A low credit score may not keep you from getting all types of loans. In fact, some lenders provide loans specifically for people with bad credit. These can include personal loans for bad credit, “buy now, pay later” plans and cash advances from mobile apps.
Here are several types of loans for bad credit (a score below 630), why they’re worth considering and their potential risks.
Personal loans for bad credit
Some online lenders tailor personal loans to borrowers with low credit scores. Bad-credit personal loans can be $1,000 to $50,000, come as a lump sum and are repaid in equal installments over about one to five years.
Why they work: Reputable personal loan lenders cap annual percentage rates at 36%, which is the highest rate consumer advocates say affordable loans can have. They can be large enough to cover expensive home repairs and are typically funded within a few days of approval, making them a viable emergency financing option.
Possible risks: Having bad credit means you’ll qualify for an APR near the top of a lender’s range. Although other bad-credit borrowing options have higher rates, a 20% or 25% APR on a $5,000 loan is still expensive.
Family loans
It may be difficult to ask a friend or family member to lend you money, but it may also be the easiest and least expensive financing option. You can draw up a formal family loan agreement that includes what the funds will be used for and how they’ll be repaid.
Why they work: A friend or family member is unlikely to have a minimum credit score requirement or charge interest, as many other lenders do.
Possible risks: Mixing relationships and money can be dicey, and a loan gone awry may cause conflict.
Small bank and credit union loans
Some banks and credit unions offer small loans of a few thousand dollars or less to customers. Major national banks like U.S. Bank, Bank of America and Wells Fargo offer small-dollar loans, and some credit unions offer payday alternative loans or similar products.
These loans cost less in interest than most other types of bad-credit loans, have repayment terms of a few months, and lenders may look beyond your credit score to qualify you.
Why they work: Because small bank and credit union loans have low rates and long repayment terms, they’re more affordable than small-dollar high-interest loans offered by some online lenders.
Possible risks: Small bank loans and some payday alternative loans are only offered to existing customers. Though your credit score may not be the only — or even a major — factor a lender considers for these types of loans, it may carry some weight on the application.
Buy now, pay later loans
Buy now, pay later apps allow shoppers to split up a large purchase into smaller payments at checkout. The popular pay-in-four plans require a shopper to pay 25% of the cost upfront and cover the rest of the purchase in three biweekly installments. BNPL apps usually don’t do a hard credit check to approve customers.
Why they work: A BNPL plan can reduce the stress of a necessary, urgent expense like a mattress or laptop. Because the pay-in-four plans are interest-free, BNPL can be a no-cost financing option.
Possible risks: Most major retailers, including some grocery stores, offer this type of payment plan, which can make it easy to rely on them for everyday expenses. Frequent BNPL use can lead to overspending and cause people to lose track of upcoming payments. Some apps report payments to the credit bureaus, so missed payments can hurt your score.
Cash advance apps
A cash advance app is a mobile app that provides a small advance — often $500 or less — on your next paycheck. These apps use transaction history from a connected bank account to determine whether you qualify for an advance and how large it should be. There is no credit check, so your score isn’t a factor. The app takes repayment on your next payday.
Why they work: Loan apps can provide an advance within a few days after you request it, or instantly for a fee. Advances can be large enough to cover a modest vet bill or auto repair, or to bridge a brief income gap.
Possible risks: Cash advance app fees — including fast-funding fees and requested tips — coupled with short repayment terms make them difficult for some borrowers to repay without foregoing other necessary expenses or borrowing again shortly after.
Payday loans
Payday loans are small loans with high fees that are repaid quickly after you borrow. You can get a payday loan online or in person and the lender typically requires a post-dated check or access to your checking account to withdraw funds on your next payday.
Why they work: Payday loans are fast and easy to get. Lenders don’t check your credit or report payments to the credit bureaus.
Possible risks: These costly loans are difficult to repay in a short period, so borrowers often end up borrowing again to pay off the original loan or cover regular expenses. Because payday loan borrowers frequently end up in a debt cycle, these loans should be a last resort in a true emergency.
🤓Nerdy Tip
Car title loans and pawn loans are similar to payday loans. They frequently have triple-digit interest rates and short repayment terms, but they require a valuable item as collateral — your vehicle in the case of car title loans, or a personal item for pawn loans. Though these are both fast-cash options for bad-credit borrowers, they’re difficult to repay on time, and failure to pay them means losing the item you provided as collateral. NerdWallet recommends avoiding these loans if possible.
Nonborrowing options for bad credit
Payment plans: If you’re struggling to make a mortgage, utility or doctor bill payment, consider asking to set up a payment plan. Many creditors have hardship plans available for those experiencing financial difficulties, as do many utility companies and physicians’ offices. Request a payment plan before going into debt to cover bills.
Other ways to make money: If you have the luxury of time, consider ways to make quick cash. Options include selling clothes, delivering food, taking online surveys or listing a room on Airbnb.
Get help from the government: Some government programs can help with utility bills and groceries, child care and a down payment on a home.
Local financial assistance programs: A local charity, nonprofit or food bank may help cover some of your financial burden while you focus on a pressing expense. Search NerdWallet’s database of financial assistance programs for local organizations that offer relief.
Looking for the best ways to get free money from the government? Getting free money from the government might sound too good to be true, but there are actually several ways you can receive financial assistance. From helping with monthly expenses to finding unclaimed funds, these programs and resources can be a big help. The…
Looking for the best ways to get free money from the government?
Getting free money from the government might sound too good to be true, but there are actually several ways you can receive financial assistance. From helping with monthly expenses to finding unclaimed funds, these programs and resources can be a big help. The key is knowing where to look and meeting eligibility requirements.
This article will show you different ways to get extra money from the government. Whether you need help with your bills or want to get back money that belongs to you, there are many options for you.
Best Ways To Get Free Money From the Government
Below are the best ways to get free money from the government – for housing, children, health insurance, food, and more.
1. Apply for unemployment benefits
If you lose your job, you might be eligible for unemployment benefits. These benefits can help you cover some of your expenses while you look for a new job.
To qualify, you usually need to have worked a certain amount of time in the past year. Each state has its own rules, so you should check your state’s specific requirements.
You can apply for unemployment benefits online or by phone, and be ready to provide details about your recent jobs and earnings. This will help determine how much you can get each week.
The benefit amount is based on a percentage of your earnings from your previous job. It can range from about 40% to 60% of your past earnings. This money can be a helpful bridge while you search for new work.
Each week, you’ll need to report if you’re still unemployed and looking for a job. Some states may also ask you to document your job search activities so it’s important to follow these rules to keep receiving benefits.
Unemployment benefits probably won’t cover all your expenses, but they can make a tough time a little easier. Remember to apply as soon as you lose your job to start getting support right away.
2. Check for child tax credits
Child tax credits can be a big help for families.
You might be able to get money back from the government if you have kids such as for childcare or for just having children. The amount you can get depends on your income and the number of kids you have.
The Child Tax Credit now gives up to $2,000 for each child.
Make sure you check if you qualify for these credits. You can find out more by visiting the IRS website or talking to a tax expert.
3. Women, Infants, and Children (WIC)
The Women, Infants, and Children (WIC) program helps pregnant women, new mothers, and young children get healthy foods. This program is a great way to get extra help when you need it the most, and this is free government money for low-income families. It’s focused on keeping you and your little ones healthy and well-fed.
If you’re pregnant, you can get help right away and continue to receive it for up to six months after giving birth. If you have children, they have to be under the age of 5.
To qualify, you need to meet income guidelines and show that you are at nutritional risk. This can include being underweight or having a diet low in essential nutrients. WIC then provides monthly benefits that can be used to buy specific foods like milk, eggs, and fruits.
To apply, you need to contact your state or local WIC office (you can start by Googling “WIC + your state name”). They will tell you what documents to bring and where to go for your appointment.
4. Use SNAP for food assistance
SNAP stands for Supplemental Nutrition Assistance Program. It’s a government program that helps low-income families buy healthy food. If you qualify, you get an EBT card loaded with funds every month.
Using SNAP is easy. You can use your EBT card at most grocery stores and it works just like a debit card.
To qualify for SNAP, you need to meet certain income and other eligibility requirements. These can include having a low income based on your household size.
SNAP can be a huge help if you’re struggling to afford groceries. It allows you to buy essential foods like fruits, vegetables, meats, and dairy products.
5. Free and reduced breakfast and lunch at school
Your child may be able to get free or reduced-price meals at school through several programs, and these programs make sure kids have healthy meals every day.
The most well-known program is the National School Lunch Program (NSLP). It provides low-cost or free lunches to millions of children in public and nonprofit private schools.
Schools many times also have the School Breakfast Program. This is similar to the lunch program but focuses on providing a nutritious morning meal.
In addition to these programs, there is the Special Milk Program. This program provides milk to children who do not participate in other meal programs.
Some schools offer the Community Eligibility Provision (CEP). This allows schools in high-need areas to serve breakfast and lunch at no cost.
To find out if your child is eligible, check with your school. They can guide you through the application process and let you know what your child qualifies for.
6. Seek Temporary Assistance for Needy Families (TANF)
Temporary Assistance for Needy Families (TANF) is a government program that can help you if you’re facing hard times. It provides financial aid to families with children who are struggling to make ends meet and can help with childcare, job training, and finding work.
To apply for TANF, you need to contact your local TANF office. They will help you through the application process and let you know what documents you need.
It’s important to know that each state runs its own TANF program, so the benefits and services might vary. Be sure to ask your local office (you can also reach out to the U.S. Department of Health and Human Services) what specific help they can offer.
7. Low-Income Home Energy Assistance Program (LIHEAP)
If you need help paying your energy bills, you might qualify for the Low-Income Home Energy Assistance Program (LIHEAP). This program helps low-income households with their heating and cooling costs.
LIHEAP provides federal funds to reduce energy costs. This can include help with your energy bills and dealing with energy crises.
You can also get help making your home more energy-efficient. This is known as weatherization and might include things like adding insulation or fixing drafty windows.
8. Early Intervention and Head Start
Early Intervention services are great for families with young children who have special needs. These services help kids from birth to age three. They offer things like speech therapy, occupational therapy, and more. Most services are free, and others have a sliding scale fee. They make sure your child gets the help they need, even if you can’t pay.
Head Start programs are for kids aged three to five. They help with early learning and development. Head Start also supports families with health and dental services.
Both Early Intervention and Head Start focus on getting kids ready for school. They help children learn and grow in important ways and also support families by connecting them to resources they may need.
You can usually self-refer your child to these programs (each state has its own), or ask your pediatrician for a referral.
9. Apply for college grants
College grants are a great way to get free money for school. Unlike loans, you don’t have to pay back grants. They can help cover your tuition, books, and other school expenses.
One of the most well-known grants is the Pell Grant. For the 2023-24 school year, the maximum Pell Grant is $7,395. This grant is for students with financial need.
Another option is the Federal Supplemental Educational Opportunity Grant (FSEOG). This is for students with exceptional financial need. The amount you can get depends on your school and your financial situation.
To apply for these grants, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA helps the government determine how much aid you qualify for.
Many states and schools also offer their own grants. Check with your school’s financial aid office to see what you might be eligible for. It’s a good idea to apply for as many grants as you can.
Grants can make a big difference in paying for college, so it’s worth the effort to apply. Make sure to look for scholarships too!
10. Public Student Loan Forgiveness (PSLF) program
The Public Student Loan Forgiveness (PSLF) program can help if you work in public service. This includes jobs like teaching, nursing, firefighting, and more. If you work in these fields and have federal student loans, you may be able to get your remaining loan balance forgiven after ten years of payments.
To qualify, you must work full-time for a qualified government or nonprofit organization. You also need to make 120 qualifying monthly payments under a qualifying repayment plan. Only payments made after October 1, 2007, count toward the 120 payments required.
The program mainly benefits people who work in low-paying, but important, public service jobs. It’s a way to give back while also getting financial relief. Though the application process can be long and require careful tracking, many find the effort worth it when their loans are wiped out.
11. Claim Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) gives low- to moderate-income workers and families a tax break.
If your income is under a certain amount, you might qualify. This credit can either reduce the taxes you owe or increase your refund. For 2024, the EITC amounts can go up to $3,995, based on your income and family size.
To claim the EITC, you need to file a tax return, even if you do not owe any taxes. You should fill out Form 1040 and a Schedule EIC if you have qualifying children.
12. Get housing vouchers
Housing vouchers are a great way to get help with rent. They are commonly known as Section 8. These vouchers help low-income families, seniors, and people with disabilities afford safe and decent housing.
To get a voucher, your income must be below a certain level and this varies by location and family size.
With a voucher, you can choose any housing that meets program requirements. This gives you some freedom to pick a home that suits your needs best. The government will pay part of the rent, making it more affordable for you.
13. See if you qualify for down payment assistance
Buying a home can be tough, especially when it comes to saving for a down payment. That’s where down payment assistance programs can help prospective homeowners.
These programs come in many forms. You might find grants, loans, or other types of aid to help you with the down payment. Each state offers different programs and some are more generous than others.
To qualify, you’ll need to meet certain requirements. These can include income limits or being a first-time homebuyer.
14. Apply for Supplemental Security Income (SSI)
Supplemental Security Income (SSI) is a program that gives monthly payments to people who are disabled, blind, or over 65 and have limited income. You may get help with food, rent, and medical bills.
To apply for SSI, visit the Social Security Administration (SSA) website. There, you can find the application forms and details about the process. You may need to provide information about your finances and living situation.
The application can be done online, by phone, or in person. If you’re under 18 or applying for someone under 18, there are special forms for children.
15. Look for health insurance in the marketplace
We all know that health insurance can be very expensive. Before you skip it, I highly recommend comparing pricing of health insurance on the Health Insurance Marketplace to see if you can find something more affordable for you and your family.
It’s a great way to get coverage and possibly save money. Sometimes, if you qualify, you can get free or low-cost health insurance plans.
Go to Healthcare.gov to start, and each state has its own Marketplace, so follow the specific steps for your state. It can be a little confusing, so make sure you have no distractions and can spend some time doing this.
During the open enrollment period, you can choose a new plan or keep your current one. If you’ve had a big life event, like losing your job, you might qualify to sign up outside the usual enrollment times.
16. Medicaid
Medicaid is a state and federal program that helps people with low incomes get health care. If you qualify, you can receive free or low-cost medical services, like doctor visits, hospital stays, and even prescription drugs.
Medicaid is especially helpful for families, pregnant women, seniors, and people with disabilities.
One of the best parts is that Medicaid covers a wide range of services – you can get help with dental care, mental health services, and even long-term care.
Your income and family size usually determine if you can get Medicaid.
17. Search for unclaimed money
You might have unclaimed money waiting for you. This money comes from many sources like unpaid wages, forgotten bank accounts, or unclaimed insurance benefits.
You can check by going to unclaimed.org, the website managed by the National Association of Unclaimed Property Administrators (NAUPA).
Each state has its own database for unclaimed property. Check your state’s website to see if there is money owed to you.
Frequently Asked Questions
There are several ways you can get money from the government to help with different needs, like paying for food or getting extra support if you don’t make a lot of money.
What ways can I get money from the government?
There are many ways to get free government money. You can apply for unemployment benefits if you lose your job. Families can also check for child tax credits, which give extra money for children. Programs like WIC and SNAP can help with paying for food, and students can get free and reduced breakfast and lunch at school.
How can I get help from the government if I don’t make a lot of money?
Low-income families can use programs like WIC (Women, Infants, and Children), SNAP (Supplemental Nutrition Assistance Program), TANF (Temporary Assistance for Needy Families), LIHEAP (Low-Income Home Energy Assistance Program), and more to get help from the government if they don’t make a lot of money.
How can I borrow money from the government?
The government offers student loans for education through programs like FAFSA. Small businesses can apply for loans from the Small Business Administration (SBA). There are also some loan programs based on specific needs like starting a farm or buying a home.
What is FAFSA?
FAFSA stands for Free Application for Federal Student Aid. It’s a form that students fill out to get financial aid for college. It can help you get grants, loans, and work-study opportunities to pay for your education.
Can I borrow money from my social security benefits?
No, you cannot borrow money from your Social Security benefits. Social Security is designed to provide income during retirement or if you become disabled, so it’s not a source of loans or advance cash.
Is there free grant money for bills and personal use?
Yes, there can be grants for specific needs like paying utility bills or home repairs. You might also find grants for education, food, and health care. Check with local and federal agencies to see if you qualify for any of these grants.
How do I find out if I qualify for any government assistance?
You can visit government websites or contact local agencies. Many state and local governments have online tools to check your eligibility. It’s also helpful to reach out to community organizations that can guide you through the application process.
How To Get Free Money From the Government – Summary
I hope you enjoyed this article on the best ways to get free money from the government.
There are many ways to get free money from the government, such as for housing, to help pay for your children’s expenses, to afford health insurance, to buy food, and more.
Note: There may be changes or updates to the free government programs above. I recommend contacting the program to learn more. Also, please be sure to stay safe with your sensitive information and only use official websites (look for .gov websites and official government organization websites to start with to avoid scams).
What do you think of these free government programs? Have you ever used any of the ways above to get free money from the government?
Borrowing against home equity can put cash in your hands when needed. But how soon can you pull equity out of your home after purchasing it?
You might be surprised to learn that there’s no minimum waiting period to access your home equity. You’ll need to meet a lender’s other conditions and requirements to qualify for a loan against your equity, but you can decide when it makes sense to borrow against your home.
What Is Home Equity?
How is home equity explained? Equity is the difference between your home’s value and the remaining amount due on the mortgage. In simpler terms, equity represents the portion of the home that you own.
Home equity accumulates as your mortgage balance goes down and your property’s value goes up. As of March 2024, the average equity value among 48 million U.S. homeowners with mortgages was $206,000, according to the ICE Mortgage Monitor.
It’s possible to have negative equity in a home. That scenario can occur when you owe more on the mortgage than the home is worth. This is also referred to as being upside down or underwater on the mortgage. That’s important to know if you’re calculating how home equity counts in your net worth.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Ways to Access Home Equity
There are several options for borrowing against your equity. The most common are a home equity loan, a home equity line of credit, and a cash-out refinance.
Home Equity Loan
A home equity loan allows you to withdraw your equity in a lump sum. Home equity loans typically have fixed interest rates and your repayment term may last up to 30 years. A home equity loan is a type of second mortgage that doesn’t affect the terms of the loan you took out to purchase the property. Your home serves as collateral for the loan. If you default on the payments, the lender could initiate a foreclosure proceeding against you.
Home equity loans offer flexibility since you use the money any way you like. Some of the most common uses for home equity loans include:
• Home repairs and maintenance
• Home improvements
• Debt consolidation
• Medical bills
• Large purchases
Interest on a home equity loan may be tax-deductible if the proceeds are used to “buy, build, or substantially improve the residence,” according to IRS tax rules. This rule applies through the end of 2025.
Home Equity Line of Credit
A home equity line of credit (HELOC) is a revolving line of credit that you can draw against as needed. HELOCs tend to have variable interest rates, though some lenders offer a fixed-rate option.4 When you take out a HELOC, you have a draw period in which you can access your line of credit and a repayment period when you pay it back. You pay interest only on the portion of your credit line that you use.
HELOCs can be used for the same purposes as a home equity loan. A HELOC may offer a lower interest rate than a home equity loan, depending on the overall rate environment. However, your payment isn’t always predictable if you have a variable interest rate.
Cash-Out Refinance
Cash-out refinancing replaces your existing mortgage loan with a new one while allowing you to withdraw some of your equity in cash at closing. A cash-out refinance loan isn’t a second mortgage; it takes the place of your original purchase loan. The balance due is higher to account for the amount of equity you withdraw in cash.
A cash-out refinance loan may have a fixed rate or an adjustable rate. Fixed-rate loans typically have repayment terms extending from 10 to 30 years. If you choose an adjustable-rate mortgage (ARM), you might be able to select a 3/1, 5/1, 7/1, or 10/1 ARM.
The first number represents how long you have to enjoy a fixed rate on the loan; the second number is how often the rate adjusts on an annual basis. So, a 10/1 ARM would have a fixed rate for the first 10 years. Then the rate would either increase or decrease once a year annually for the remainder of the loan term.
Requirements to Tap Home Equity
Qualification requirements for a home equity loan, HELOC, or cash-out refinance loan vary by lender. In most instances, you’ll need to have:
• A credit score of 660 or better
• At least 20% equity, though some lenders may go as low as 15%
• A debt-to-income (DTI) ratio below 43%
Essentially, lenders want to make sure that you have sufficient income to make the payments on a home equity loan and that you’re likely to pay on time.
Lenders use your combined loan-to-value (CLTV) ratio to measure your equity. Your loan-to-value (LTV) ratio measures your home’s mortgage value against the property’s appraised value. The current loan balance divided by the appraised value equals your LTV.8 Combined LTV uses the balance of all loans, including first and second mortgages, to measure equity. This number can tell you how much of your equity you can borrow. Most lenders look for a CLTV in the 80% to 85% range, though it’s possible to find lenders that allow 100% financing.
Recommended: Understanding Mortgage Basics
Factors That Impact Timing
How soon can you get a home equity loan? Technically, right away. But the more important question to ask is whether it makes sense to access your equity sooner or later.
If you’ve just purchased a home, you may not have much equity built up yet. You may need to wait a few months for some equity to build up before borrowing against it. Your choice of lender could also make a difference. If a lender requires a home equity waiting period, you might have to wait until it ends to borrow.
Here are some questions to ask when deciding if the time is right to withdraw equity:
• What will you use the money for?
• How much do you need to borrow?
• Which borrowing option makes the most sense?
• How much can you afford in additional monthly mortgage payments?
Risks of Borrowing Too Soon
Just because you can get a home equity loan or HELOC right away doesn’t mean you should. There are some risk factors to consider if you’re thinking about an equity withdrawal.
• Having less equity in the home can mean a higher LTV, which could make it harder to qualify.
• Should your home’s value drop after borrowing, you could end up underwater on the mortgage.
• If you only recently bought the home, you may not have a firm idea of your maintenance and utility costs, which could make it difficult to estimate how much you can afford in additional mortgage payments.
• Your credit score may need time to recover so you can qualify for the best rates if you just signed off on a purchase mortgage loan.
Using a home equity loan or HELOC calculator can help you estimate what your payments might be. You can then add that to your existing mortgage payment to get an idea of what you’ll pay overall and what’s affordable for your budget.
Alternative Options
If you need to borrow money for home repairs, home improvements, or any other purpose, your equity isn’t the only option. You might consider these alternatives instead.
• Personal loan. A personal loan allows you to borrow a lump sum and repay it with interest over time. Personal loans are typically unsecured, meaning you don’t need collateral and your home isn’t at risk if you’re unable to pay for any reason.
• Credit card. Credit cards can be a convenient way to pay for large purchases, home improvements, or emergency expenses. Choosing a card with a 0% introductory APR on purchases can give you time to pay them off interest-free.
• 401(k) loan. If you have a retirement plan at work, you might be able to borrow against it. However, that’s usually not ideal since any money you take out won’t benefit from compounding interest, which could shortchange your retirement.
• Home equity conversion mortgage (HECM). Eligible seniors 62 and older can get a home equity conversion mortgage to withdraw equity. You can also use an HECM for purchase loan to buy a home. A home equity conversion mortgage requires no payments as long as the homeowner lives in the property, with the balance due when they sell the home or die. Compare an HECM vs. reverse mortgage to see if you’re eligible.
You might also ask friends and family for a loan or sell things you don’t need to raise funds. Taking on a side hustle or part-time job could also bring in extra income so you don’t need to borrow.
The Takeaway
Withdrawing equity from your home can give you access to cash when you need it. In addition to getting the timing right, it’s also important to shop around and find your ideal lender. Comparing rates, terms, credit score requirements, and CLTV requirements can help you find the best loan for your needs.
SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 95% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.
Unlock your home’s value with a home equity line of credit brokered by SoFi.
FAQ
How long after purchasing a home can you pull out equity?
There’s generally no set period for how soon you can take equity out of your home after purchasing it. Your ability to borrow can depend on your credit scores, debt-to-income ratio, and how much equity you’ve accumulated in the home.
Are there fees to tap home equity?
Home equity loans, HELOCs, and cash-out refinance loans can all have closing costs just like a purchase loan. Some of the fees you’ll pay can include appraisal fees, inspection fees if an inspection is required, attorney’s fees, and recording fees. You’ll need to pay certain fees out of pocket but your lender may allow you to roll other closing costs into the loan.
How fast can I get a home equity loan?
It’s possible to get a home equity loan as soon as you purchase your home. You’ll need to meet a lender’s minimum requirements to qualify for home equity financing. Getting approved may be challenging if you have a low credit score or only a small amount of equity in the home.
Photo credit: iStock/DjelicS
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²To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).
All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.
You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.
SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
Mortgage rates were mostly higher versus last week, according to rate data collected by Bankrate. Average rates for 30-year fixed, 15-year fixed and jumbo mortgages moved higher, while 5/1 ARM rates decreased.
Inflation has cooled somewhat, but homebuyers are still feeling crunched by high prices and rates. At the close of the Fed meeting on June 12, policymakers chose to hold rates at current levels.. The next Fed meeting concludes July 31.
“With [the June 12] announcement, the Fed confirms its higher-for-longer position on interest rates,” says Dr. Selma Hepp, chief economist at CoreLogic. “But the stance is looking more untenable as more American households continue to pull back on spending. As more economic indicators begin to confirm this and unemployment begins to rise, the Fed will then look to cut rates. What’s not clear yet is when exactly the disinflation signs will be consistent enough for the first rate cut — we hope it’s still this year.”
Often, though, the decision to buy a home isn’t based on what’s happening in the economy — it’s more personal. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than hoping for a future of more favorable rates and home prices that might not materialize.
Rates last updated July 5, 2024.
The rates listed above are Bankrate’s overnight average rates and are based on the assumptions indicated here. Actual rates displayed within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Friday, July 5th, 2024 at 7:30 a.m. ET.
Today’s 30-year mortgage rate goes up, +0.08%
The average rate for a 30-year fixed mortgage for today is 7.08 percent, an increase of 8 basis points over the last seven days. Last month on the 5th, the average rate on a 30-year fixed mortgage was lower, at 7.05 percent.
At the current average rate, you’ll pay $670.68 per month in principal and interest for every $100,000 you borrow. That’s up $5.38 from what it would have been last week.
The 30-year mortgage is the most popular home loan, and it has a number of advantages. Among them:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
Stability: With a 30-year fixed mortgage, you lock in a set principal and interest payment, making it easier to plan your housing expenses for the long term. Remember: Your monthly housing payment can still change if your homeowners insurance premiums and property taxes go up or, less likely, down.
Buying power: With lower payments, you might qualify for a larger loan amountor a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like building an emergency fund, contributing to retirement or college tuition, or saving for home repairs and maintenance.
Learn more: What is a fixed-rate mortgage and how does it work?
15-year mortgage rate moves up, +0.06%
The average rate for the benchmark 15-year fixed mortgage is 6.53 percent, up 6 basis points over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $873 per $100,000 borrowed. That may squeeze your monthly budget than a 30-year mortgage would, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much faster.
5/1 ARM moves down, -0.07%
The average rate on a 5/1 adjustable rate mortgage is 6.52 percent, falling 7 basis points from a week ago.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for those who expect to sell or refinance before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.52 percent would cost about $633 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
Current jumbo mortgage rate moves upward, +0.04%
Today’s average rate for jumbo mortgages is 7.14 percent, an increase of 4 basis points over the last week. Last month on the 5th, the average rate on a jumbo mortgage was higher at 7.16 percent.
At the current average rate, you’ll pay a combined $674.73 per month in principal and interest for every $100,000 you borrow. That’s an additional $2.70 per $100,000 compared to last week.
Mortgage refinance rates
Current 30 year mortgage refinance rate climbs, +0.12%
The average 30-year fixed-refinance rate is 7.11 percent, up 12 basis points compared with a week ago. A month ago, the average rate on a 30-year fixed refinance was lower at 7.08 percent.
At the current average rate, you’ll pay $672.71 per month in principal and interest for every $100,000 you borrow. That’s up $8.08 from what it would have been last week.
Where are mortgage rates going?
The rates on 30-year mortgages mostly mirror the 10-year Treasury yield, which changes with the market. The yield curve is a tool used by investors to predict where interest rates could be headed.
“The yield curve remains inverted — no surprise here,” says Ken Johnson of Florida Atlantic University. “Until the yield curve reverts to its normal upward slope, we will not see significant downward pressure on mortgage rates.”
Besides bond yields, the Federal Reserve’s key benchmark rate also has an impact. The Fed has held this rate at a 23-year high since July 2023.
If and when the Fed cuts interest rates depends on evolving economic data, such as inflation and the jobs market. While inflation has dropped from its height in 2022, it’s still well above the Fed’s target rate of 2 percent. Unemployment is still low, though in May it hit 4 percent for the first time since 2022.
“Much like that flight where departure keeps getting delayed 15 minutes at a time with no end in sight, the timetable for when the Fed begins to cut rates is equally uncertain,” says Greg McBride, CFA, Bankrate’s chief financial analyst.
While the Fed bases its decisions on rate changes due to broader economic factors, your rate is also affected by personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
What current rates mean for you and your mortgage
Mortgage rates fluctuate daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
Keep in mind: You could save thousands over the life of your mortgage by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Your home could provide all the financing you need if you tap into it this July.
Ken Wiedemann/Getty Images
If you’re one of the homeowners with an average of $200,000-plus worth of home equity right now, then you may wonder if it’s worth accessing and how you should do so. With inflation still elevated, albeit significantly cooled, and interest rates for traditional borrowing options high, many homeowners would benefit from using the equity they’ve already accumulated in their homes. And, there are multiple ways to do so, ranging from home equity loans to home equity lines of credit (HELOCs) to reverse mortgages and more.
To secure the most value from your home equity and keep costs minimal, however, you’ll want to take a nuanced and strategic approach. Below, we gathered four strategic home equity moves to make heading into July.
Start by seeing what home equity loan rate you could lock in here now.
4 strategic home equity moves to make for July
Have you already decided that home equity is your best credit option right now? Then you’ll want to approach it smartly, especially in July’s unique economic climate. Specifically, you should:
Consider a HELOC
While HELOCs come with slightly higher interest rates than home equity loans right now, they also come with the inherent ability to adjust over time thanks to a variable rate. This is a major advantage in an economy in which interest rate cuts appear imminent, possibly as soon as the end of 2024. If you go with a HELOC in July, then, you could soon see a rate cut. That’s the opposite of home equity loans, which will come with a locked rate that you will need to refinance to get out of.
See what HELOC option works best for you online today.
Monitor certain dates
The next inflation report comes out on July 11, courtesy of the Bureau of Labor Statistics, and the Federal Reserve will meet again on July 31. If the report on July 11 shows additional cooling in the inflation rate, then interest rates may continue to fall in anticipation of a formal rate cut at the end of the month. And, obviously, a formal rate cut from the Fed will cause them to drop even further. But since home equity rates change daily, you’ll want to closely monitor any movement on these dates for an opening to capitalize on a lower rate.
Use it for summer repairs and renovations
Do you need extra funding to finance summer repairs and renovations this July? Then a home equity loan or HELOC is advantageous compared to credit cards and personal loans. Not only do both of the former options have lower interest rates, but if you use the funding you receive for IRS-approved home projects, you may be eligible to write off the interest you paid on the amount you borrowed when it comes time to file your 2024 tax return.
Only use what you need
It can be tempting to overspend with a home equity loan or HELOC, especially now when home equity levels are near record highs and rate cuts appear likely. But that would be a mistake. Like all borrowing options, you should only use what you need, not what you have access to. Rate cuts haven’t taken place just yet and inflation is still above the Federal Reserve’s target 2% goal.
And remember that your home serves as collateral in these circumstances, so if you can’t pay back all that you’ve borrowed you could lose your home in the process. So only use precisely what you need this July – and any other time you tap into your home equity.
See how much home equity you have to borrow here.
The bottom line
This July could be a smart time to tap into your home equity but you’ll want to do so in a strategic and balanced way to minimize costs and maximize value. To do so, you should consider a HELOC and it’s variable rate over a home equity loan, monitor important dates in the broader economic landscape for opportunities to secure a lower rate, use the funding for potentially tax-deductible reasons like eligible home repairs and only use exactly what you need. By taking these home equity steps this July, you’ll significantly improve your chances of financial success both in the month you withdraw the funds and the months and years in which you use them in the future.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
“As Montanans face more economic challenges due to inflation, it can weigh heavily on our most vulnerable populations, including senior citizens,” Cheryl Cohen, division administrator for the housing division at the Montana Department of Commerce and executive director of the Montana Board of Housing, wrote in a recent op-ed.
“Housing costs are soaring across the nation, thanks in part due to a lack of supply keeping up with demand. While many Montana seniors own their own homes and have little or no remaining mortgage debt, they struggle to make ends meet on fixed incomes.”
This is where the RAM program can come into play. Cohen describes the program as overseeing “low-interest rate loans [which] allow senior homeowners to benefit from an additional income source from their home equity while offering the financial flexibility they need to continue living at home.”
Differences with HECM
HousingWire’s Reverse Mortgage Daily (RMD) submitted questions to Montana’s Department of Commerce about the RAM program and received responses from a spokesperson.
In terms of how the RAM program aims to solve issues that a Home Equity Conversion Mortgage (HECM) might not address, the department said that many of the goals are the same but that the RAM program may come with more flexibility on qualifications.
“The Montana Board of Housing’s RAM program provides interest rates that are competitive or lower with requirements that are simple and easy to understand,” the spokesperson said. “Board staff and participating counselors work closely with the borrowers helping to set up the reverse mortgage with closing costs often several hundreds to thousands of dollars less than similar programs.”
These closing costs are limited to the “actual charges from the appraisals and title companies with no administrative costs added by the Board,” and the administration of the reverse mortgage itself is handled by state housing staff “who can easily be personally contacted for any questions or assistance. The Montana Board of Housing is administratively attached to the Montana Department of Commerce,” the spokesperson said.
Additionally, Cohen explained in her op-ed the different types of proceeds available for RAM borrowers.
“The RAM program helps senior Montana homeowners with monthly payments back to them to manage everyday expenses while living in their homes,” she said. “Eligible homeowners can borrow a minimum of $15,000 up to a maximum of $150,000. The maximum loan amount is determined based on 80 percent of the FHA-determined value of the home.
“Additionally, lump sum advances are available at loan closing, and up to $10,000 is available for payment of prior mortgages, liens and pledges or for accessibility improvements and other home repairs.”
Longer retirements
The loan values for the HECM program are generally larger depending on the age of the borrower and the value of the home, with the HECM limit in 2024 topping $1.1 million. The minimum qualifying age for a HECM is 62 years, while the minimum for the RAM program is 68. There’s a reason for this, the spokesperson said.
“With Montana’s elderly population growing and living longer, we find that even with an age limit of 68, many of our borrowers outlive the 10 years of payments allocated,” the spokesperson explained. “Providing loans to a younger population may add to financial issues as more participants outlive those payments.”
The program’s availability is also subject to the financial disbursements the state Legislature gives to the department itself. The origination process also has similarities to the HECM program, with some state-specific requirements.
“Applicants must go through trained RAM counselors from the non-profit sector before qualifying for our financing,” the spokesperson stated. “Once they’ve completed the session, housing staff work with the participant to determine needs and financing availability. Staff assist in obtaining an appraisal and in closing the loan and setting up payments. The Montana Board of Housing is the only entity to provide this service.”
Renewed communication efforts
As for why the state is interested in spreading more awareness about the RAM program now, the spokesperson cited the economic circumstances faced by the state’s seniors as a key reason.
“The board hopes to increase knowledge of this program for the elderly in Montana and offer this option to help with costs that surpass what can be paid by social security or other pension receipts,” they said. “Since the RAM proceeds don’t need to be paid back until the home is vacated, additional funds become available without incurring further debt. We hope those monthly payments provide peace of mind and assist in our RAM participants’ quality of life.”
That being said, the reputational issues faced by the wider reverse mortgage industry have also been faced by the RAM program, which may have depressed consumer demand, according to both Cohen and the department’s spokesperson.
“Reverse Annuity Mortgages scare some seniors because of scams that have taken place by some providers of such financing,” the spokesperson said. “For this reason, we require counseling and have staff available to speak directly with participants and their families about any issues they may have. Payments we can provide often cover costs of medications or shortfalls concerning income to help pay monthly expenses for food or utilities.”
The spokesperson also mentioned a borrower’s success story granted by the program.
“One borrower mentioned to staff that she was having to sell her furniture a piece at a time to help pay for her medication but was able to stop when she started receiving the RAM monthly payments,” they said.
Inside: The exact habits you need to learn how to be financially stable. Financial stability is when you are in control of your finances. Make sure you have these money habits!
Are you ready to move from financially sound to financially stable?
Well, the good news is this is something you can easily accomplish and we are going to show you exactly how to do it in this post. Learn over thirty simple traits to prove to yourself that you are financially stable.
One of the great things about being money financially stable is it means that you are less worried about money. You are established with your finances and you are consistent on how you spend and save your money.
It is a great feeling to be financially stable because you know that your bills are taken care of and everything that you want to spend money on that you actually can!
The Money Bliss Steps for Financial Freedom is a guide to help you become financially independent. Along your path, you will go through many different journeys and many different seasons, but it is a great feeling to know that you are in a good place financially.
Becoming financially stable is something that anybody is capable of doing.
It just takes determination, a growth mindset, and a desire to be wise with your money.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What does Financial Stability Mean?
Financial stability is when you are confident in your personal financial situation. You have money to pay monthly bills, set aside for big purchases, invest in your future, and be able to sleep at night.
When you can do these above things, that is when we can say that a person is financially stable.
When you define financial stability, the definition should motivate you to improve your money situation because the more you work towards becoming financially stable, the better the opportunities present themselves.
It is one step up from being financially sound and moving closer to financial security.
Another way of saying financially stable is of good financial standing.
Overall, the financially stable meaning is you have made wise decisions that will ultimately let you live the life you want. One step closer to financial freedom.
How to Be Financially Stable
The good news is you only need to do three steps to become financially stable plus they are not complicated.
This is exactly how do you become financially stable…
It is just a habit that you need to start doing.
If you have bad habits with money, then you are not going to have the success with money that you need. If you have good habits with money, then you will end up becoming financially stable.
Just a side note, If you need a good book on changing bad habits into good habits. I highly recommend Atomic Habits by James Clear. It is a great book to help you change the habits that need to change, and start to live the life that you want.
Now, back to the three steps to becoming financially stable.
If you want to learn how to become financially stable, then this is what you need to do.
1. Pay Yourself First
This is the most important habit that you can do to become financially stable.
Many times, I feel like I sound like a broken record about the importance of how you need to pay yourself first. It doesn’t matter if it is your very first job in high school, starting out at 21, or quickly approaching your 50s, you need to pay yourself first today.
Take your paycheck and automatically save a certain percentage.
If you have never saved before start with 10%.
If you know that your spending is out of control plus you have the income to save a higher percentage, then plan to save 20-25% ot your income.
When you first begin to save, the goal is not the amount you save; it is about the first time that you begin to save.
It is about proving to yourself that you are capable of saving and seeing that account, increase over time will continue to motivate you.
So, if you want to be financially stable, then you must pay yourself first. Set up a separate savings account or an investment account where you will put that money.
2. No Debt
Second, no debt. Period.
If you cannot buy something in cash, then wait until you have the cash available to make the purchase. Do not use debt just because you have access to credit.
If you want to be financially stable over the long term, that means you must eliminate consumer debts.
Now, before you freak out and say, “I can’t be financially stable because I have so much debt that is dragging behind me and holding me back.” Don’t freak out. You can make a plan to get out of debt.
By getting out of debt, you are proving that you are on the path to becoming financially stable.
In the meantime, you just don’t go into any more debt.
If you are in your 20s, steer clear from debt and do not get into the debt trap.
The Trickly Mortgage Debt Conversation….
Because owning a house comes with a price and it comes with a premium since there is a cost to upgrade it, pay property taxes, and so much more. Plus this varies greatly in an HCOL vs LCOL area.
Do your research and figure out is it more cost-effective for you to purchase a home and pay the mortgage payment or is it better to rent and not have the responsibilities of being a homeowner. This is a personal situation that you must determine what works best for you and it is very location and market driven.
For example, we bought in a high cost of living area before the prices skyrocketed. Thus, our mortgage is way less than the cost of rent. So for us, we are still financially stable because we have a mortgage because it is cheaper than rent (and by a lot).
On the flip side, if you are just starting out and trying to purchase a home, it may be more cost-effective for you to keep renting to stay out of debt and become financially stable quicker. Then you will be able to reach financial independence faster.
3. Invest Your Money
The last piece to becoming financially stable is you must invest your money.
This is not the time or place just to be stuffing money under the couch or in a savings account that is earning .02%. You need to invest your money in the stock market.
The best way to invest is on a consistent basis. Every paycheck you invest a certain amount consistently. It does not matter if the market is up or the market is down.
The returns from investing will be greater than doing nothing with your money.
Doing nothing with your money means that you are actually losing money when you account for the cost of inflation.
So, you must invest your money.
One of the types of income is passive income, and you can earn passive income through investing.
A huge step to becoming financially stable is to diversify your income. This may not be as important to you today, but if you are in that category of “I don’t want to work anymore” or retirement is on the horizon.
Your financial future can be secured through investing in your portfolio.
Recap – How to be Financially Stable at any Age
You can become financially stable at any age – 20, 25, 30s, without college, or even in your teens at 17 or 19. You can even be financially stable with a low income.
The formula is still the same for everyone.
These are the three things you must do for financial stability:
Pay Yourself First
No Debt
Invest
If you are serious about wanting to be financially stable, these are the three steps that you need to take. It is not rocket science.
It is very simple, clear steps to make sure that you are successful in the long term with money.
Now, let’s dig into the habits and traits of someone who is financially stable.
Learn:
Traits of someone who is financially stable
This is when we can say that a person is financially stable.
In this section, we are going to dive into the qualities, traits, and habits of people that are financially secure.
These are things that you can start working on today. Over time you will begin to make better solid money choices going forward.
These are solid money habits that will transform your financial future.
These are simple and easy ways for you to become financially secure.
1. Emergency Fund
An emergency fund is the backbone of financial security – there is absolutely no way around it.
The goal is for you to never use your emergency fund. But let’s be real, there will be a time or a place that you will have to dig into your emergency fund because an actual true emergency exists.
A financially stable person has an emergency fund to fall back on when times get tough.
Here is more information on how to build an emergency fund and the steps that you need to build one fast:
2. Plan to Be Debt Free
Like we said earlier, one of the basic steps of how to become financially free is to have no debt.
However, for too many people that would automatically say that is not in the cards for me. Paying off my debt is way too difficult. But, not for the financially stable person!
I am here to tell you that you can become financially stable by creating a plan to becoming debt free and actually stick to it.
That means your debt balance is going down each and every month. Plus you know your debt payoff date because that paying off debt is one of the best decisions that we ever personally made.
Also, it does not matter if good debt and bad debt – the concept promoted by many financial gurus. Debt is debt.
Debt means that you owe somebody else and you are going to have to pay it back at some point for a premium. So, the sooner you pay off your debt, the better of you will be.
3. Save 20% of Income
Do you save at least 20% of your paycheck? If so, then you know what financial stability means.
When you are financially stable, you are not living paycheck to paycheck and you automatically save money at the beginning of the month when your paycheck comes in.
The best place to start is to start saving at least 20% of your income.
If you are not quite there (yet), then look at one of our main money saving challenges. They are plenty of savings numbers to start small and then work on the bigger challenges. Prove to yourself that you save money.
Since saving money is easy for them, they work on increasing their savings percentage each year. Personally, I find it a better challenge to increase that savings percentage more than anything else.
4. Spend Less Than You Make
In order to make progress, your expenses are less than the money that is coming in.
That does not mean the amount of money coming in is the same amount that you can be spending. The reason why is you have to account for the money saved adn invested.
You learn how to live below your means.
This may mean giving up a coffee, a trip to the salon, happy hour, or something you do out of habit in order to start saving money.
Remember, the goal for this type of person who is financially stable is they spend less than they make. They may spend on the little luxuries here and there because they are able to do since they have set money aside and they are not overspending.
5. Mastering Money management Skills
The best trait of somebody that is financially stable is they understand the basics of money management.
This does not necessary mean the person is in love with spreadsheets, budgets, numbers, and reads money management books every single second. This means they understand the basics.
You earn, you save, you spend.
You save more, spend less, and you prioritize your money goals to make sure you are making the progress on your financial journey that you want to do.
Many times financially stable people start to enjoy learning about money management and tend to dive into their finances even further. Once they get started, they want to learn more about their money situation, and how they can improve their finances quicker by making a few more changes.
6. Their Finances are Exciting
You don’t have to be an Excel spreadsheet nerd to find that your finances are exciting.
This type of person enjoys waking up checking their balances and seeing a positive increase in their net worth.
They find it exciting, they find it motivating. It makes them realize all of their sacrifices is making a difference in the long term. They look at the greater picture and saying I’m not going to work till I am 65; I may look at retiring when I am 50.
They are working hard today and enjoy finding ways to improve their money situation; which they find exciting and fun. You love quoting these money mantras daily.
7. Month or More Ahead on Bills
A financially stable person uses their income from this month to pay for the next month. They are not living behind where the income coming in is going is paying for the current expenses.
They are actually a full month, maybe even two, maybe even three months ahead of their bills.
For example, their paycheck from July will be their August spending. For some that want an even bigger cushion, their money earned in July is actually going to be for their September spending.
That is a sign that somebody is financially stable and has the ability to avoid temptation and not to spend the extra money.
8. Sinking Funds are a Priority
A financially stable person sets aside money regularly for expenses in the future. These are called sinking funds.
These buckets of money is money allocated for a certain purpose.
One of the most popular sinking funds that most people have is for vacations, kids activities, home repair, or car repair. Those are probably the most common.
You can have as many sinking funds as you want as a financially stable person. Another option is just to have one big sinking fund that will cover whatever is needed in case something be happens. A wise person knows how much money they need to cover these expenses.
A financially stable person utilizes sinking funds to make sure they are able to meet unexpected expenses when they happen.
9. Invest in Stock Market Consistently
In the last two years, the stock market on average typically earns 13.9% each year (source).
The reason that this is important is your money can make you money without you doing anything.
Once you have your investment account set up and automatically contribute a slice of your paycheck, then you select a fund or a few stocks of companies you believe in. Starting your investing system is not as bad as you would think.
By investing in the stock market consistently, you are more likely to have higher returns than somebody who invest once a year, twice a year, or three times a year.
By investing either every week or every month, the likelihood that your account size will increase is greater than when you try and time the market.
I’ll be very honest…the average person has no idea how the stock market is going to react and even most experts. However, you can take an investing course, like Trade and Travel with Teri Ijeoma, and learn about buyers zones and seller zones. This is the best financial knowledge someone can have and you probably will not lose money by attempting to figure it out yourself.
This investing course is a great resource and something I highly recommend all of my readers to take. Read my Trade and Travel review.
Because the amount of the course is eye-opening, I can pretty much guarantee it will be less than the amount that you can lose in the stock market by yourself.
That is what a savvy person would do – invest in the course and then invest in the stock market.
10. Focused on Next Money Goal
A financially stable person knows exactly what they have done to get where they are today. Plus they know exactly where they are headed to in the future.
They don’t waver on their next money goal.
They have short term financial goals that they are determined to make happen. That is their number one or two priority in their life because they know that by reaching their money goals, they will have more time freedom in life.
At the end of the day, having money equates to freedom.
This is not the same as having money does not equate to success. There will always be the age-old debt on whether is money everything.
The answer may surprise you, but at the end of the day… money does equal freedom.
11. Saving for Retirement
If I don’t save for my retirement, then who else will help me in my older golden years? That is exactly what a financially stable person would ask.
They know that social security and all the government programs might run out of funding, so they are focused on saving for their retirement and most financial state. They are in control of what they are able to control. You cannot control future government programs or tax rates.
In addition, they are using a Roth IRA to get the maximum contributions that they can have each year for retirement. They are savvy enough to get the maximum contribution from their employer’s 401K match.
This type of person won’t be wondering… What Happens If you Don’t Save for Retirement?
12. Able to Vacation When They want
These are the people that you probably envy the most because they paid cash for the vacation that you financed.
A financially stable person is not worried about having to pay for the trip on the way home. They are savvy and use a vacation fund that they contribute to on a regular basis.
That right there helps them to go on vacation each and every year.
Don’t be jealous! Join the bandwagon and start traveling the world today.
13. Money Set Aside for a Rainy Day
As much as we like to think we can predict the future, in reality, we do not know what the next day, week, month, or even year can bring. And in many circumstances, you may be caught off guard when difficulties come.
If you have a loss of income and still have bills to pay today, that is where having a rainy day fund set aside will help you be prepared.
This is a step to becoming financially secure and a long-term habit to embrace.
A person who has a rainy day fund that will cover at least six months of living expenses is somebody that is financially secure.
They know that hopefully, they will not have to use that money, but in case they do, the money is available to them.
14. Don’t Cry When Something Breaks
When you’re financially secure, you know things that are going to break.
And as much as it sucks, you are not going to be in tears, trying to figure out how to pay to replace that item. You understand the concept of… It is what it is you move on.
Replace the item and you go on with your day.
Since you know you have money set aside for various purposes, there is no reason to cry. It may not be how you feel like spending money, but that is just part of life.
When you are financially insecure and a light comes on in your car, that is a red flag that something is wrong. Many people freak out because they don’t have the money set aside for a $500 or $1,000 repair.
So you know when you are financially secure when you can laugh it off, shake it off and move on with your day.
15. Fun Spending Can Happen
This is one of the best reasons for being financially secure…you can spend money!
When you decrease your other expenses, you can increase the amount of fun spending. There are great benefits to becoming aware of your financial situation.
Too many times, people give up to their money situation. Instead of saying, no, no, no all the time, you will get to a position where you can say yes yes yes! I want to do this and this!
You do not feel guilty about spending extra money!
At this point, you know you have earned whatever it is you want to spend money on.
16. You Can Sleep at Night
This is one of the best traits of a financially secure person! Their finances are NOT waking them up in the middle of the night wondering “oh my gosh, how am I gonna pay my bills, how am I going to pay my rent, how am I going to pay my car payment, I am sick of my job, etc.”
You quit worrying about do I have enough money to make it to the end of the month. That is financially security right there.
When you can sleep at night knowing all of your bills, expenses, and saving are taken care of. You know deep down that you are on track of your financial future.
That is financial security at its best.
If you are in a situation right now where you can’t sleep at night, then you need to learn how to drastically cut expenses. You must get a hold of your situation before it spirals any further out of control.
17. No Frivolous Spending
Financially, even though a financially secure person can spend money when they want. They have the money to be able to spend, right?
Most choose not to be frivolous with their money.
(Hint: that is why they stay financially stable.)
They tend to be a thrifty person knowing a good price to purchase an item. They know when something is overrated or overpriced.
Even if they can afford it, they are just not willing to spend money on it. That is okay because they are in the situation of being financially secure because of the solid money decisions they have made.
Spending frivolous money here and there can up quickly. Even something as low as $10 or $20 here or there may not impact your financial picture in one day. If you add it up over the course of a year, it can become $3,650 or $7,300. Just by frivolously spending a small amount each day.
18. Know Your FI Number
Your FI number will help you to make the jump to financial freedom.
You know what it will take for you to become financially independent – specifically, the dollar amount needed.
In the FIRE community, it is typically known as your FI number, which is your financial independence number. The number is the amount of your net worth and the amount saved up, so you can start living off of your investment income.
This number will vary from person to person.
It is based on your personal situation. The variables that impact your FI number include:
Your income today
How much you plan to spend today
The amount you save today
How much you plan to spend in the future
Your age now
Age you want to quit working (aka retire)
Typically, most couples with kids can start looking at FI number in the $1.5 million range. The first reaction is that the number is either WAY LOWER than they thought it would be. Yes, because we have been taught by “financial professionals” that you need so much more in assets in your retirement accounts than you actually do.
The time is now to become a financially secure person and learn your fi number today. Here’s a great resource to help you.
19. Diversify Your Income
Just as with as above and knowing your FI number, financial independence becomes more likely to happen once you start diversifying your income.
A financially stable person earns all three types of income.
Most people rely on earned income only. If you only rely on earned income, then you reach a max threshold of what you are able to earn.
So a financially secure person has multiple buckets of income; they are diversified in investments, real estate, or side hustle. The key to long term success is finding ways to make passive income.
20. Budget isn’t AS Important
A trait of a financially secure person is they know how much they are able to spend, how much they need to save, and the amount of money that they come in every single month.
They do not need to budget down to the very last line item. (thank goodness for many of you reading this!)
A financially secure person has an overall sense that income exceeds their spending and saving goals.
That is financial security.
While a budget may help them stay focused and a more detailed budget may help them reach their longer term goals.
It does not mean that a budget is necessary. You can still have a loose budget and know that you are still making ends meet because they have a system set up and a system set in place.
Budgeting is not as important as it was previously.
21. Splurging is Okay
This is one of the best feelings as a financially secure person is knowing that it is okay to splurge. It is okay to spend extra money. It is okay to stop cutting corners at every single turn.
You remember back to the days when each month was a struggle to make ends meet. That is not the life that you live anymore; you live a completely different life. And now, it is okay to splurge.
And to be very honest, for most people, once they become financially secure, it is actually really, really hard for them to loosen that tight fist on their money and start spending it.
22. Same Page with Finances with Spouse or Significant Other
They share the same money vision and together they set smart financial goals. All of their decisions are made together.
Did you get that keyword??? Together. Meaning with the other person.
While they may not agree on every single line item of their budget or how they spend money individually, they still set aside money for each of them to spend as they please. Around here at Money Bliss, we call this money a slush fund.
Because at the end of the day, as a couple, they know they are still making progress in the right direction for the long term. So, these couples do not worry about the short term of how you spend your $100 each month if you are reaching your goals and that happens once financial security sets in.
23. Net Worth Grows Significantly Each Year
If your net worth does not grow significantly each year, then you got a problem.
A financially secure person knows their net worth and has systems in place to keep it growing significantly each and every year.
It’s not just one or two percentage points typically, you can expect a much higher rate of growth of 8-10%. Once your net worth increases, the bigger the bucket for the percentage of growth.
24. Credit Cards are Paid in Full
Financial security means you were able to pay your credit card bill in full each and every month without blinking. This is a mantra of a financially secure person.
They chose to use their credit cards wisely so they can get points, cash back, and travel benefits.
But, they are also cognizant that each and every month that credit card is paid off in full; this type of person will not carry a credit card balance for any reason. Period.
25. Prepared for Large Purchases
Nothing states financial security more than being able to go out and replace $5000- $10,000 worth of appliances or home repairs or something similar.
A financially secure person realizes that they have to be prepared for large purchases since they are going to happen.
It is only a matter of when a big purchase will happen.
This person is consistently setting money aside in a sinking fund for those large purposes. In our house, we like to call it the big murph fund.
We know that it may be a small remodel project, an appliance that needs to get fixed or looking at replacing a car. Many items can fall under this big murph fund umbrella. For us, we do not set aside money for each of those purposes in their own sinking funds because then we would not able to maximize our investments.
Instead, we estimate how much money is likely needed and set aside for large purchases that are likely to happen in the next one to two years.
Ways to Save $5000:
26. Your Health Matters
Financial stability means that you are able to spend money on your health and it is a priority for you and your household.
You start realizing the benefits of taking care of your body, eating properly, and managing your health in better ways.
The light bulb starts going off and says slaving at my work for 60 to 80 hours a week may not be worth it. While the income may be great, a financially stable person may feel like they are killing themselves inside for the benefit of others.
A financially secure person knows that their health matters more than money does.
You are more likely to spend money on organic produce because you know it is better for your body. You consistently review to see if you are spending your time in ways that benefit your overall health.
27. Bad Money Habits Are a Thing of the Past
We have all had them.
We have all made stupid money mistakes.
And the best part is a financially secure person has learned from their bad money habits and made changes so they never happen again.
All of the things that they used to do, they don’t do anymore. Bad habits are something that happened in the past. While they may regret it, which is absolutely okay and part of working through the process to make further progress.
Their past mistakes are not going to hold them back from their future self and build solid money habits.
28. Giving Money is Generous
When you are able to give 10% of your income and not be panicked about making ends meet, that is when you know that you have reached a higher level of financial security.
Giving money is generous.
It is something that helps society come together and as a community making the world a better place.
By you being able to give money will help somebody else become a better version of themselves. We have all had others that have helped us.
By giving money, you can pay it forward. It can be something as simple as paying for the people behind you. It could be something grand like having a building named after you because you made a massive donation.
The size of the giving does not matter. It is the fact that you decided and made the conscious decision to start giving your money.
29. People Ask You about Money Questions
When others start looking towards what you have accomplished in your financial journey, that is when you know you have created an environment of solid money management skills.
People will start coming to you asking questions on how they can improve their money situation. And that is fabulous!
That means that others view you as being financially secure and stable in your personal finances. You deserve a pat on the back and motivation to keep up the hard work.
30. Happy With Your Financial Path
Remember that saying, “If you are happy and you know it, clap your hands.” Well, as a financially secure person, it is when you wake up and look at your overall financial picture and say, “You know what, I’ve got this, I’m on the right path,” and you put a big grin on your face. And you pat yourself on the back.
As a financially stable person, you are proud of what you have overcome, the difficult challenges you faced, and now you are excited about where the next step is going to take you and your future.
It is not roses and happiness the entire way; there are ups and downs along your path that got you to a financially stable place.
But deep down you know that you are on a stable future with a solid path.
31. You Know You are In Control of Your Money
This type of person knows exactly where their money goes.
They are in control of their money; their money doesn’t control them.
They make the decisions on how, when, why, and where they spend money.
They are not told by outsiders how to manage their money. A financially stable person has control over their money and in the long run, it opens up the doors of opportunity.
This is a sign of financial independence.
How Much Money is Financially Stable?
How much money do you need to be financially stable?
This will depend on everybody’s personal situation.
If you are single and only providing for your one household, the amount of money that you need is much less than a family of six to eight people. In view of that fact, the more people that you’re responsible for, the more money that you need to become financially secure.
Let’s put some number on the question of how much money is financially stable.
3-6 months of expenses
Positive net worth
No debt (or a solid plan to get out of debt)
Able to give 5% of your income
Saving at least 20% of your income
$100k of F-you money (read JL Collins book for terminology)
Increasing saving percentage each year
At a bare minimum, you could estimate to need at least $25,000 for a single person or $100,000 for a family of four.
These assumptions include you continuing to live below your means and not regressing from the progress you made.
However, most people feel more financially secure when their net worth hits $250,000 or $500,000. Once you hit millionaire status, you are financially secure.
Are you Ready to Move from Not Financially Stable to Financial Stability?
You are in charge of your destiny.
You are able to go from one place to another, but you have to be willing to take the jump, take the risks, and seize opportunities.
So if you are not sure that you are ready to move on to financially stable, you need to be financially sound first. For now, save this post and come back once you are ready to move to the next step of becoming financially stable.
If you are ready to move to financial stability, then you need to start today and make all of these habits of somebody who is financially stable a part of your life.
There is no “Oh, I’m gonna wait till tomorrow.” Because then you are just going to keep putting it off. Tomorrow needs to become today.
The sooner that you can become financially stable, the better off that you will be.
Procrastination is just like having a plan, but not setting it into motion. You actually need to take action and start today. Enough planning, enough procrastination.
Start slow with easy habits. A good habit here and there. Keep building on those habits and you will slowly step-by-step learn how to become a financially stable person.
It does not take a huge monumental stream of income to achieve financial stability. All it takes is perseverance to make better yourself.
You can become the next millionaire with no money!
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
The average annual cost for a homeowner to perform maintenance on their single-family property has grown 26% over the past four years, faster than the rate of inflation, a Bankrate study found.
Nationwide, the current average cost for maintaining a typical single-family home is $18,118 per year, the Bankrate Hidden Costs of Homeownership Study reported. Using an average property value of $436,291, it means the buyer is paying $1,510 per month in addition to their mortgage payment in homeownership costs.
Back in 2020, before the pandemic-fueled run-up in home prices, it cost $14,428 annually for maintaining or repairing a typical single-family home, equivalent to $1,202 per month.
The cumulative rate of inflation, as measured by the Consumer Price Index, from 2020 until now is 21.7%.
The report’s calculation assumes that the homeowner pays 2% per year of their home’s average value on these costs.
“While homeownership is worth the financial sacrifice, homeowners also need to be aware of the ongoing expenses that go along with owning property,” said Jeff Ostrowski, Bankrate analyst, in a press release. “After you achieve homeownership, you need to fatten up your emergency savings account for all those surprise repairs.”
Incentivizing homeowners to create emergency savings accounts to deal with unexpected events including job loss helped to reduce mortgage default rates, a 2018 JPMorgan Chase study claimed.
While describing these as the hidden costs of homeownership, some of the items used in the calculation are typical beyond maintenance costs, such as property taxes and homeowners insurance, the T&I portion of the mortgage payment. However, rising costs here have been seen as a stressor on troubled homeowners, a panel at a Mortgage Bankers Association conference noted earlier this year.
Some of these other costs are also common (although not necessarily a part of depending on the agreement) to renting a home, such as electricity, internet and cable television service. Many renters also have an insurance policy to cover their personal property.
In a related Bankrate report that came out at the end of May, while 24% of home purchasers said they put aside money to pay for home repairs and maintenance, 19% have needed to take out additional debt for these costs.
Of that second group, 60% financed through credit cards, one-third took out a personal loan, while 25% obtained a second mortgage (respondents were able to make more than one choice for this question).
There’s also a generational divide among those seeking financing. Gen Z makes up the largest cohort of those having to take out debt, at 31%, followed by 26% of millennial homeowners.
At the other end of the spectrum is Gen X, at 19%, and the baby boomers at 13%.
“There’s no question whether these hidden costs of homeownership, involving plumbing calls, appliance replacement or repair, or getting a new roof or HVAC, will occur,” said Bankrate Senior Economic Analyst Mark Hamrick in a press release. “The key questions involve timing and costs. Planning for the expenses, including through dedicated savings, can help affirm the positive experience of what many consider the American dream, which is homeownership.”
The same generational divide exists among the savers, with the younger groups actually claiming a higher rate, 30% of Gen Z and 25% of millennials, while the baby boomers had 24% and Gen X trailed at 20%.
“By avoiding the elevated cost of borrowing, homeowners can hold onto more of their money, which is almost always a good thing,” Hamrick said.
Mortgage interest rates were mixed compared to last week, according to rate data compiled by Bankrate. Read on for a breakdown of how each loan type moved.
The tune has changed around the direction of mortgage rates. The movement of fixed mortgage rates parallels the 10-year Treasury yield, which moves as investor appetite fluctuates with the state of the economy, inflation and Federal Reserve decisions. At the close of the latest Fed meeting on May 1, policymakers held firm and opted not to cut rates. The next announcement from the Fed comes June 12.
“Markets are assuming that the Fed will cut the overnight rate only one time during the rest of 2024,” says Dick Lepre of RealFinity. “Rates will be flat for the rest of 2024.”
Often, though, the decision to buy a home isn’t based on market shifts. It comes down to what you need. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than chancing that buying a home will become more affordable.
Rates as of June 5, 2024.
The rates listed here are Bankrate’s overnight average rates and are based on the assumptions here. Actual rates available on-site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, June 5th, 2024 at 7:30 a.m. ET.
30-year mortgage dips, -0.03%
The average rate you’ll pay for a 30-year fixed mortgage today is 7.10 percent, down 3 basis points since the same time last week. Last month on the 5th, the average rate on a 30-year fixed mortgage was higher, at 7.19 percent.
At the current average rate, you’ll pay a combined $672.03 per month in principal and interest for every $100,000 you borrow. That’s lower by $2.03 than it would have been last week.
The 30-year mortgage is the most popular option for homeowners, and this type of loan has a number of advantages:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
Stability: With a 30-year fixed mortgage, you lock in a set principal and interest payment, making it easier to plan your housing expenses for the long term. Remember: Your monthly housing payment can still change if your homeowners insurance premiums and property taxes go up or, less likely, down.
Buying power: With lower payments, you might qualify for a larger loan amountor a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.
Read more: What is a fixed-rate mortgage and how does it work?
15-year fixed mortgage rate stays put
The average rate you’ll pay for a 15-year fixed mortgage is 6.64 percent, unchanged over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost $879 per $100,000 borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more rapidly.
5/1 ARM rate climbs, +0.26%
The average rate on a 5/1 adjustable rate mortgage is 6.82 percent, up 26 basis points from a week ago.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.82 percent would cost about $653 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
Jumbo mortgage rate falls, -0.01%
The average jumbo mortgage rate today is 7.21 percent, down 1 basis point over the last seven days. This time a month ago, jumbo mortgages’ average rate was above that at 7.27 percent.
At today’s average jumbo rate, you’ll pay principal and interest of $679.47 for every $100,000 you borrow. Compared with last week, that’s $0.67 lower.
Mortgage refinance rates
30-year mortgage refinance rate drops, -0.05%
The average 30-year fixed-refinance rate is 7.10 percent, down 5 basis points from a week ago. A month ago, the average rate on a 30-year fixed refinance was higher at 7.20 percent.
At the current average rate, you’ll pay $672.03 per month in principal and interest for every $100,000 you borrow. That represents a decline of $3.38 over what it would have been last week.
Where are mortgage rates heading?
The rates on 30-year mortgages mostly mirror the 10-year Treasury yield, which changes with the market, while the cost of variable-rate home loans more directly mirrors the Fed’s moves.
If and when the Fed cuts interest rates depends on evolving economic data, such as the inflation rate and the jobs market. While inflation has fallen since its peak in 2022, it’s still above the Fed’s target rate of 2 percent, and that doesn’t appear to be changing for now. When it evaluates inflation, the central bank prefers the Personal Consumption Expenditures (PCE) index. The newest PCE report is due out May 31.
“Tepid demand at Treasury auctions and an update to the Fed’s preferred inflation measure on May 31 pose the risk of rates moving up in coming days,” says Greg McBride, Bankrate’s chief financial analyst.
The Consumer Price index (CPI) is another report on inflation that the Fed keeps an eye on. The next CPI report comes out June 12 — the same day as the next Fed announcement.
While the Fed bases its decisions on rate changes due to broader economic factors, your rate is also affected by personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
What today’s rates mean for you and your mortgage
Mortgage rates fluctuate daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
Keep in mind: You could save thousands over the life of your mortgage by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
If you’re in the market for an affordable house to own, you might be debating whether it’s cheaper to build your own home or buy an existing home.
For those who have attempted a large-scale renovation on an older home, it may feel as if it would have been more cost-effective to start from scratch with new construction. But many costs go into building your own house that you must factor into the decision of whether to build or buy.
Let’s look at some aspects of building vs. buying an existing home. The outlook may vary depending on where you live and the type of house you want. You’ll also need to consider how you plan to pay for the home, and even if you are willing to consider off-grid living to reduce costs.
Key Takeaways
Building a house can be more expensive and time-consuming than buying an existing home due to costs like land purchases, construction, and potential delays, though it offers customization and energy efficiency benefits.
Buying an existing home is generally cheaper and quicker, providing location flexibility and mature landscaping, but may involve compromises in design, competitive markets, and potential maintenance issues.
Financing options for building include construction loans, personal loans, and land loans, while mortgages are typically used for purchasing existing homes.
Home and Land Values in Your Area
What’s the price of land in the area where you want to live? How much would it cost to purchase a fully constructed house (called “existing construction”) with the features you need and the size you want? Are empty lots available to build where you would like to live?
If you live in or are moving to a major metropolitan area or a suburb of a large U.S. city, it may be harder to find land and, if you do, the land will cost more.
On the other hand, if you move to a less populated area, you may be able to find several acres or more for under $20,000 or less.
When It’s Cheaper to Buy an Existing Home
Finding affordable land represents the first step toward being able to build a home for less than it would cost to buy. But if land goes for a premium in the area you wish to buy, it may be cheaper to buy an existing home.
Larger homes, obviously, cost more to build than smaller homes. If your main goal is to secure a house of your own for the lowest possible price, you can save money building a home in a less congested area where land is cheap.
It’s unlikely you’ll find a house for sale anywhere that doesn’t need a lot of work for less than $100,000. However, you may be able to pick up a plot of land and build a starter home like an A-Frame or a prefab, or even a tiny house under 400 square feet.
Types of Houses You Can Build
The cost of your house construction project depends on the house you choose. Here are some affordable examples.
Tiny houses – Tiny houses are typically under 400 square feet. They simply cost less to build than any other style of conventional home. They require less land, fewer materials, and take less time to construct.
Tiny houses may start at $10,000 and go up to $120,000 or more, which is the price of some regular homes. The average price for a tiny house is around $30,000 to $40,000.
Consider jumping on the tiny home trend to build your starter or retirement home.
A-Frame houses – A-frame houses represent a basic style of construction with slanted roofs. They have a loft bedroom rather than a full-fledged second story.
Prefab Homes – You can buy the parts for a pre-fab home and have it put together, or assemble it yourself, on your property. Some pre-fab homes, called modular homes, come as individual rooms and pieces that connect. Each module includes plumbing, electrical, and everything else you need to build a house already installed.
Some pre-fab home kits come as individual panels, and you’ll need to add the rest of the components. You can purchase pre-fab homes for as little as $50,000 or less on eBay.
Paying for Your Home: Construction Loan, Personal Loan, Land Loan, or a Mortgage
Unless you have cash reserves lying around, you’ll likely need financing to purchase your land or home.
If you do have the cash saved, once you do the math, you’ll probably realize it’s smarter to take out a mortgage or loan at a low interest rate. Then, you can invest your money at a higher rate of return.
That leaves you with several options to pay for your house or its construction.
Construction Loan
A construction loan acts as a line-of-credit rather than a conventional loan. The loan term usually lasts one year. In that time, you borrow the money you need as you need it. When you make your loan payments, you only pay interest on the money you borrowed.
Even though you only pay interest on the money you use, construction loans typically have higher interest rates than home mortgages. That’s because the land purchase is the only collateral available until the house is complete.
A construction loan can fund the land, building materials, and even provide funds to pay contractors to build your home. Your lender will want to see your construction documents and budget for the project. They’ll want to approve each step of the building process to ensure construction stays on track.
Once the home construction is complete, you can take out a conventional mortgage, which you can use to pay off the high-interest loan.
Personal Loan
If you’d rather not deal with the hassles of a construction loan, showing documentation to your lender, and taking out a mortgage after a year, consider a personal loan. The better your credit score, the lower your interest rate on an unsecured personal loan will be.
Personal loan terms tend to range from two to 10 years.
If you have cash reserves or assets that would cover the cost of the loan, you may want to take out a secured personal loan, using your cash or investments as collateral. You may be able to get approved for a secured personal loan at a much lower interest rate.
Land Loan
If you want to purchase land that doesn’t have power lines or public water running to the property, you may consider a land loan. Most lenders expect you to put at least 50% down on this type of purchase because it’s considered a high-risk investment.
Once you use the land loan to purchase the land, you may be able to finance construction through a personal loan. Or you can wait until you pay off the land loan, have utilities installed, and then get a construction loan.
Mortgage Loan
The best way to finance the purchase of an existing house is usually through a mortgage loan. These loans tend to have very low interest rates, especially compared to the loan options listed above. You may even be able to secure an FHA loan with as little as 3.5% down if you’re a first-time homebuyer.
Connect Utilities or Live Off the Grid?
There are a few more choices to make when it comes to building your own house or buying an existing home: What kind of utilities will you need?
Existing Construction
Existing construction, of course, comes already connected to sewer systems (or may include a cesspool septic system) and electricity. It already has home heating and cooling systems. And it’s probably fairly easy to run a cable television and broadband internet connection from the street to your house. At the very least, you can connect to satellite TV and internet services.
At most, it will cost a small connection fee to turn on the electricity and internet service to your home. Sewer service typically costs less than $100 per year.
New Construction
On the other hand, new construction has none of these things. You’ll need an electrician to run all the wiring. Then, you’ll need to connect to “the grid,” which means you’ll be getting electricity from your utility provider.
Even if you decide to install solar panels, which cost an average of $13,142 (after tax credits), you’ll need to pay to have them connected to your electric company. Your electric company monitors usage and charges you if your solar panels don’t produce all the energy your household uses.
Septic systems can cost from $3,000 up to $10,000, according to HomeAdvisor. Heating and cooling systems vary widely, too, depending on the type of system you prefer.
Building Your Home Off-the-Grid
If you think you can save money by living off the grid, you might be surprised. You’ll still need to invest in some sort of energy source, whether solar panels or wind turbines.
You can build a well for water and use composting toilets to avoid being connected to city water. But, unless you want to dramatically change your lifestyle, off-grid living may not be the best way to save money on your new house.
Some areas don’t permit off-grid living, so it may be harder to finance your new house if you can’t show plans for utility hook-ups.
Buy or Build a House: Pros & Cons
With so much to consider when deciding whether to buy or build a house, it can help to get a clear idea of the major pros and cons of each. We’ve listed some of the details below to help you make your decision.
Pros of Buying an Existing Home
Less costly: Buying a house is usually significantly less expensive than building one, especially as land loans can come with higher interest rates and down payments. And while home buying is an increasingly expensive endeavor these days, labor costs and construction materials are also increasing just as rapidly.
Quick move in: Most buyers of existing homes will be able to move within a few weeks, compared to the potential wait of over a year for new construction homes.
Location flexibility: Buying an existing home makes it much easier for you to live where you want. If you want to build a house and still live in or near the city, you’ll likely have to fork out a small fortune for the land rights. Home buying makes it much easier, and cheaper, to settle in the suburbs.
Established landscaping: Buying an existing property usually means you’ve got access to a mature landscaping, fully grown trees and a well established garden. For most homeowners, a beautiful garden is a must, but this can take many years to achieve with a new build.
Cons of Buying an Existing Home:
Competitive market: As we’re still very much locked in a seller’s market, the stress of trying to find and land the perfect home can make it a challenge. Home buying in today’s real estate market requires graft, patience and determination, not to mention a robust budget.
Aesthetic compromise: The intensity of the real estate market today means you’ll likely have to make some compromise when buying a house, as some elements of the design or style may not be to your tastes.
Maintenance & repairs: In a competitive market, you may also have to settle for a home that needs some repair. Depending on your initial budget, you might have to factor in funds for upgrades, and in general, you’re more likely to need to splash out on maintenance sooner than if you build a house.
Less sustainable & efficient: As a rule of thumb, buying a house is likely to mean that you’ll have a less sustainable home than if you had built one. Depending on how old an existing home is, you might have to budget for energy efficiency upgrades.
Pros of Building a House:
Customization: Building a house comes with the obvious benefit of customization, at least to some degree. The chance to build your dream home, and have full direction of the construction process, is a huge motivator for many.
Less competition: Another significant benefit of building your own home is avoiding the intense competition of the housing market. Once you own the land, the only major competition you need to consider is for construction supplies and labor.
Lower maintenance costs: A brand new home should be in the best condition possible, compared with any existing homes. You won’t have to worry about replacing major appliances or any significant home repairs in the near future.
Healthier & more sustainable home: A new build will be more energy efficient, meaning lower energy costs and a more sustainable home. There is also the benefit of not needing to worry about things like lead paint or possible asbestos in your home.
Cons of Building a House:
Expensive: Building a house is almost always more costly than buying an existing home. This is partly because you may need to obtain a land loan, as well as a loan to cover construction costs, and then a mortgage once the house is complete.
Hidden costs & delays: Most construction projects require us to expect the unexpected, and building a house is no different. Delays and unexpected costs are par for the course, and in today’s climate with supply chain issues and increased construction costs, the final cost of your new construction home can quickly soar.
Stress & time: It would be naive to underestimate the potential toll of both stress and time when building a house. With so much more work to do in terms of financing, budgeting, designing and decorating, the home building process will most likely be very stressful at least for a while, especially if you’re hoping to be finished on time.
More Work: Building a house means more involved effort on your part, as you’ll have to work with various professionals, approve every step of the process, review contracts and manage fluctuations in your budget along the way.
Bottom Line
Ultimately, you can save money building a home, especially if you choose a simple home style and are willing to do most of the work yourself. Plus, you’ll get the satisfaction of knowing the creative role you played in your home—and that everything in the house is brand new.
But if you’re not considering a small house in a rural area where land is cheap, you may find it’s more cost-effective to buy an existing house. Then, you can spend time and money over the years to turn it into your dream home.