What Our Dream Job Winner Learned from a Month of No Spending

Robert Bruce

Updated November 16, 2021

This is a photo of the Dream Job Winner Brittany Cantu. The quote says,

Brittany Cantu saved $621 during the Dream Job challenge. Photo courtesy of Brittany Cantu

Brittany Cantu was in shock when she found out she was chosen for The Penny Hoarder’s “Dream Job” challenge in October.

To earn her $5,000 paycheck, Cantu had to kick one of her most persistent spending habits and save money for 30 days — all in an effort to find new and healthier ways to manage her money.

Cantu was up for the job: She saved an impressive $621 simply by not buying stuff online during the course of the month.

As a registered nurse, wife, and mother of three, Cantu stays busy. In her free time, she had built a habit of online spending.

“I definitely have a shopping problem,” she said. “I use a deal website that gives me deals at places like Target and Amazon. It’s easy to overspend because my 10-month-old son doesn’t like to nap by himself so I get really bored when he’s sleeping on me.”

Her growing kids also factored into her online buying habit. “The kids grow out of their clothes constantly, so kids’ clothes is a huge item that we usually need to buy,” she said. And, shoes, don’t forget about the shoes. “Shoes are a big one for me. I have way too many shoes. I just like shoes.”

She was excited about the challenge because of the progress her family wanted to make toward their financial goals. “We want to buy a house in the next year or two, so it really helped us to get going on that a little quicker,” she said.

Not only will her newfound habit of spending less help toward that goal, but her $5,000 paycheck will as well. “We’ll probably use that toward a down payment,” she added.

She said the month-long experience helped her be more content with what her family already has — and actually provided an opportunity to make even more cash by selling some of that stuff.

I definitely felt like I built more of a habit of saving, rather than spending.

“I still browsed a little bit to see if there was anything I really needed, but honestly we have everything we need,” she said. “So I started going through some old stuff that we have and getting rid of it and making money that way too.”

She sold $200 worth of stuff during the month. Add that to the $621 she saved and that’s an $821 turnaround. Pretty impressive!

Did she find the challenge to stop online spending difficult?

“It definitely feels rewarding when you buy stuff and you get packages every other day. It was kind of hard the first week or two because I had such a habit of spending,” she said. “But it got easier as I went. I was actually surprised that it got much easier. I definitely felt like I built more of a habit of saving, rather than spending.”

She says she only gave in once because of a deal she couldn’t pass up. “I saw a sale on snow boots, and the kids definitely needed snow boots this year.”

The key, Cantu learned, is to remember how small purchases add up over time.

“Most of my purchases were around $30. That doesn’t seem like a lot, but when you keep buying that $30 stuff it becomes hundreds to thousands of dollars,” she said. “At the end of the month, I’m thinking, ‘Where did this money go?’ And then we don’t even use these things that we’re buying that often. So it’s definitely a habit you can break.”

She had a great experience meeting The Penny Hoarder Dream Job challenge, and she’s learned a lot over the course of the month.

“I was happy to be picked and challenged, and I think I really needed it. It was eye opening.”

What spending habit could you give up for a month to make progress toward your financial goals?

Robert Bruce is a Senior Writer for The Penny Hoarder.



Source: thepennyhoarder.com

What Credit Score Do You Need to Buy a Car in 2021?

Because a credit score is an important indicator for determining a consumer’s creditworthiness when buying a car, those with excellent credit histories tend to have an easier time borrowing money on favorable terms compared to those with lower credit scores. However, industry data shows that high-risk borrowers remain viable candidates for auto loans. In other words, there is no universally defined credit score needed to buy a car.

Read on to learn how your credit score can affect buying a car, plus some tips for purchasing a car with a lower credit score.

What FICO® Score Do Car Dealers Use?

There are a few different scoring models that car dealers may use for determining a customer’s credit score. They may use the FICO Auto Score 10 , an industry-specific model featuring a score range from 250 to 900. The auto industry also may use VantageScore 3.0 or the newer VantageScore 4.0 model, which has a score range from 300 to 850.

No matter which scoring model is used, a bad credit score falls on the lower end of the range and a good credit score sits on the higher end of the range.

What Is the Minimum Credit Score To Buy A Car?

There may not necessarily be a minimum credit score required to buy a car. Consumers with deep subprime credit scores from 300 to 500 have obtained financing for new and used vehicles in the second quarter of 2021, according to the credit bureau Experian’s State of the Automotive Finance Market report for that period. Although the percentage of borrowers in this category is very low, this indicates that even those with the lowest credit scores still may have access to auto financing.

Average APR by Credit Score Ranges

Consumers from all credit score categories have obtained auto loans in 2021, but car buyers with excellent credit histories tended to secure the lowest annual percentage rate (APR) financing, according to Experian’s Q2 report. When assessing what is a good credit score to buy a car, Experian’s data confirms that consumers in the super prime and prime categories obtain the lowest interest rates on average for financing.

Quarterly financing data on new vehicle purchases in the second quarter of 2021 shows the following average APRs by credit score ranges:

•  Deep subprime (300-500): 14.59%

•  Subprime (501-600): 11.03%

•  Near prime (601-660): 6.61%

•  Prime (661-780): 3.48%

•  Super prime (781-850): 2.34%

How to Buy a Car With a Lower Credit Score

Obtaining a loan to purchase a new or used vehicle when you don’t have great credit can be cumbersome, but it’s not impossible. Here are some ways a consumer with poor credit may be able to obtain auto financing:

Make a Large Down Payment

Offering a large down payment on a vehicle purchase may allow car buyers to obtain more reasonable rates and better terms for financing, resulting in more affordable monthly loan payments. By putting more money down at the time of purchase, lenders also may view the loan as less risky, thus increasing your odds of approval.

Get Cosigner Assistance

Buying a car with the assistance of a cosigner is another way to potentially bolster your chance of securing favorable financing. A cosigner agrees to share the responsibility of repaying the loan, effectively promising the lender that if you don’t make the payments they will. If the cosigner is creditworthy, it puts the buyer in a much better position to obtain financing than going it solo.

Consider a Less Expensive Car

Especially if you are buying a car with bad credit, it is important to know how much you can realistically afford to spend — and then stick to that budget, even if the dealer tries to upsell you. Additionally, finding a less costly car will reduce the amount you need to borrow, and it may be easier to get approved for a smaller loan amount than a larger one.

Benefits of Good Credit When Buying a Car

The benefit of a good credit score when buying a vehicle is that you may secure lower interest rates compared to consumers with poor credit. Unless a consumer buys a vehicle outright with cash or receives 0% APR financing, the consumer will eventually face monthly principal and interest payments until they’ve paid off the loan balance in full. Auto financing terms may vary in length, with some maturing at 60 months, 72 months or 84 months.

Car loans with a high APR may cause consumers to pay a long-term premium above and beyond the actual sales price of the vehicle.

How to Monitor and Keep Track of Credit Scores

There are a number of ways you can check your credit score, including through your credit company or another financial institution where you have an account, as well as through a credit service or credit scoring website. Contrary to what you may expect, your credit report does not include your credit score, though it does provide valuable information about your credit history and debts, which is why it can still be helpful to read over your credit report before making a major purchase like a car.

Credit scores can fluctuate over time depending upon financial circumstances, and credit score updates occur at least every 45 days. That’s why it’s important to take a look at where your score stands right before you begin the process of car shopping.

Also keep in mind that it’s common for credit inquiries to occur when you’re shopping around to see what auto loan terms you qualify for. While soft inquiries don’t affect your credit score, hard inquiries, such as those that happen when you’re comparing rates for an auto loan, can ding your score. However, most major credit scores will count multiple car loan inquiries made within a certain period of time — typically 14 days — as one inquiry.

What’s Expected in 2022?

Based on the trends outlined in Experian’s Q2 report for 2021, prime borrowers with good credit in 2022 may continue shifting away from used vehicles in favor of new vehicles. Experian’s research also shows that subprime financing remains at near-record lows, with just a fraction of car loans in 2021 going to consumers in the deep subprime risk category. These trends could continue into 2022.

The Takeaway

While it is possible to buy a vehicle with bad credit in 2021, consumers in the subprime or deep subprime risk categories may want to explore ways of improving their credit scores to help secure financing with more favorable terms. As far as what credit score you need to buy a car, any score is potentially sufficient for obtaining financing.

If you want to check your credit or work to improve your score before buying a car, SoFi Relay is a user-friendly app that allows you to easily monitor and keep track of your credit score.

Stay on top of your credit score with weekly updates.

Photo credit: iStock/tolgart

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.

Source: sofi.com

The Cost of Living in Charlotte

The Southern charm and natural beauty of Charlotte make it one of the best places to live in the country.

Charlotte is one of the top commercial and financial centers in the country. People move to the area for a stable economy and job opportunities in the financial sector, as well as the promising job market in other industries.

In addition to economic reasons, the laid-back atmosphere, natural beauty, plethora of outdoor activities and friendliness of the residents are what draw people to Charlotte.

Because of this, many people are making the move to Queen City. In fact, despite the pandemic, Charlotte was one of the fastest-growing cities in the nation in 2020.

Are you ready to call Charlotte home? If so, you’ll need to find out if living here is really within budget.

Overall, the cost of living in Charlotte is 2.6 percent cheaper than the U.S. average. That alone won’t provide you with an idea of whether this city is right for you, though. You’ll want to look at things like the average rent in Charlotte, as well as everyday costs. We’ll dive deep into how Charlotte compares with the rest of the country in the following areas:

Ratcliffe Condos in Charlotte, NC

Ratcliffe Condos in Charlotte, NC

Housing costs in Charlotte

The average rent in Charlotte is $1,964 and though this price is nearly 16 percent higher than the average last year, you’ll be happy to know that the rental fees are 17 percent cheaper than the national average. For many renters, that means you can get a gorgeous apartment with more amenities and square footage for the same amount (if not less) than other cities in the country.

Some neighborhoods might even be less than the average rent in Charlotte. Take, for example, the neighborhood of Idlewild Farms. The average rent in that area is less than $920 per month, while the average rent in the Westside neighborhood is less than $720 per month.

If you’re looking for something a bit higher-end, you can find communities with exceptional amenities and newer apartments that are closer to the best restaurants, jobs and shopping Charlotte has to offer. In these neighborhoods — like Ashley Park and Brown Road — rental fees can surpass $2,600 per month.

Average rent prices in cities near Charlotte

If you’re not sure Charlotte is the right city for you or whether you want to live directly within city limits, you might consider moving to a city near Charlotte. These rental fees are typically lower than Charlotte, which means you can save some money on rent and still have easy access to Charlotte for day trips.

Home prices in Charlotte

If you’re not keen on paying the average rent in Charlotte and you have some money saved up, you might consider putting a down payment on a new home.

According to Redfin, the average home price in Charlotte is $353,000, and mortgage rates are nearly $1,000 less than the average rent in Charlotte.

Some things to think about when considering a home purchase:

  • Do you have enough income to pay for home maintenance?
  • Do property taxes fit into your budget (at 0.730 percent, you’ll probably pay around $2,577 a year in residential property taxes)?
  • Can you afford to insure the home?

All these factors can radically increase the cost of living in Charlotte.

Pastry in front of Charlotte, NC skyline.

Pastry in front of Charlotte, NC skyline.

Food costs in Charlotte

Another important factor that can raise the cost of living in Charlotte is the cost of food, which is about 0.5 percent higher than the national average.

Being on par with the U.S. average means what you pay for a steak, chicken, milk, bread and eggs is much cheaper than other cities in the country.

Let’s compare Charlotte with the U.S. average, as well as one of the more expensive cities in the country to get a clear picture of your price savings.


  • Steak = $11.98
  • Chicken = $1.33
  • Milk = $1.84
  • Bread = $3.65
  • Eggs = $1.36

Miami, FL (16.6 percent higher than the national average):

  • Steak = $15.86
  • Chicken = $1.87
  • Milk = $3.31
  • Bread = $4.97
  • Eggs = $1.78

U.S. Average:

  • Steak = $12.40
  • Chicken = $1.32
  • Milk = $2.10
  • Bread = $3.44
  • Eggs = $1.47

While it may seem like just a few dollars difference, you know just how quickly those dollars can add up. So much so that they can make it hard to survive in a city even if it has a lower overall cost of living. Thankfully, the grocery rates in this North Carolina city help keep the cost of living in Charlotte relatively affordable.

Another factor to consider when it comes to the cost of food is dining out. If you eat at restaurants or order takeout often, you can expect your food bill to rise. According to BudgetYourTrip.com, the average cost of a restaurant meal is $15, though that price can rise or fall considerably depending on the type of restaurant you visit.

And Charlotte has some amazing options!

From the River’s Edge restaurant (with breathtaking views) to Leah & Louise (where you’ll taste food prepared by a James Beard-nominated chef), Charlotte has a variety of choices. You’ll find Southern comfort food, burgers, Korean Barbeque, African (Ethiopian and Ghanian) restaurants and so much more.

Utility costs in Charlotte

An important factor in the cost of living in Charlotte is the cost of utilities. It’s not always easy to factor in specific utility costs because they change depending on your use. But we can provide you with some average costs.

Overall, utility fees are 6.1 percent lower than the U.S. average. Your power bill will likely average $153.51 per month (the U.S. average is $160.94). Other monthly utility fees include:

Light rail in Charlotte, NC

Light rail in Charlotte, NC

Transportation costs in Charlotte

The best way to get around Charlotte is in a car. The city doesn’t have the greatest walkability or biking scores (31 and 36, respectively).

However, there are some reliable bus and light rail transit options. The Charlotte Area Transit System offers one-way fares that range from $0.90 to $4.40 depending on whether you hitch a ride on a shuttle, bus, express bus or express plus vehicle. Monthly passes range from $88 to $176, again depending on which transit option you choose.

If you choose to use your own vehicle to get around, it’s good to get an idea of some of the regular fees you’ll pay in connection with your travel to and around the city as these can raise the cost of living in Charlotte.

For instance, toll prices are between $0.90 and $1.21 in North Carolina. You might pay more if you decide to choose the “bill me by mail” option (between $1.38 and $1.86).

Other costs include fuel ($2.66 per gallon), maintenance fees (such as tire rotation and balance, which can cost around $50) and parking (day rates range from $5 to $24).

Overall, transportation costs in Charlotte are 4.7 percent lower than the national average.

Healthcare costs in Charlotte

It’s not always easy to determine an average when it comes to something like healthcare costs. Healthcare is a very unique thing, the cost of which depends on your individual needs such as:

  • How many dependents do you have
  • Whether you have insurance or not
  • If you have a chronic health condition
  • If you’re frequently ill (getting a bad case of pneumonia or bronchitis every year as an example)

Generally, healthcare costs in Charlotte are higher than the national average by 9.2 percent. It’s nice that, overall, the cost of living in Charlotte is lower than the U.S. average, but healthcare is one of the things that can drive those costs up.

As an example, a check-up with your physician might cost $133.33 in Charlotte. In other parts of the country, the cost is around $112.81. Similarly, your annual visit with a general dentist in Charlotte might cost $123.00. Patients in a different city might only pay $99.44.

Interestingly, drug prices tend to be lower in Charlotte. Over-the-counter medications are approximately 33.47 percent cheaper, while prescription medications are 2.5 percent cheaper.

Rental canoes in Charlotte, NC

Rental canoes in Charlotte, NC

Goods and services costs in Charlotte

Goods and services are investments that are “non-essential.” In other words, anything that doesn’t fall into the category of must-have, must-pay-for products/services like rent, groceries and healthcare costs.

However, we use these products every day, so they feel essential and rightly so! Knowing that you’re going to pay for these products regularly can help you determine the true cost of living in Charlotte. (Typically, these are 7.6 percent higher than the national average.)

For instance, think of some of the everyday items you use or weekly activities you engage in:

  • Toothpaste ($2.64)
  • Shampoo ($1.23)
  • Yoga class ($22)
  • Dry cleaning ($12.24)
  • Newspaper subscription ($15.99)

Other activities/products/services you can get estimates for before you make your move to Charlotte include:

  • Going to the movies
  • Shopping for clothes
  • Getting a massage
  • Salon treatments
  • Spa treatments (mani, pedi, facial)
  • Subscriptions (Netflix, Hulu, etc.)

Taxes in Charlotte

Another factor to figure into your estimate of the cost of living in Charlotte is the taxes you pay once you become a resident of the city. Sometimes, new residents don’t always take taxes into account, which is a very unpleasant wake-up call!

State sales tax in North Carolina is 4.75 percent. Combined with city/county taxes, the total sales tax amount is 7.25 percent.

Interestingly, North Carolina has a flat income tax rate. All taxpayers in the state pay the rate of 5.25 percent regardless of their filing status or their taxable income. Residents like the flat rate because even if their job or salary changes, they pay the same rate, which makes filing their taxes relatively easy.

How much do you need to earn to live in Charlotte?

According to the U.S. Census Bureau, the average annual income for residents of Charlotte is $62,817. If you were to follow the advice of most financial experts, you’d limit your rental costs to 30 percent of your income. If you earn an average income, that means you’d spend $18,845.10 on rent per year, or $1,570.42 per month.

The average rent in Charlotte is $393.58 over that amount. That’s great news! You definitely have some wiggle room because there are plenty of neighborhoods with apartments for rent at lower costs. Or, if you make more than the average income in Charlotte, you can look at apartments that are higher or lower than the average and find the apartment that fits your needs to a T.

To find out if you make enough to comfortably live in Charlotte, check out our free rental calculator.

Understanding the cost of living in Charlotte

Charlotte is a beautiful city where newcomers are welcome. With the friendly atmosphere and affordability, residents feel fortunate to call this city their home.

Uprooting yourself from one city (or state) to another can seem daunting. We want to help! Using our listings filter, you can find apartments for rent in Charlotte that not only fit your budget but that also have the amenities you want and need.

Source: rent.com

Understanding Property Valuations

If you’re applying for a mortgage, you probably expect the lender to take a look at your income, debt, credit history, employment, and assets.

There’s another loan element the lender will consider that may be less familiar: an objective property valuation.

What Is a Property Valuation?

Sellers may use a property valuation to determine how much their house is worth and how much they can charge on the open market.

A mortgage lender’s property valuation is slightly different. It helps the lender determine the value of the property you’re hoping to buy based on factors like size, location, condition, and demand.

Why would lenders require this type of home appraisal? They want to know that the loans they offer are backed by a sufficiently valuable property so that if a borrower were to default on the loan, they can recoup their losses.

Consider this: Sellers can choose any listing price they want — whatever they think someone is willing to pay. But if the buyer needs financing, the selling price must be supported by market value (what comparable homes have recently sold for in the area) before a lender will pony up the cash for a loan.

If the home you want to buy is appraised for less than the sales price, the seller would need to lower the price to the appraised value, you would have to make up the difference, or you’d exit the deal.

Who Carries Out a Property Valuation?

A lender’s property valuation typically will be carried out by a professional appraiser assigned by a third party.

The lender, buyer, and seller are not to have any relationship with the appraiser so that the valuation is unbiased. Buyers can hire an independent appraiser, but the valuation would not be official.

The kind of valuation required by lenders depends on factors such as the type of home you’re looking to buy, the type of loan you’re applying for, your credit score, and whether you’re buying a single-family or multifamily home.

Home Appraisals, Explained

The most common kind of property valuation is an appraisal.

How Does a Home Appraisal Work?

An appraisal is an independent estimate of the home’s value by a licensed or certified real estate appraiser.

Appraisers weigh factors like location, the condition of the home, size and layout, the year it was built, and any renovations that have been done. They also consider “comps” — what similar homes in the neighborhood recently sold for — tax records, and zoning.

The appraisal will determine a market value that is either “as is” or “subject to” certain conditions, such as completion of repairs or upgrades.

Lenders rely on the appraiser’s market value to come up with the loan-to-value ratio of a property, which influences the amount they’re willing to lend and the terms of the loan.

When Does an Appraisal Happen and What Does It Cost?

The federal government no longer requires appraisals for homes that cost less than $400,000, allowing simpler evaluations to stand in their place. That said, most mortgage lenders probably will still require an appraisal.

The appraisal typically occurs once the seller has accepted an offer and is normally performed within the loan contingency date of the purchase contract, usually 21 days.

The buyer pays for the appraisal ordered through the lender. The cost depends on the type of property, city, size, and features, but for a single-family home it averages $348, according to a national survey from HomeAdvisor, an online platform for home services professionals.

A desktop appraisal may cost much less than that.

What If You Get a Low Appraisal?

If the appraised value is as much as the agreed-upon price or more, that encourages the lender to move forward with the home loan, assuming that the other aspects of the property and your application are in order.

If the appraisal comes in under the agreed-upon price, the lender may reduce the amount of the loan it’s willing to offer.

You or the sellers can dispute the appraisal with the lender or ask for a second appraisal. If the value is still too low, there are three routes:

•   You can agree to contribute the difference in cash.

•   You can try to get the seller to reduce the price.

•   You and the seller may agree to split the difference.

Buyers can back out of the deal if the contract includes an appraisal contingency. A clean offer, one with as few contingencies as possible, caught on in the recent hot market, but buyers take risks in dropping contingencies.

Alternatives to a Full Home Appraisal

In certain situations or stages of the homebuying process, you may not need to go through a full formal home appraisal. Here are some alternative methods lenders use for home valuations.

Automated Valuation Model

Algorithms take into account the size of the home, the number of bedrooms and bathrooms, comps, and other factors to estimate property value.

Some lenders of conventional mortgages using Fannie Mae or Freddie Mac’s automated underwriting systems may receive a waiver for a full appraisal, thanks to robust sales in the neighborhood to support the purchase price, the amount of the down payment, strength of the borrower, or the type of transaction.

Some lenders also use automated valuation models when deciding whether to extend or adjust a home equity line of credit.

Drive-by or Exterior-Only Appraisal

A drive-by appraisal (also known as a summary appraisal) refers to an inspection that only looks at the exterior of a home. The appraiser will photograph the front and sides of the home, as well as the street in both directions.

The appraiser takes notes on the neighborhood and the condition of the home and looks at comps when coming up with an estimated value.

Desktop Appraisal

Never having to leave the desk, an appraiser uses property tax records, comps, and other public record data in lieu of a physical property inspection.

The Federal Housing Finance Agency made desktop appraisals, implemented in March 2020 amid lockdowns and social distancing, permanent for purchase loans starting in early 2022.

That means both Fannie Mae and Freddie Mac will allow appraisals to be conducted remotely.

Broker Price Opinion

A broker price opinion is an estimate of a property’s value determined by a real estate agent or broker, rather than a licensed appraiser. A client may request this estimate to underpin a home’s listing price.

A lender may request a broker price opinion when a borrower is behind on payments, and will use the unofficial assessment to see whether the home value is below the amount of the loan, potentially making the borrower eligible to negotiate a short sale.

Broker price opinions can also be used to buy and sell mortgages on the secondary market. Lenders prefer them in these cases because a full appraisal isn’t required, and because the valuations are fast and generally less costly.

The Takeaway

An unbiased professional appraiser determines real estate valuation based on factors like home size, condition, location, and comparable sales. When big money is at stake, a lender needs to determine the true property valuation.

Before you get to the home valuation stage, the first steps to becoming a homeowner may be getting prequalified and preapproved for a mortgage loan.

SoFi offers home loans with as little as 5% down, competitive rates, and flexible terms.

It’s quick and easy to find your rate on a SoFi mortgage.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Source: sofi.com

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment or a line of credit, which can then be used to fund home renovations, consolidate debt, pay off medical expenses or simply improve one’s lifestyle.

While older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool, reverse mortgages aren’t for everyone. We’ll dive further into the question of what is a reverse mortgage, as well as explore their pros and cons and alternatives you might consider.

How Does a Reverse Mortgage Work?

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM). That being said, there are two other types of reverse mortgages — we’ll cover those reverse mortgage meanings in more depth below.

To qualify for an HECM, all owners of the home must be 62 or older and have paid off their home loan or have a considerable amount of equity. Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed. The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•   Income, assets, monthly living expenses and credit history

•   On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or the age of an eligible non-borrowing spouse and current interest rates. Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Loan Costs

An HECM loan may include several charges and fees, such as:

•   Mortgage insurance premiums

◦   Upfront fee (2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit, whichever is less)

◦   Annual fee (0.5% of the outstanding loan balance)

•   Third-party charges (an appraisal fee, surveys, inspections, title search, title insurance, recording fees and credit checks)

•   Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000; the origination fee cap is $6,000)

•   Servicing fee (up to $30 per month if the loan interest rate is fixed or adjusted; if the interest rate can adjust monthly, up to $35 per month)

•   Interest

Your lender can let you know which of the above fees are mandatory. Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

The servicing fee noted above is a cost you could incur from the lender or agent who services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements and disburses loan proceeds to you.

What Is the Most Common Kind of Reverse Mortgage?

The most common type of reverse mortgage is the HECM, or home equity conversion mortgage, which can also be used later in life to help fund long-term care. HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD). The current loan limit is $822,375.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor, which you can find through the HUD site. When you meet with the counselor, they may cover eligibility requirements, potential financial ramifications of the loan and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable. The counselor may also share alternatives.

The reverse mortgage loan generally needs to be paid back if the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, and if no other borrower is listed on the loan.

However, a new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as they continue to occupy the home as a principal residence, is still married and was married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021, HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. Now they will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more information about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($822,375), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums. In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

Pros and Cons of Reverse Mortgages

Reverse Mortgages: Pros and Cons

Pros Cons

•   No monthly payments

•   Flexibility on how you get money

•   Can pay back the loan whenever you want

•   The money counts as a loan, not as income

•   An HECM can be used to buy a new primary residence

•   Rates can be higher than traditional mortgage rates

•   Generally requires reducing your home equity

•   Must keep up with property taxes, insurance, repairs and any association dues

•   Interest accrued isn’t deductible until it’s actually paid

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing. Here are some of their pros:

•   Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses or buying a vacation home (although this is not true for the single-purpose variety).

•   How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit or some combination of the three.

•   You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

•   The money from a reverse mortgage counts as a loan, not as income. As a result, payments are not subject to income tax. Social Security and Medicare also are not affected.

•   An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again, here are some cons of reverse mortgages to consider:

•   Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

•   Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

•   You’ll need to keep up property taxes and insurance, repairs and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

•   Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate and loan fees, as well as whether they choose a lump sum, line of credit, monthly payment or a combination of those options.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash, including:

Cash-out refi: If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan: A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC): A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Some lenders will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

Home equity loan: A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage may make sense for some older people who need to supplement their cash flow. But many factors must be considered, including the youngest homeowner’s age, home value, equity, loan rate and costs, heirs and payout type. As retirees are weighing the pros and cons, remember there are other options.

If you’re considering buying a home, another option is to shop around for a competitive rate. Use SoFi to find your mortgage rate and choose which type of mortgage is right for you.

See your rate — it takes just a few minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Source: sofi.com

The Cost of Living in San Antonio

San Antonio is one of the best places to live in Texas. You’ll have access to an abundance of bars, restaurants, shopping and entertainment opportunities.

People who live in San Antonio say it’s Texas’ best-kept secret. And most of them would like to keep it that way! That doesn’t mean they’re not open to new neighbors, though. If you’re thinking of moving to The Alamo City, you’re in good company. On average, approximately 66 people move to the city every day.

With affordable real estate and lower than average rent, combined with the big city amenities and a small-town feel, it’s no wonder San Antonio is booming.

The cost of living in San Antonio is below the national average by 7.5 percent, making a move to this city an affordable option for many. To find out if San Antonio is right for you, consider the cost of living in the following categories.

San Antonio Riverwalk high rise

San Antonio Riverwalk high rise

Housing costs in San Antonio

The biggest part of your monthly budget is your rent. According to financial experts, the “rule of thumb” when it comes to renting is that it should make up no more than 30 percent of your monthly budget. However, according to a 2020 Harvard report, nearly 25 percent of renters spend over half their budget on rental fees.

What you decide to spend on rent is up to you and where you decide to live, which is why it’s smart to check out rental fees in various cities. You might be able to find the apartment of your dreams at an affordable rate (that doesn’t eat up half your income) in a city like San Antonio.

So, how does this city stack up? The average rent in San Antonio is 16.8 percent cheaper than the U.S. average. You can expect to pay about $1,103 per month, which is an 18.3 percent decrease from the previous year.

Of course, some neighborhoods are a bit pricier, like Downtown San Antonio. There you’ll pay a little less than $2,000 per month on rent.

Or, you might pay less if you move to a neighborhood like Woodlawn Hills, where the average rental fees are around $750 per month.

Average rent prices in cities near San Antonio

If you aren’t comfortable with the average rent in San Antonio or aren’t sure if this city is the right one for you, you still have plenty of options. Texas is full of awesome cities that have the amenities that will fit your needs — and at prices that fit your budget.

In addition to browsing through various neighborhoods in San Antonio, you can also research nearby cities, such as the following.

Home prices in San Antonio

Another option is to save up your money and put a down payment on a San Antonio home. Many people feel this is a better option than renting because you’re putting your money into something that’s going to appreciate and benefit you (and potentially other members of your family) instead of simply putting money into a landlord’s pocket.

The average price for a home in San Antonio is $279,000 — an amazing price considering houses in some cities like Los Angeles, CA or Manhattan, NY go for $920,000 and $1,170,000, respectively, on average. Even Dallas, TX has significantly higher housing prices (averaging nearly $400,000).

However, San Antonio is booming, which means the housing market is very competitive right now. On average, homes sell for between 1 and 5 percent higher than the asking price and sell within 11 to 18 days.

What about your mortgage payment? Depending on your down payment and the price of the home you’re interested in, you can expect to pay at least $1,188 per month, according to Redfin. This is higher than the average rent in San Antonio, so you’ll definitely have to weigh the pros and cons of renting vs. buying.

Tex Mex food in San Antonio

Tex Mex food in San Antonio

Food costs in San Antonio

Another category that can quickly and substantially increase the cost of living in San Antonio (or any city for that matter) is food costs, which fall into two categories: groceries and eating out.

Most people will tell you that eating out is more expensive than eating at home. But for a lot of people, eating out is a necessity at times due to their busy schedule, which contributes not only to a lack of time but also to exhaustion.

Thankfully, you have plenty of dining options in San Antonio. If you’re a fan of Bon Appétit magazine, then you’ll love their recommendations, like the 2M Smokehouse, which is where you’ll find the best barbeque in Texas. But there’s more to Texas cuisine than barbeque. You’ll also find:

  • Seafood
  • Vegetarian restaurants
  • Chinese
  • Japanese
  • Middle Eastern
  • Italian
  • Ethiopian
  • Jamaican

Just to name a few!

The average cost of a meal out is around $13, though that’s for budget-friendly options. If you choose to eat at a fine dining establishment or want to have your food delivered (with delivery fees and driver tips), expect to pay much more.

Eating at home

If you’re trying to save money, you can cook most (if not all) of your meals at home. Grocery costs in San Antonio are 10 percent cheaper than the national average.

Let’s say you want to make some fried chicken with a side of corn and a coke for a fast and easy, Southern comfort meal. Your grocery bill for that meal will be around $3.82. Other cities in the country will average a bill of about $4.45. It doesn’t seem like a huge difference but when you’re doing your weekly or monthly shopping, it will add up. And you’ll really be able to see the difference when you evaluate what you spent on food over the course of a year.

Utility costs in San Antonio

Utility costs in San Antonio are also lower than the national average by 11.3 percent. Utilities are one of the most important figures to factor into the cost of living in San Antonio. They can quickly and radically increase your costs each month, including the average rent in San Antonio.

The average monthly electricity/power bill in the U.S. is $161.20. In San Antonio, the average cost is $136.97.

Other utilities include:

San Antonio high way

San Antonio high way

Transportation costs in San Antonio

Another important feature of the cost of living in San Antonio is transportation. After all, you need to get to and from work and be able to run errands efficiently — and affordably — if possible.

Fortunately, transportation costs in San Antonio are 4.6 percent lower than the national average. These costs include:

  • Public transit: A one-way trip on the VIA Metropolitan Transit bus costs $1.30. You can purchase a 7-day pass for $12 or a month-long pass for $38.00. The Transit Score for San Antonio is 37.
  • Parking: The average parking rate in the city is $5.50 per hour or $16 for 24 hours.
  • Fuel: A gallon of gas is currently around $2.43, which is 12.7 percent cheaper than the national average and 59.54 percent cheaper than the price of gas in Sacramento, CA.
  • Vehicle maintenance: One of the most common maintenance fees is tire rotation and balancing. You’ll pay about $59.50 for this service in San Antonio, which is 12.7 percent higher than the U.S. average.

Another common way to get around a city is to walk or bike. While this is possible in San Antonio, the walkability and bike scores aren’t great. They are well-below average (38 and 45, respectively). However, San Antonio is trying to change that.

In addition to the mostly flat topography of the city, you’ll also have access to San Antonio B-Cycle, which is a bike-share program that has over 50 stations throughout the city. For a 30-minute ride, you can rent a bike for $3.75. Or you can purchase a monthly or annual membership for $22 per month or $100 per year.

Healthcare costs in San Antonio

Though this is an important category in which to figure out your unique cost of living in San Antonio, these prices are typically difficult to determine. The reason for this is because healthcare impacts every person differently.

Some people pay less because they’re single, healthy and have great insurance. Others pay more because they don’t have insurance. And others may pay more even if they have insurance because they must pay for the coverage of a spouse/partner and dependents and/or have chronic health conditions that require frequent trips to the doctor or regular prescription medications.

Overall, the cost of healthcare in San Antonio is 6 percent lower than the national average. If you make an appointment for your annual physical, you’ll pay $116 for that visit. In other cities in the U.S., you’ll pay around $112.81. A trip to the dentist will cost $91.33 before insurance, whereas residents of other cities will pay approximately $99.44.

Over-the-counter drugs and prescription medications range from 4.27 percent to 6.35 percent cheaper, respectively.

San Antonio Riverwalk

San Antonio Riverwalk

Goods and services costs in San Antonio

Non-essential goods and services can radically increase the cost of living in San Antonio if you’re not careful. We don’t always pay attention to these costs because, while we purchase or invest in them regularly, most aren’t a monthly expense like rent or food.

Getting a baseline idea of how much you spend each month on these items can give you a good idea of whether you can afford the average rent in San Antonio.

On average, the cost of goods and services in San Antonio is 1 percent higher than the national average. For the most part, that’s not a huge price hike but if you’re like most people, you’ll want to look for a deal to save a few bucks each month.

Here are a few price comparisons.

  • Haircut: $27 in San Antonio; $20 U.S. average
  • Yoga class: $18.20 in San Antonio; $15 national average
  • Visit the salon: $51.70 in San Antonio; $38.64 U.S. average
  • A trip to the movies: $11.88 in San Antonio; $11.12 national average
  • Veterinary check-up: $50.64 in San Antonio; $52.45 U.S. average

Taxes in San Antonio

One of the perks of living in San Antonio is that there’s no state income tax. However, you’ll still have to pay sales and property taxes, and these can end up being relatively higher than average.

If you choose to purchase a home in San Antonio for the median price ($279,000), you’ll pay around $5,496 each year in residential property taxes. The property tax rate is 1.970 percent and can exponentially increase the cost of living in San Antonio, depending on your mortgage rate and the price of your home.

The sales tax rate in San Antonio is 8.25 percent, 6.25 percent of which goes to the state of Texas. If you make a $1,000 purchase, you’ll end up paying an additional $82.50 in taxes.

How much do you need to earn to live in San Antonio?

How much you need to earn depends on the total cost of living in San Antonio, most of which you’ll likely allocate to your rental or mortgage fees. Many financial experts recommend spending no more than 30 percent on this expense.

If you’re paying the average rent in San Antonio, you’ll pay $13,236 per year toward rent. If that makes up 30 percent of your budget, you’ll need to make an additional $30,884 to live comfortably. That means your total annual income needs to amount to $44,120.

According to the U.S. Census Bureau, the average income in San Antonio is $52,455. If you make that, congratulations! You’ll be able to afford the average rent in San Antonio with a little extra leftover for an emergency fund, investments or other expenses that may increase your cost of living in San Antonio.

If you’re not sure whether you can afford to live in this fine Texas city, check out our free rental calculator to get a better idea of what you can afford.

Understanding the cost of living in San Antonio

The prospect of moving to a new city is a daunting one because there are so many unknown variables. But when you take the time to understand all the factors involved in figuring out the total cost of living in San Antonio, you’ll feel more confident about your decision to move to a new city. You’ll know that such a move is within budget, which will allow you to not only live comfortably in San Antonio but to thrive in your new hometown.

When you’re ready to make the move, make sure to check out our listings to find apartments for rent in San Antonio that are sure to make you feel at home.

Cost of living information comes from The Council for Community and Economic Research.
Rent prices are based on a rolling weighted average from Apartment Guide and Rent.com’s multifamily rental property inventory of two-bedroom apartments as of August 2021. Our team uses a weighted average formula that more accurately represents price availability for each individual unit type and reduces the influence of seasonality on rent prices in specific markets.
The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.

Source: rent.com

What Is a Second Mortgage?

If you’re a homeowner, your house is not only the place you call home but also an asset. In fact, it’s the largest asset of most Americans, according to the most recent Federal Reserve Survey of Consumer Finances.

That asset can be even more valuable, because it can sometimes be used as collateral for a loan, such as a second mortgage.

How Does a Second Mortgage Work?

A second mortgage is an additional loan that you can obtain by using your house as collateral while already holding a mortgage secured by your house. Remember that collateral is something that borrowers own and pledge to give the lender in case they can’t pay back a loan.

An “open end” second mortgage is an open revolving line of credit that allows you to withdraw money and pay it back, as needed, up to a maximum approved limit, over time. A “closed end” second mortgage is a loan disbursed in a lump sum.

It’s not just called a second mortgage because you took it out in that order. The term also refers to the fact that if you can’t make your mortgage payments and your home is sold as a result, the proceeds will go toward paying off your first mortgage and then toward any remaining mortgages (if anything is left) against the home.

Types of Second Mortgages

We just alluded to home equity loans and home equity lines of credit (HELOCs).

Here are details.

Home Equity Loan

Home equity loans are generally limited to 85% of the equity in a home, with the exact amount influenced by income, credit history, and current market value.

You’ll receive a lump sum with a fixed interest rate that will stay the same over the life of the loan. Terms may range from five to 30 years.

Home Equity Line of Credit

As home values spiked, HELOCs became more difficult to get. If you can find one, here’s how they work.

Again, you may be able to borrow up to 85% of the appraised value of your home, less the amount owed on the first mortgage, depending on your creditworthiness.

Because a HELOC is a revolving line of credit rather than a single loan, you can borrow against the credit limit as many times as you want during the draw period, often 10 years.

During the draw period, payments are usually interest-only on the amount withdrawn. After that, you must begin repaying principal and interest on whatever amount you borrowed for the remainder of the term, often 20 years.

Most HELOCs have a variable interest rate that’s tied to the prime rate — an interest rate determined by individual banks — plus a lender’s margin. They typically come with yearly and lifetime interest rate caps.

Pros and Cons of a Second Mortgage

Taking out a second mortgage is a big decision, and it can be helpful to know the advantages and potential downsides before diving in.

Pros of a Second Mortgage

Relatively low interest rate. A second mortgage may come with a lower interest rate than debt not secured by collateral, such as credit cards. Some borrowers therefore choose to take out a second mortgage to pay off high-interest debt.

PMI avoidance via piggyback. A homebuyer may take out a second mortgage to avoid having to pay private mortgage insurance (PMI). People generally have to pay PMI when they make a down payment of less than 20% of the home’s value.

PMI helps protect the lender if borrowers default on a mortgage. It can add up: Most borrowers pay from $30 to $70 a month in PMI for every $100,000 borrowed, Freddie Mac says.

A “piggyback” second mortgage can be issued at the same time as the initial home loan and allow a buyer to borrow in order to meet the 20% threshold and avoid paying PMI.

Money for a big expense. People may take out a second mortgage to access funds needed to pay for a major expense, from home renovations to medical bills to a wedding.

Cons of a Second Mortgage

Potential closing costs and fees. Closing costs come with a home equity loan or HELOC, but some lenders will reduce or waive them if you meet certain conditions. With a HELOC, for example, some lenders will skip closing costs if you keep the credit line open for three years. It’s a good idea to scrutinize lender offers for fees and penalties and compare the annual percentage rate, or APR, not just interest rate.

Rate issues. Second mortgages generally have higher interest rates than first mortgage loans. And a revolving HELOC “piggyback” second mortgage likely comes with an adjustable interest rate. This means the rate you start out with can increase — or decrease — over time, making payments unpredictable and possibly difficult to afford.

Risk. If your monthly payments become unaffordable, there’s a lot on the line with a second mortgage: You could lose your home. If saving for your big expense is an option, that will likely cost you less in the long run than borrowing money.

Must qualify. Taking out a second mortgage isn’t a breeze just because you already have a mortgage.You’ll probably have to jump through similar qualifying hoops in terms of paperwork, home appraisal, and other documentation.

How Does Home Equity Work?

Your home equity is the market value of your home, minus anything still owed.

The more equity you have in your home, the more money that will be available to you should you decide to take out a second mortgage.

There are a few key ways to build equity.

•   Pay your mortgage. With each principal payment you make, that much more is added to the overall equity of your home.

•   Make home improvements. Installing a new roof or remodeling a kitchen can increase property value. Getting an appraisal after upgrades can help solidify the increased worth, thus increasing your equity.

•   Wait for it to appreciate. Property values are known to rise and fall with the economy. Though inflation may increase the overall equity of a home, its worth is more closely tied to the supply and demand of the real estate market. For instance, during times of high demand but a low supply of homes, home values are known to increase.

Second Mortgage vs. Refinance: What’s the Difference?

Refinancing your home loan also involves taking out a loan, but in this case the new loan replaces your existing mortgage.

People choose a traditional refinance to gain a lower interest rate, a lower monthly payment, a different loan term, or a fixed rate instead of an adjustable one.

Equity-rich homeowners may choose a cash-out refinance, taking out a mortgage for a larger amount than the existing mortgage and receiving the difference in cash.

Lenders look at your loan-to-value ratio, in part, to determine your eligibility for refinancing. (To find your LTV ratio, divide how much you owe on your current mortgage by the current value of the property and multiply by 100.) Once you know your LTV ratio, you can think about the loan amount you want to apply for. Just realize that most lenders favor an LTV of 80% or less.

Two cons of refinancing:

•   Since refinancing means you’re taking out a new loan, you face closing costs.

•   Just like a second mortgage, a refinanced mortgage uses your home as collateral, so the lender can seize your property if you fail to pay.

The main pros of refinancing:

•   Record-low rates could mean monthly savings.

•   A lower rate or shorter term could translate to significantly less interest paid over the life of the loan.

•   The rate for a cash-out refinance is typically lower than that of a home equity loan or HELOC.

There’s a lot to think about for homeowners pondering a second mortgage or a refi. You may want to ask yourself:

•   How much equity do I have in my home?

•   How much do I want to borrow?

•   When do I hope to repay the loan?

•   What’s my current mortgage rate?

•   Do I really want a fixed rate or is a variable rate OK?

•   Is adding debt with a second mortgage fine, or is refinancing my original mortgage the way to go?

The Takeaway

A second mortgage — a HELOC or home equity loan — can be advantageous for homeowners. So can a refinance or cash-out refi. It’s all about weighing your individual goals and needs.

If a new mortgage, refinance, or cash-out refinance sound appealing, SoFi offers all of them at competitive rates.

If a home equity loan is a better fit, SoFi has teamed up with Spring EQ on tapping home equity.

See your rate on a home loan, refinance, or home equity loan in two minutes.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Source: sofi.com