, making them a better option for borrowers with a limited credit history.
Finally, including the VA funding fee in the loan, can reduce the upfront expense of buying a home.
Summary of Money’s VA loan vs conventional loans
Veterans, active duty military and some spouses can use a VA loan or a conventional loan when making a home purchase.
Conventional loans can benefit homebuyers with strong credit and enough money to make at least a 20% down payment. But with VA loans, there is no down payment or PMI requirement, which can lead to major savings on monthly mortgage payments.
VA loans aren’t as customizable as conventional loans, and it may take longer to close on a house because VA loans have a stricter appraisal process. However, the advantages of a VA loan, which typically include low interest rates and more lenient lending criteria, may outweigh these drawbacks.
Many people want to buy a home but think it isn’t possible because they don’t have money to put toward a down payment. Traditionally, lenders require a 20% down payment toward your mortgage.
But a 20% down payment adds up to a lot of money. For example, if you plan to purchase a $150,000 home, you’d need to come up with a $30,000 down payment. Many people cannot afford this, but fortunately, the 20% rule is a lot less common than you might think.
Is a buying a house with no money down possible?
The National Association of Realtors (NAR) reports that 39% of non-owners believe they need a 20% down payment or more and 22% believe they need a 10% to 14% down payment.
But neither of these are true. Many mortgage lenders will let you buy a home by putting down as little as 3%. And some lenders will let you skip the down payment altogether.
NAR also found that 61% of first-time homebuyers made a down payment between zero and 6%. So, it’s safe to say that a 20% down payment isn’t the standard anymore. But unfortunately, many consumers choose not to pursue homeownership because they believe this down payment myth.
Weighing the Pros and Cons of No Down Payment Mortgages
Is there any reason to aim for 20% down when most home buyers buy with a down payment less than 20%? If you can afford it, yes, the 20% rule is still a wise choice.
The more money you put toward your mortgage, the less debt you’ll have to repay and the less your monthly payment will be. Plus, there are several drawbacks to putting down less than 20%:
Less favorable rates: If you pay less than 20%, lenders will probably see you as a risky investment. And they will take this into consideration when calculating your mortgage rates. In general, you can expect to pay a higher interest rate if you put down a smaller down payment.
Higher closing costs: Closing costs are based on the size of your mortgage. So, the smaller your down payment is, the higher your closing costs will be. However, you may be able to get around this if you live in a state where it’s typical for the seller to pay the closing costs.
Private mortgage insurance (PMI): Private mortgage insurance is a type of mortgage insurance designed for borrowers who make a down payment lower than 20%. It protects your mortgage lender in case you end up defaulting on your loan.
PMI can cost as much as 1% of your total monthly mortgage payment. So for a $150,000 mortgage, you’ll end up paying $150 per month.
However, this may not be that bad, especially if you have a less expensive mortgage. And once you reach 20% home equity, you can cancel your PMI and get rid of these extra payments.
Check Out Our Top Picks for 2023:
Best Mortgage Lenders
How to Buy a House With No Money Down
Fortunately, there are several lending programs that do not require a down payment. Here are five payment assistance programs that will help you buy a home with little to no down payment.
1. VA Loans
VA loans are a valuable option for eligible military veterans, active-duty service members, and certain surviving spouses. These government-backed loans offer several benefits, making homeownership more accessible and affordable through the use of a VA loan.
100% Financing and No Down Payment
One of the most significant advantages of VA loans is the 100% financing, meaning you won’t need to make a down payment when utilizing a VA loan. This can save borrowers a substantial amount of money upfront, making it easier to enter the housing market.
No Private Mortgage Insurance (PMI) Requirement
Unlike conventional loans that require PMI for down payments less than 20%, VA loans do not require PMI. This can save borrowers hundreds or even thousands of dollars per year in mortgage insurance premiums when using a VA loan.
VA Funding Fee
While VA loans offer numerous benefits, there is a one-time funding fee charged to help offset the costs of the program. The funding fee is 2.15% of the total loan amount for first-time users of VA loans and 3.3% for subsequent uses.
This fee can be financed into the VA loan, reducing the out-of-pocket expenses for the borrower. In some cases, borrowers may be exempt from the funding fee, such as those with service-connected disabilities.
Certificate of Eligibility
To apply for a VA loan, borrowers need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. The COE verifies the borrower’s eligibility for the VA loan program based on their military service or, in some cases, the service of their spouse. The COE can be requested online through the Department of Veterans Affairs website, by mail, or through an approved lender.
VA loans also offer competitive interest rates, more lenient credit requirements, and flexible underwriting guidelines compared to conventional loans. Additionally, there are no prepayment penalties, allowing borrowers to pay off their VA loans early without incurring additional fees.
2. Navy Federal Credit Union
Navy Federal Credit Union’s loan program is similar to what the VA offers. It offers a zero down mortgage and no mortgage insurance. And Navy Federal’s funding fee is only 1.75%.
Navy Federal offers a 30-year loan and a 30-year jumbo loan. 30-year loans have a loan limit of $424,100 while jumbo loans are available up to $1 million. However, you will have to be a Navy Federal member to qualify.
3. USDA Loans
If you’re looking to move to a rural area, you might qualify for a USDA loan. The United States Department of Agriculture Housing Program was designed to aid rural development and is aimed at low-income families. USDA loans offer 100% financing with low interest rates.
Here are the eligibility requirements you must meet to qualify for a USDA loan:
When buying a home it must be within the USDA’s boundaries: Although this loan targets rural areas, some suburban areas may still qualify. You can look at this map on the U.S. Department of Agriculture’s website to see if your location falls within the USDA’s geographical boundaries.
Your household income can’t exceed a certain threshold: This applies to everyone living in the household, even if they won’t be listed on the mortgage. For instance, if you have a parent living with you who collects Social Security, this counts toward the gross income of all members of a household. The maximum household income varies by state and county so you can find out if you qualify here.
See also: Best Home Loans for Low-Income Borrowers
A lease-option (also known as rent-to-own) allows you to rent a home with the option to buy it at a predetermined price after a certain period. A portion of your monthly rent may be applied toward the purchase price or down payment. This can be a solid option if you need more time to save for a down payment or improve your credit.
5. Seller Financing
In some cases, the seller may be willing to finance the property for you, allowing you to purchase the home without a traditional mortgage. This arrangement typically requires a contract outlining the terms of the loan, including the interest rate, payment schedule, and any potential penalties.
Seller financing can be a viable option if you have a strong relationship with the seller or if the seller is having difficulty selling the property.
Crowdfunding is a method where you raise money from multiple individuals, typically through online platforms. You can set up a campaign to raise funds for your down payment or even the entire purchase price. This method may work best if you have a strong network of friends, family, and supporters who are willing to contribute to your home-buying goal.
7. Shared Equity Agreements
Shared equity agreements involve partnering with an investor who provides a portion or all of the down payment in exchange for a percentage of ownership in the property. When the property is sold or refinanced, the investor receives a return on their investment based on the agreed-upon share of equity. This can be an attractive option if you can’t afford a down payment but are willing to share future appreciation in the home’s value.
8. Housing Assistance Programs
There are numerous local, state, and federal housing assistance programs that offer grants, low-interest loans, or other forms of financial support to help eligible individuals purchase a home with no money down. These programs often have specific requirements, such as income limits, property location, or first-time homebuyer status. Be sure to research and apply for any programs for which you might be eligible.
Low Down Payment Loans
If you’re unable to buy a house with no money down but can afford a small down payment, consider these low down payment options that can help make homeownership more accessible.
1. 97% LTV mortgages
97% LTV mortgages is a loan program that is offered to first-time homebuyers by Fannie Mae and Freddie Mac. They require a 3% minimum down payment and private mortgage insurance.
Here are the guidelines for the program:
You’ll need a credit score of at least 680
One of the borrowers must be a first-time homeowner
Manufactured housing isn’t permitted
Gifts, grants, and other funds may be used toward the down payment
2. Federal Housing Administration (FHA) Loans
The Federal Housing Administration (FHA) was established in 1934 to reduce the requirements to qualify for a mortgage. This government-backed mortgage program offers flexible requirements, making it an attractive option for first-time homebuyers.
Here are the guidelines you’ll need to meet to qualify for an FHA loan:
Credit Score Requirements
The minimum credit score required to qualify for an FHA loan is 500. The specific down payment requirements depend on your credit score:
If your credit score is between 500 and 579, you’ll need to make a 10% down payment.
If your credit score is 580 or higher, you’ll have to make a 3.5% down payment.
FHA loans allow sellers to contribute up to 6% of the closing costs. This can help reduce the upfront costs for the buyer and make it easier to afford the purchase.
Mortgage Insurance Requirements
Mortgage insurance is required for an FHA loan, protecting the lender in case the borrower defaults on the loan. However, once you build 20% equity in the home, you can refinance to a conventional loan to eliminate the mortgage insurance requirement.
FHA loans accept high debt-to-income (DTI) ratios, allowing borrowers with significant existing debt to still qualify for a mortgage. The FHA typically requires a maximum DTI of 43%, but exceptions can be made for borrowers with compensating factors, such as substantial savings or a history of making large payments on time.
3. HomeReady Mortgage
The HomeReady mortgage is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires a down payment as low as 3% and offers flexible underwriting guidelines, making it an attractive option for first-time homebuyers or those with limited credit history.
4. Home Possible Mortgage
Similar to the HomeReady mortgage, the Home Possible mortgage is a Freddie Mac program that allows for a down payment as low as 3%. It is designed to help low-to-moderate-income borrowers achieve homeownership and offers flexible underwriting guidelines.
5. State and Local Homebuyer Assistance Programs
Many state and local governments offer homebuyer and down payment assistance programs that provide grants or low-interest loans to help cover down payment and closing costs. These programs typically have income and property location requirements, so be sure to research and apply for any programs for which you might be eligible in your area.
Each of these low down payment mortgage options has its own set of eligibility requirements and potential benefits. Be sure to research and compare these options to determine which one best aligns with your financial situation and home-buying goals.
Preparing for Homeownership
Before jumping into the home buying process, it’s essential to prepare yourself financially and mentally. This section covers tips for improving credit scores, creating a budget, and managing debt to make the home buying process smoother.
Credit Score Improvement Tips
Improving your credit score involves checking your credit report for errors and disputing any inaccuracies. Ensure that you pay your bills on time and reduce outstanding debt as much as possible. Keep credit card balances low, avoid opening new credit accounts, and consider requesting a credit limit increase without increasing your spending.
Creating a Budget
Creating a budget requires tracking your income and expenses to understand your spending habits better. Categorize your expenses and set realistic limits for each category. Allocate funds for saving and investing, including a down payment and emergency fund, and regularly review and adjust your budget as needed.
Managing your debt effectively involves prioritizing high-interest debt and paying more than the minimum payment. Consider debt consolidation or refinancing options to secure a lower interest rate. Avoid taking on new debt before applying for a mortgage and create a debt repayment plan that you can stick to.
Understanding the Total Cost of Homeownership
Understanding the total cost of homeownership means factoring in property taxes, insurance, maintenance, and utility costs. Estimate homeowners association (HOA) fees if applicable and consider the costs of furnishing and updating the home. Prepare for potential increases in expenses over time, such as property tax hikes.
How to Choose the Right Mortgage Option
With various mortgage options available, it’s crucial to select the one that suits your financial needs and long-term goals. This section discusses factors to consider when choosing a mortgage, such as loan term, interest rates, and mortgage insurance.
Fixed-Rate vs. Adjustable-Rate Mortgages
Fixed-rate mortgages have a consistent interest rate for the loan’s duration, providing stability and predictable monthly payments. In contrast, adjustable-rate mortgages (ARMs) have an initial fixed-rate period followed by periodic rate adjustments, which may result in lower initial payments but potential rate increases over time.
Mortgage Term: 15-Year vs. 30-Year
The mortgage term plays a crucial role in determining the overall cost of your mortgage. 15-year mortgages typically have lower interest rates and allow for faster equity buildup, but require higher monthly payments. 30-year mortgages offer lower monthly payments, but result in more interest paid over the loan’s lifetime.
Mortgage Insurance Considerations
PMI may be required for conventional loans with less than a 20% down payment. Loans backed by the federal government, such as FHA, VA, or USDA loans, may have different insurance requirements or fees.
Assessing Your Long-Term Goals
When choosing a mortgage option, consider how long you plan to live in the home and whether your financial situation or housing needs may change. Evaluate the potential for home value appreciation and the impact on your future financial goals.
Planning Your Next Steps
Assess Your Financial Situation
The amount of money you choose to put toward a down payment is a personal choice. If you feel ready for homeownership but know that a 20% down payment isn’t feasible for you, there are many options available to help you.
The best place to start is by looking at your monthly budget and seeing what you can realistically afford. Use a mortgage calculator to reverse engineer your goal and find your ideal home purchase. Consider factors like property taxes, insurance, and maintenance costs, as well as any debts you currently have.
Get pre-approved for a mortgage before you start house hunting. This will give you an idea of how much you can afford, and it will show sellers and real estate agents that you’re a serious buyer.
To get pre-approved, you’ll need to provide your lender with documentation such as pay stubs, bank statements, and tax returns. They’ll then assess your credit score and financial history to determine how much they’re willing to lend you.
Shop Around for the Best Mortgage
Shop around for the best mortgage rates and terms. Don’t just settle for the first lender you come across. Compare different lenders and loan programs to find the best fit for your financial situation. Look for competitive interest rates, low fees, and flexible repayment terms.
Work with a Knowledgeable Real Estate Agent
A good real estate agent can help you find a home that fits your needs and budget. They’ll also guide you through the home buying process, making it less stressful and ensuring you don’t make any costly mistakes.
Attend First-Time Homebuyer Classes
Consider attending first-time homebuyer classes or workshops. Many local organizations and government agencies offer educational resources for first-time homebuyers. These classes can help you understand the ins and outs of the home buying process and give you the knowledge you need to make informed decisions.
Save for Unexpected Expenses
Even if you’re able to buy a home with no money down, it’s a good idea to have some savings set aside for unexpected expenses. These might include moving costs, home repairs, or furnishing your new home.
Build an Emergency Fund
In addition to saving for unexpected expenses, it’s also important to have an emergency fund in place. This should be enough to cover three to six months’ worth of living expenses in case you lose your job or face another financial emergency.
Be Patient and Stay Disciplined
Home buying is a complex process, and it can take time to find the right home and secure financing. Stay focused on your goals, be disciplined with your spending, and remember that homeownership is a long-term investment.
Buying a home with no money down is possible, but it may not be the best choice for everyone. Consider your financial situation, your long-term goals, and the various mortgage options available to you before deciding on a zero down payment mortgage. With careful planning and preparation, you can make your dream of homeownership a reality, even if you don’t have a large down payment saved up.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
A pay for delete letter is a negotiation tool intended to get a negative item removed from your credit report. It entails asking a creditor to remove the negative information in exchange for paying the balance.
If you have a spotty credit history and you’re working to turn your finances around, you may be wondering how to remove negative items on your credit report. Late payments, charge-offs, credit inquiries and overdue account citations can all count against you.
There are, however, a few ways to potentially have past mistakes removed, one of which is a pay for delete letter.
What is a pay for delete letter?
A pay for delete letter is a negotiation tool intended to get negative information removed from your credit report. It’s most commonly used when a person still owes a balance on a negative account. Essentially, it entails asking a creditor to remove the negative information in exchange for paying the balance.
Even if you’ve gotten yourself out of debt and paid off collection accounts, without a pay for delete letter, negative credit items can remain on your credit bureau file for up to seven to 10 years.
Time heals all wounds—including credit mistakes—but if you can’t simply wait around for your credit to improve, you’ll want to consider taking some actions toward repairing your credit. Read on to learn when you should send a pay for delete letter, view sample templates and discover other credit repair options.
How a pay for delete letter works
An individual with debt writes a pay for delete letter to a collection agency with a request to remove negative information from their credit report in exchange for payment.
First, in order to understand how and why a pay for delete letter works, you’ll need some background on collection agencies.
Collection agencies are in the business of collecting debt. Some collection agencies are contracted to collect for a creditor and receive a percentage of what’s collected. Others buy the debt and seek collection as the “current creditor.”
Usually, a collection agency will only consider offering a pay for delete letter when you’re willing to pay more than it paid for the debt. There’s no magic number, but generally knowing what the other party wants gives you more information about what to include in your pay for delete letter. This increases your chances of succeeding in the negotiation.
Tips for sending a pay for delete letter
A pay for delete letter isn’t a magical fix. Not all creditors will accept pay for delete letters. Typically, many creditors like corporate banks, credit unions and even small-town banks may not be receptive to this strategy.
However, small utility bills, such as phone, cable and power bills, that go to collections are more likely to be accepted by creditors. Before you send a pay for delete letter, here are some tips to help you avoid common mistakes.
Consider the status of your credit reporting time limit. Is the debt several years old and about to expire? If so, a pay for delete letter isn’t necessary—the debt will no longer impact your credit score after the time limit has expired. If the credit reporting time limit is still far away, you may want to send a pay for delete letter. In addition, if you want to purchase a home or a car, the lender may require that the collection items are paid off, so you may want to send a pay for delete letter.
Verify your debt. Before making a pay for delete offer, it’s imperative that you’ve sent a debt validation letter within 30 days of initial contact with the debt collector and received verification of debt from them. In some cases, collectors could request payment even if your state’s statute of limitations on overdue accounts has run out.
Reassess your financial situation. If your pay for delete letter is approved, you often will only have a short window of time to make the payment. Only send one if you’re confident you can pay the agreed-upon amount.
Save details for your records. Before sending the letter, be sure to keep a copy for your records. Then when the recipient accepts your terms (hopefully), keep a copy for your records and include a copy with your payment. Also, try to utilize a method that you can verify shipping and delivery, such a “return receipt” or Registered Mail. In the event of any complications, you’ll be glad you did these things.
Pay for delete letter template
Your pay for delete letter doesn’t need to be long and complicated—or even full of legal jargon. Be sure to provide all the relevant information like dates, payment amounts and other details specific to your scenario.
The template below can help you write your own pay for delete letter. Simply update the bolded portions with your own information.
<Your City, State, Zip Code>
<Collection Agency’s Name>
<Collection Agency’s Address>
<Collection Agency’s City, State, Zip Code>
Re: Account Number <XXXXXXXXXXX>
Dear <Creditor’s Name>,
I am writing this in response to your recent correspondence related to account number <XXXXXXXXXXX>.
I accept no responsibility for ownership of this debt; however, I’m willing to compromise. I can offer a settlement amount in exchange for your written agreement to the following terms:
You agree to accept this payment as satisfying the debt in full (once you receive the agreed-upon amount).
You agree to not list this debt as a “paid collection” or “settled account.”
You agree to completely remove any and all references to this account from the credit reporting agencies (Equifax, TransUnion and Experian) that you have reported to and validated this account.
I am willing to pay the <full balance owed / $XXX as settlement for this debt> in exchange for your agreement to the above terms within fifteen calendar days of receipt of payment. Understand that this is not a promise to pay. This is a restricted settlement offer and you must agree to the terms above in order for payment to be made.
Should you accept, please send a signed agreement with the aforementioned terms from an authorized representative on your company letterhead. Once I receive this, I will pay <$XXX> via <cashier’s check/money order/wire transfer>.
If I do not receive your response to this offer within fifteen calendar days, I will rescind this offer and it will no longer be valid.
I look forward to resolving this matter quickly.
<Your City, State, Zip Code>
Sample letter to remove collection from credit report
Now that you have a template to write your own pay for delete letter, let’s take a look at a sample letter to make sure you’re fully set up for success.
What happens if a pay for delete letter is rejected
You should always be prepared for the event that the collection agency rejects (or ignores) your pay for delete letter. Not all agencies will see the value in agreeing to your terms or the practice of pay for delete letters as a whole.
It’s also worth noting that any acceptance of your offer must be made and returned to you in writing. In the event of a solely verbal agreement, you won’t have the ability to prove that an agreement was reached if the collector doesn’t follow through and remove the information from your credit report.
If your letter was rejected, there are still some other routes you can take to repair your credit.
Other ways to potentially have negative credit report entries removed:
Send a goodwill letter
Negotiate a settlement
Wait out the credit reporting time limit
Hire a professional
Common questions surrounding pay for delete letters
Pay for delete is a unique credit repair strategy, so it’s understandable if you have some lingering questions about it. Below, we address some of the most common ones.
Does pay for delete increase credit score?
Pay for delete can potentially increase your credit score if your negotiation is successful, but its impact largely depends on your overall credit profile. If you have several accounts in collections, your score is less likely to increase much from a single negative item being removed.
If you have a single account in collections, on the other hand, your chances of improving your score via pay for delete improve.
Which collection agency owns my debt?
If you’re unsure which collection agency is holding your debt, there are a few strategies you can use to try to learn more. Consider the following:
Check if you have any missed calls or voicemails from collection agencies
Ask your original creditor for help with tracking it down
Get your credit report and check the details surrounding your debt
Can I send a pay for delete letter to the original creditor instead of the collection agency?
You should send a pay for delete letter to the original creditor as long as they haven’t sold your debt to a collection agency. If the original creditor has already sold your debt to a collection agency, you can contact them to see if they are willing to reclaim your debt from collections; however, there’s no guarantee that they will agree to this proposal.
Is a pay for delete letter legal?
Sending a pay for delete letter is a legal way to negotiate to have negative items removed from your credit report. However, it’s important to note that creditors aren’t legally required to respond or accept the request.
Oftentimes, creditors have contracts with the credit bureaus that prohibit them from removing accurate information from credit reports. If that’s the case, the creditor may not be able to enter into a pay for delete agreement with you.
Are pay for delete letters still common?
In recent years, pay for delete letters have become less common. This is partially because the latest credit scoring models, FICO® 9 and 10 and VantageScore® 3.0, do not take paid collection accounts into consideration when determining your credit score. There’s a chance these letters, even if approved, won’t impact your score at all.
Credit reporting agencies also discourage pay for delete efforts, strongly recommending that only inaccurate information be removed from reports. For these reasons, pay for delete is becoming a much less common practice.
That being said, if you’re in a more stable financial position now and expect collections activity to harm your credit, a pay for delete letter may be a good option for you to try DIY credit repair.
If you’re still not sure how to proceed or your pay for delete letter was rejected, consider equipping yourself with some personal finance tools and working with a credit consultant for a free credit report consultation.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice.
To increase your credit score to 800, you’ll need a nearly flawless payment history, a credit utilization rate well below 30%, a healthy mix of credit types, and an extensive credit history.
The average American has a credit score of 716, well within the range of what is considered a good credit score. Many people may be content with that score, but there are benefits of working your way up to the exceptional range, which starts at 800 according to the FICO® scoring method. If you’re wondering how to increase your credit score to 800, focused and careful financial habits might help you get there.
Learn more about this prestigious credit score and how to work toward it so you can improve your financial situation.
What Is an 800 Credit Score?
A credit score between 800 and 850 is considered exceptional credit. Only 23.3% of consumers have reached this credit tier, which has significant perks, including better interest rates and access to better financial products.
Several different credit scores exist, but lenders most commonly use the FICO Score, which is a number ranging from 300 to 850. Credit scores fall into five categories using this scoring method:
Very Poor: 300 – 579
Fair: 580 – 669
Good: 670 – 739
Very Good: 740 – 799
Exceptional: 800 – 850
How to Get an 800 Credit Score
An 800 credit score is more attainable than it seems. The average number of people with this score has increased steadily since 2010.
Follow the steps below to start your journey to better credit.
1. Obtain Your Credit Report and Resolve Any Discrepancies
First, request a copy of your credit report. Look for any discrepancies. File a dispute for any issues so your credit report is accurate. Credit score companies, such as FICO, base your credit score on the information in your credit report, so accuracy is essential.
If you notice errors on your report, you aren’t alone—according to an FTC study, roughly 25% of people reported errors on their credit report. Fortunately, you can challenge mistakes under the Fair Credit Reporting Act. Gather evidence to support your case and write a dispute letter to the reporting bureau. They have 30 days to investigate your claim and five days to notify you of their findings in writing.
2. Analyze Your Credit Report for Areas of Improvement
Once you’ve resolved any issues, analyze your report to determine why your score is lower than 800. Your FICO score looks at the following to determine your credit score:
Payment history: Whether you pay your bills on time and in full is the most important factor, accounting for 35% of your overall score.
Amounts owed: This refers to how much credit you’re using compared to your total credit limit, and it makes up 30% of your overall score. The less of a balance you carry from month to month, the better it is for your credit health.
Length of credit history: Credit history looks at the following and accounts for 15% of your credit score:
Age of oldest account
Age of newest account
Average age of accounts
How frequently you use revolving credit
Credit mix: FICO considers the types of credit accounts you have, such as revolving and installment credit. This factors into 10% of your score.
New credit: FICO bases 10% of your score on whether you’ve applied for several new lines of credit in a short time frame, indicating you may be overextending yourself.
Analyze your report with those factors in mind. Look for areas that need improvement:
Are you paying your bills on time?
Do you owe more than 30% of your available credit?
Is your credit history too short?
Do you only have one type of credit?
Have you opened too many lines of credit at once?
Based on the answers to those questions, you can determine what to focus on as you raise your credit score to 800.
3. Establish a Strong Payment History
The most significant factor in your credit score is a strong payment history, and Lending Tree found that 100% of people they surveyed with an 800 credit score pay all their bills on time and in full. If your credit report shows you have late payments, focus on improving your payment history.
Enroll in auto pay to ensure debts are paid promptly (but ensure you always have enough in your account to avoid overdraft fees). If you prefer to pay bills manually, add due dates to your calendar and set reminders to pay them.
4. Manage Your Credit Utilization
The second largest impact on your credit score is credit utilization, so you should prioritize lowering it. Total all your revolving credit debts (usually credit cards and home equity lines of credit) and divide that number by your total available credit. Then, multiply that number by 100 to get a percentage.
For example, if you have one credit card with a balance of $3,000 and a second one with a balance of $2,000, your total revolving credit debt is $5,000. If each card has a credit limit of $7,000, your total available credit would be $14,000. A balance of $5,000 in debt divided by available credit of $14,000 would be 0.357. Multiplied by 100, you’d get a credit utilization rate of 35.7%.
People with good credit scores tend to have a credit utilization rate below 30%. But if you’re working to earn an 800 credit score, you’ll want to keep that number even lower: The average credit utilization rate for people with 800 credit scores is 6.1%.
If your credit utilization rate is too high, start paying down your debt. Several strategies can help you tackle this effectively:
Debt snowball method: Use extra money in your monthly budget to pay off your smallest debt. Once you’ve paid that debt off, apply the minimum payment of that debt plus the extra money in your budget toward the next smallest debt. Over time, the money you put toward your debts becomes larger, like a snowball.
Debt avalanche method: Use extra money in your monthly budget to gradually pay off the debt with the highest interest rate. Then, apply that debt’s minimum monthly payment and extra money in your monthly budget to the debt with the next highest interest rate. With this strategy, you’ll save a significant amount of money on interest.
It’s also important to avoid taking on new debt while you pay down the balances of your existing debt. Establish a budget, stick to it, and avoid making large purchases unless absolutely necessary.
5. Maintain a Mix of Credit Types
Lenders want to see a mix of credit types on your credit report. These can include:
Finance company accounts
You don’t need all of these account types on your credit report, but you should aim to have more than one since a person with an 800 credit score has an average of 8.3 open accounts.
But don’t take out an installment loan just to raise your credit score. Instead, consider a credit builder loan, which involves a lender depositing the loan amount into a savings account or a certificate of deposit (CD). You’ll receive the total amount once you repay the loan, which will appear as a personal loan on your credit report.
If you have loans but no credit card, consider opening one with a low credit limit and use it for one type of purchase, such as gas or groceries. Apply for a secured credit card if you can’t get approved for a traditional credit card. This type of credit card requires a cash deposit in the amount of the credit limit that operates as collateral.
6. Lengthen Your Credit History
Lenders want to see a long history of responsible credit, so lengthening your credit history can help you raise your credit score to 800. The average age of the oldest active account for those with an 800+ credit score is 21.7 years.
Improving this area of your credit often requires patience, but you can have someone with a long credit history, such as a parent or spouse, add you as an authorized user to their credit card. For example, if your parents have had the same credit card for 10 years and they add you as an authorized user, you’ll lengthen your credit history by 10 years.
Also, don’t stop using credit cards with a longer account history, or you risk decreasing your credit history. Instead, keep them active by making small monthly purchases and paying them off immediately.
7. Monitor Your Credit Report and Credit Score
As you work through the various strategies, monitor your credit report regularly. Report any errors, monitor your report for areas of improvement, and adjust your plan as needed.
You can check your credit report for free annually using sites like annualcreditreport.com. You can also prevent hard inquiries by placing a security freeze on your credit report. This helps prevent identity theft but can also help avoid unnecessary hard credit pulls that may harm your credit.
Some credit cards may allow you to see your credit score every month as part of your monthly billing statement. (Some issuers may offer this feature for free, while others may do it for a small fee.) Ask if your credit card issuer offers this benefit and use it to track your credit score regularly.
8. Be Patient and Persistent
Working to raise your credit score is a long-term commitment. Predicting how long it will take to improve your credit depends on several factors, such as:
Your current score
Your overall credit history
How much debt you owe
How quickly you can pay the debt down
Even if you don’t see gains right away, or they’re smaller than you’d like, stick with your responsible habits. Over time, your score should improve, and even if you don’t make it to the esteemed 800, you’ll still see the benefits of a higher credit score.
Benefits of an 800 Credit Score
Raising your credit score to 800 isn’t easy, but several benefits make it worthwhile.
Easier approval for credit applications. An applicant with an 800 credit score is a low-risk investment for lenders, so they’ll quickly approve you for credit as long as the debt fits your income level.
Lower interest rates on loans and credit cards. Lenders base the interest they charge partially on borrowers’ credit scores, so the higher your credit score, the lower your rate. Once you reach 800, you’ll be able to access the best interest rates on the market, often lower than the national average, saving you money over the life of the loan.
Higher credit limits on credit cards. Credit card issuers often reward people with good credit with higher credit limits—the average credit limit of someone with an 800 credit score is $69,346, much higher than the of $28,930. While this gives you more purchasing power, its biggest benefit is that it makes it easier to maintain a lower credit utilization rate.
Access to better credit card products. With a higher credit score, you’ll qualify for credit cards with better rewards. For example, you may get access to airport lounges or earn a higher rate of return on your cash back or airline miles.
Lower insurance premiums. Insurance companies often pull your credit before determining your rate. Increasing your credit score to 800 may result in a lower rate on your home or auto insurance when you apply for a new policy.
Improved rental prospects. If you want to rent, boosting your credit score to over 800 can give you access to more rental options. Landlords use credit scores to determine how reliable you’ll be at paying your rent, and with an 800 credit score, nearly every landlord will find you a favorable tenant.
Peace of mind. With an 800 credit score, you can access loans or utilize your higher credit limits on credit cards when hard times happen.
Improve Your Financial Habits With Credit.com
Improving your credit score comes with substantial benefits, especially when you reach the exceptional credit level. While raising your credit score to 800 can take a while, the financial peace of mind, lower interest rates, and other benefits are worth it.
Start your journey to an 800 credit score by addressing any discrepancies. Then, work toward improving financial behaviors that impact your credit, such as making on-time payments and minimizing your credit utilization rate.
While FICO and VantageScore take some of the same factors into account, VantageScore determines your credit score based on six different factors. Let’s look at how VantageScore weighs each factor:
Payment history (41%): Your past ability to pay bills on time.
Depth of credit (20%): The ages and types of credit accounts you have.
Credit utilization (20%): How much of your credit limit you’re using.
Recent credit (11%): The number of hard inquiries on your credit report.
Balances (6%): The total balances on your credit accounts.
Available credit (2%): The amount of credit you have available to you.
What Kind of Loan Can I Get With a 720 Credit Score?
As mentioned above, a good credit score can help you qualify for better rates and terms for loans. However, it’s important to keep in mind that your credit score isn’t the only factor that lenders look at when reviewing your loan application. Your income, employment, credit history, and debt-to-income ratio are also taken into consideration during the approval process.
With that in mind, here’s a look into the loans you can generally expect to qualify for with a 720 credit score. Assuming you also qualify for income thresholds as well.
Generally, mortgage lenders require a minimum credit score of 620, so you should have no problem qualifying for a mortgage with a 720 credit score. You’ll also likely qualify for low interest rates, although you might not get the best rate available. Borrowers who qualify for the lowest interest rates typically have a 760 credit score or higher.
Additionally, how much of a down payment you put down may influence your interest rates. A larger down payment provides less risk to the lender because you have additional stake in the house.
A 720 credit score will allow you to qualify for an auto loan. When looking at the average car loan interest rates, borrowers with credit scores between 661 and 780 qualify for an average used car APR of 7.83% and an average new car APR of 5.82%. However, if you bring your score to 781 or above, you can expect a 1.84% lower interest rate for used cars and a 1.07% lower interest rate for new cars, on average.
With a 720 credit score, you’ll have many options for personal loans, so you should shop around for the best rates. Personal loan interest rates can range from 6% to 36%, although a good credit score should allow you to qualify for rates on the lower end of that spectrum. According to recent personal loan statistics, the average interest rate is 11.2%.
While federal student loans don’t have credit score requirements, private student loan lenders typically require a good credit score. With a 720 score, you’ll likely get approved by most lenders and may even qualify for the best interest rates.
Most credit card issuers will approve borrowers with a 720 credit score and potentially offer the lowest interest rates. You can likely even get approved for a 0% APR card. Keep in mind that certain prestigious credit cards that provide luxurious perks require excellent credit to qualify plus additional requirements. Therefore, you may need to improve your credit score before applying for an exclusive credit card.
How to Further Improve Your 720 Credit Score
If you have a good credit score but want to reach the very good or excellent range, here are some tips for how to make your good credit score even better:
Pay your bills on time: Since 720 is a high credit score, a single late payment can cause a significant drop in points. Make sure to continue paying your bills on time to further improve your credit.
Make payments more frequently: Making multiple payments on your credit card bill each month can help keep your credit utilization low.
Request a credit limit increase: Another way to lower your credit utilization is to increase your credit limit.
Leave credit accounts open: Avoid closing old credit accounts to maintain the length of your credit history.
Space out new credit applications: Wait six months between credit card applications to limit the number of hard inquiries on your credit report.
Get credit for rent and utility payments: If you regularly pay your bills on time, a rent and utility reporting service can report your payments to the credit bureaus, which may help improve your credit.
Dispute any errors: Check your credit report at least once a year and challenge any inaccurate information you find.
While a 720 credit score is considered good, there’s still room for you to stay on top of your credit—that’s where ExtraCredit® comes in. ExtraCredit is a credit management product that helps you check your FICO® scores, view your credit reports from all three credit bureaus, report rent and utilities, and more. Start your free trial* today.
*Your 7-day trial will begin after agreeing to these terms and submitting your ExtraCredit® sign-up. After your trial period, your subscription will automatically continue on the same day every month as the day you started your trial membership. The free trial is available for new ExtraCredit customers only. The credit card you provided will be charged $24.99 (plus any applicable tax) on the next business day and monthly; after your trial period unless you cancel. You may cancel at any time by downgrading your service level in your settings or by contacting us at [email protected]. Dishonored payments will result in an automatic downgrade to the free credit.com product.
Renting after eviction may seem daunting, but it’s not impossible. Yes, getting evicted is a terrible experience to deal with and a frustrating process to handle afterward. It’s something everyone fears and when it happens, you’re left wondering what the process of renting after an eviction is like.
While starting to find a new apartment after getting an eviction notice is a daunting process, it’s not impossible. With the right knowledge and preparedness, renting after eviction will be much easier. Don’t let an eviction weigh you down — we’ve got you covered with useful information so you’ll be renting after an eviction in no time.
Things to do if you’ve been evicted
If you’ve been evicted and are now ready to begin searching for a new space to rent, there are some things you should consider that will help make the process easier. Here are 10 tips for renting after an eviction.
1. Work on your credit score before renting after eviction
Your credit and legal history are two separate records, but when applying for a new place to rent, they become intertwined. An eviction won’t show up on a credit report itself but it will show up on a background check. Almost all landlords or apartment complexes will require a background check as part of the rental application process. So, if you have a past eviction, the landlord will almost certainly see it on your background check.
So how does that impact your credit score? We mentioned an eviction won’t show up on the credit report, but, if a previous landlord sent unpaid rent information to a collection agency or if your landlord sued you in court and won, this will all negatively impact your credit score. If you’ve been evicted, you need to work to improve your credit score so you can use a high score to advocate for yourself when going to rent a new property.
Start by paying off outstanding debts and paying future bills on time. A good credit score can make or break your ability to rent an apartment in the future.
2. Be honest
When people say “honesty is the best policy,” they mean it. It’s always best to share upfront with a possible future landlord about your past eviction notice — honesty is the best policy. Renting after an eviction is already hard enough and you don’t want to make it harder by having your future landlord find out you lied or withheld the truth. If they ask about your previous eviction you can simply explain the situation that led to your eviction.
Sometimes, the landlord will be more willing to work with you after hearing your side of the story.
3. Look at renting from a private party
Renting from a private owner as opposed to an apartment complex is always an option for those with eviction notices on their records. Because they’re renting the space privately they don’t have to work within the guidelines and restrictions that a regular apartment complex does. Because of this, they might be more willing to work with you and your situation. As mentioned above, be as open and honest with them as possible so they can fully understand your situation.
4. Pay more upfront
There are two ways to really get a person to help you out — buy them food or give them money. When looking for a place to rent, try and offer more money upfront. If you have the means, offer to pay a higher security deposit or two months’ rent upfront. This way the landlord knows you’re serious about renting and paying on time.
5. Get a co-signer
Getting a co-signer is another idea to explore while trying to rent after an eviction. If you know someone who is willing to and has good credit, ask if they’ll co-sign. Doing this might make the landlord more inclined to rent to you. But, keep in mind that if you don’t pay, your co-signer will have to.
6. Try and clear your record
An eviction stays on your record for seven years. That being said, there are some ways to clear your record sooner. If you’ve paid off any outstanding rent debts, reach out to your previous landlord and ask them to remove the eviction from your record.
If you haven’t yet been able to pay off an outstanding rent debt, still talk to your previous landlord. Ask them if you are able to pay off your rent if they’ll consider removing your eviction.
7. Refine your search renting after eviction
When searching for an apartment, refine your search and filter for apartments that either don’t do background checks or that accept applicants with previous evictions. By doing this you won’t waste your time looking at places guaranteed to turn you down.
8. Find the right references
Because renting after eviction is a tough road, you should have a lot of references ready before applying to rent an apartment. Because evictions are sometimes seen as a character flaw, you’ll want a reference to point out your good character traits.
Get friends, employers or colleagues to write letters speaking to your character and what a great tenant you’ll make. Submit these letters along with your rental application so that the landlord can read them and get a better sense of who you are and how you’ll be as a potential tenant.
9. Get a letter of credit when renting after eviction
Your goal when renting after an eviction is to get the landlord to understand what happened and still rent to you. Writing a letter of credit is a great start on this process. Write up your previous credit history and how you’ve changed. Tell them if you’ve gotten a new job or how you’re planning on doing things differently this time around.
10. Make a good first impression
First impressions last for a long time. When meeting with the landlord, dress nice and wear something that says you’re a reliable renter. Be polite and positively engage with them whilst speaking. You want to leave with them thinking you’re the best person to rent to. By doing this, they might be more willing to work with you and your situation.
Home sweet home
Being evicted is an extremely difficult moment to go through. And then on top of that, renting after eviction is a hard task. It takes time, effort and energy, but fear not it can be done. Using the knowledge and tips listed above you’ll be able to better prepare yourself for this daunting task.
Make sure to gather all the appropriate documents and references with you when going to meet with your potential new landlord. Tell them your story and appeal to their hearts. While it may seem like your past is still haunting you, there is hope that you’ll be able to find a new place to call home.
Ashley Singleton is a writer who loves following and writing about current lifestyle, DIY and home improvement trends. You can read some of her other work on the Lady Spike Media website. In her spare time, she performs stand-up comedy in Los Angeles.
Credit score calculations remain mysterious, but there are several known ways you can potentially help your credit, such as making on-time debt payments and avoiding maxing out your credit card. Still, it can take a few months for those positive behaviors to be reflected in your scores.
The Ava Card aims to take the guesswork — and long wait — out of bumping up your credit score. This isn’t the credit card you apply for if you want to use it like, well, a credit card. The Ava Card, which is issued by Evolve Bank & Trust, puts pretty severe limits on how much you can spend and what you can spend on. The purpose isn’t making purchases. It’s growing your credit and moving on with your life.
Here are five things to know about the Ava Card.
1. You can use the card only for eligible subscription payments
First, a pretty big caveat to be aware of: Even though you’ll get a substantial credit limit (more on that in the next section), you can typically only use the Ava Card to charge up to $25 per month for participating subscription services. Ava’s website notes that you may be able to spend more than $25 “depending on your spend limit,” but it doesn’t get more specific about what would qualify you for that.
On the plus side, the list of eligible participants covers a lot of options: retail memberships like Amazon Prime and Walmart+, streaming services like Spotify, Hulu, Netflix and YouTube Premium, and even other services like cell phone and insurance providers.
2. It’s designed to build credit quickly
Payment history: If you’ve consistently paid bills on time or not.
Credit utilization: The amount of your credit limit that you use, expressed as a percentage. (The lower, the better.)
Length of credit history: Older accounts can be beneficial.
Mix of credit types: This includes credit cards and installment loans such as mortgages and auto loans.
Recent applications: Because applying for credit or a loan results in a hard inquiry, it can temporarily lower your credit scores to do so.
You’re granted a $2,500 credit limit, but as noted above you’ll face big restrictions in terms of how much of it you can use and where. While that’s not ideal for your purchasing power, it means your credit utilization will remain low.
Your bill is due seven days after you use the Ava Card to make that monthly subscription payment. The funds are automatically drawn from the bank account you linked to the card when you signed up. You must pay the bill in full. The Ava Card doesn’t charge interest, so you can’t get into debt with it.
Ava reports to the three major credit bureaus each week, 24 hours after your autopayment is made, in an effort to further speed up credit score gains.
3. It can be paired with another Ava product
In addition to the Ava Card, you can use the Save & Build Credit feature to hopefully accelerate your credit-building even further. This feature functions as a “savings loan” where you put $30 a month for 12 months into your wallet on the Ava app. Ava reports each payment to the credit bureaus as an on-time loan payment. (Note that missing a payment can hurt your credit score.) After 12 months, you get all your money back.
This feature addresses two factors that go into credit scores: payment history and mix of credit.
4. You’ll pay a monthly fee
Ava charges a membership fee of $6 per month if you commit to an annual plan, or $9 a month if you pay month to month. That translates to a yearly cost of $72 for the annual membership, or $108 for monthly payments.
The promise of a quick credit boost might make that cost worthwhile for you, but other options, like $0-annual-fee starter credit cards, could be more cost-effective. That’s assuming you also use those cards carefully by paying your bills on time, charging a small percentage of your credit limit and avoiding debt.
5. There’s no traditional card to graduate to
If the Ava Card helps your credit score, you’re more likely to qualify for a wider selection of credit cards. But you can’t use the Ava Card like a regular card, and there’s no other Ava-branded card to graduate to. So you’ll want to ditch that membership fee and shop around for other cards as soon as you reach your credit score goals.