MGIC Investment Corp, the leading U.S. mortgage insurer, posted a larger-than-expected $1.47 billion fourth quarter loss as more homeowners fell behind on their mortgage payments.
The company lost $18.17 per share, much higher than the $8.13 per share analysts polled by Reuters had expected, and a far cry from profit of $121.5 million, or $1.47 per share, a year earlier.
For the entire year, MGIC lost $1.67 billion, or $20.54 per share, as claims almost quadrupled to $2.37 billion from $613.6 million.
Revenue for the fourth quarter was $399.1 million, up 8.7 percent from $367.2 million a year ago.
Net premiums written increased nearly 25 percent to $380.5 million during the quarter, up from $367.1 million in the same quarter in 2006.
New insurance written was $76.8 billion, compared to $58.2 billion in 2006, with $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.
MGIC said claims totaled $1.35 billion during the fourth quarter, up from $187.3 million a year earlier and $50 million more than it had estimated last month, with larger losses realized in places like Florida and California.
It also set aside $1.2 billion for losses related to securitizations and took a $33 million charge for collapsed subprime mortgage venture C-BASS.
The company also revealed that it had hired an advisor to explore ways to shore up capital, but noted that it has “adequate” capital to meet its claim obligations.
Starting March 3, MGIC will require at least 5 percent down on homes in so-called restricted markets, including entire states like Arizona, California, Florida and Nevada.
It’s been a terrible year for mortgage insurers, as both Radian and Milwaukee-based MGIC recorded their first ever quarterly losses.Shares of MGIC fell $2.07, or 14.60%, to $12.11 in early afternoon trading on Wall Street.
Mortgage insurance is typically required by mortgage lenders when the loan-to-value exceeds 80 percent.
While mortgage rates have seen some dips in recent weeks, rates are still higher than they were a year ago. And though there’s plenty of interest in homeownership, it’s still difficult for most people to afford to purchase a house.
A number of closely followed mortgage rates slumped over the last seven days. 15-year fixed and 30-year fixed mortgage rates both decreased. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also saw rates trending downward.
High interest rates and house prices, together with limited for-sale inventory, have effectively kept a lid on homebuying demand throughout 2023. That was especially clear when mortgage rates surged past 8% in October, causing new-home sales to fall by 5.6% and existing-home sales to fall by 4.1% from the prior month.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Once the average rate for a 30-year fixed mortgage fell below 8% in early November, home loan applications started slowly inching up, according to the Mortgage Bankers Association. Mortgage interest rates, which are influenced by macroeconomic factors, such as inflation, job growth and the bond market, as well as investor confidence and global events, are always somewhat volatile. But experts note that changing economic conditions, particularly slowing inflation, could help mortgage rates stabilize in 2024.
Today’s average mortgage interest rates
If you’re in the market for a home, check out how today’s mortgage rates compare to last week’s. We use data collected by Bankrate to track rate changes over time. This table summarizes the average rates offered by lenders across the country:
Average mortgage interest rates
Product
Rate
Last week
Change
30-year fixed
7.32%
7.53%
-0.21
15-year fixed
6.74%
6.80%
-0.06
30-year jumbo mortgage rate
7.39%
7.59%
-0.20
30-year mortgage refinance rate
7.46%
7.63%
-0.17
Rates as of December 12, 2023.
Where mortgage rates are headed
At the start of the pandemic, mortgage rates were near record lows, around 3%. That all changed as inflation began to surge and the Federal Reserve kicked off a series of aggressive interest rate hikes, which indirectly drove up mortgage rates. Now, 20 months after the Fed’s first increase in March 2022, mortgage rates are well above 7%.
The central bank has kept interest rates steady since late July, but mortgage rates continued to climb until fairly recently. Following the Fed’s November meeting, mortgage rates dropped lower for the first time in months due to a mix of economic factors, including a shift in the 10-year Treasury yield, weaker jobs data and a better-than-expected inflation report.
Any mortgage forecast is simply an estimate, but experts say that improved inflation data and an end to the Fed’s rate-hike cycle could be signaling the start of a slow recovery in home loan rates. Most major housing authorities predict average mortgage rates to return to the 6% range around mid-2024.
“Rates will hold steady in the near term, except in the event of unexpected news or developments,” said Matt Dunbar, senior vice president of Southeast Region at Churchill Mortgage. The Fed, which is in a holding pattern to collect more data, will likely stay the course with a rate pause unless there are unwelcome surprises in the December inflation and jobs reports.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
What is a good loan term?
When picking a mortgage, remember to consider the loan term, or payment schedule. The most common mortgage terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages can either be fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. The interest rates for an adjustable-rate mortgage are only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the current interest rate in the market.
When choosing between a fixed-rate and adjustable-rate mortgage, consider the length of time you plan to live in your home. If you plan on living long-term in a new house, a fixed-rate mortgage may be the better option. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. As a result, a growing share of homebuyers are leaning toward ARMs.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 7.32%, which is a decrease of 21 basis points from seven days ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage, the most common loan term, is a good option if you’re looking to minimize your monthly payment. A 30-year fixed rate mortgage will usually have a lower monthly payment than a 15-year one, but often a higher interest rate.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.74%, which is a decrease of 6 basis points from the same time last week. Though you’ll have a bigger monthly payment compared to a 30-year fixed mortgage, a 15-year loan will usually be the better deal if you can afford the monthly payments. You’ll usually be able to get a lower interest rate, pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.67%, a downtick of 11 basis points from the same time last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But you could end up paying more after that time, depending on how the rate adjusts with the market rate. For borrowers who plan to sell or refinance their house before the rate changes, an ARM could be a good option. If not, changes in the market may significantly increase your interest rate.
How to find personalized mortgage rates
You can get a personalized mortgage rate by contacting your local mortgage broker or using an online calculator. To find the best home mortgage, take into account your goals and current finances. Be sure to look at the annual percentage rate, or APR, which reflects the mortgage interest rate plus other borrowing charges. By comparing the total cost of borrowing from multiple lenders, you can make a more accurate apples-to-apples comparison.
Your specific mortgage rate will vary based on factors including your down payment, credit score, debt-to-income ratio and loan-to-value ratio. Having a higher down payment, a good credit score, a low DTI and LTV or any combination of those factors can help you get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home. Be sure to also consider fees, closing costs, taxes and discount points. You should shop around and talk to several different lenders from local and national banks, credit unions and online lenders to find the best mortgage for you.
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right for you.
Mortgage interest rates were mixed this week, according to data compiled by Bankrate. See below for a breakdown of how each loan type moved.
After surpassing 8 percent in late October, mortgage rates have somewhat moved lower. One big driver: Inflation has cooled, which means the Federal Reserve might end its rate increases. The Fed last hiked its key interest rate in July, which brought up borrowing costs on a variety of financial products, including mortgages.
The central bank held firm at its November meeting, indicating it expects rates to stay on the higher side for the foreseeable future.
“Expectations of slower economic growth, moderating inflation and no more Fed interest rate hikes have been a downward influence on mortgage rates,” says Greg McBride, CFA, chief financial analyst for Bankrate.
After bottoming at the beginning of 2023, home prices have steadily risen this year, appreciating for eight consecutive months, according to the S&P CoreLogic Case-Shiller index for September 2023.
Rates accurate as of December 11, 2023.
The rates listed here are marketplace averages based on the assumptions shown here. Actual rates displayed within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, December 11th, 2023 at 7:30 a.m.
30-year fixed-rate mortgage moves down, -0.03%
The average rate you’ll pay for a 30-year fixed mortgage today is 7.45 percent, down 3 basis points since the same time last week. Last month on the 11th, the average rate on a 30-year fixed mortgage was higher, at 7.88 percent.
At the current average rate, you’ll pay principal and interest of $695.79 for every $100,000 you borrow. That represents a decline of $2.06 over what it would have been last week.
There are several advantages to choosing a fixed-rate mortgage when buying new house, including predictable mortgage payments.
Read more: What is a fixed-rate mortgage and how does it work?
15-year mortgage rate increases, +0.07%
The average rate for a 15-year fixed mortgage is 6.78 percent, up 7 basis points since the same time last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $887 per $100,000 borrowed. The bigger payment may be a little harder 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 faster.
5/1 adjustable rate mortgage slides, -0.09%
The average rate on a 5/1 ARM is 6.70 percent, ticking down 9 basis points over the last 7 days.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for people who expect to sell or refinance before the first or second adjustment. Rates could be considerably 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 6.70 percent would cost about $645 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo mortgage rate flat for the week
The average rate for the benchmark jumbo mortgage is 7.53 percent, unchanged from a week ago. This time a month ago, jumbo mortgages’ average rate was greater than 7.53, at 7.92 percent.
At the current average rate, you’ll pay a combined $701.27 per month in principal and interest for every $100,000 you borrow.
The average 30-year fixed-refinance rate is 7.57 percent, down 1 basis point over the last week. A month ago, the average rate on a 30-year fixed refinance was higher, at 8.01 percent.
At the current average rate, you’ll pay $704.01 per month in principal and interest for every $100,000 you borrow. That’s down $0.69 from what it would have been last week.
Where are mortgage rates heading?
Mortgage rates have done a 180 as of late, falling back under 8 percent. With inflation cooling and 10-year Treasury yields declining, the 30-year fixed mortgage could head into the 6 percent range by next year, said Lawrence Yun, chief economist of the National Association of Realtors, at the group’s conference in November.
“I believe we’ve already reached the peak in terms of interest rates,” said Yun.
The rates on 30-year mortgages mostly follow the 10-year Treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves. These broader factors influence overall rate movement. As a borrower, you could be quoted a higher or lower rate compared to the trend.
What these rates mean for your mortgage
While mortgage rates fluctuate considerably,, there is some consensus that we won’t see rates return to 3 percent for some time. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than expected, 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.
Inside: Balancing a shoestring budget is possible and provides great rewards. With savings and budget strategies, you will find genius tips to manage your finances smartly!
With the rise of economic inflation, a growing number of people are finding the need for shoestring budgets to effectively navigate through their expenses.
Whether it’s planning for a low-cost holiday, initiating a frugal home makeover, or launching a start-up business with minimalist funds, the concept of a shoestring budget comes into play.
Moreover, it’s not only limited to low-income families but also extends to larger households and entrepreneurs that need to strategically lessen costs to achieve their goals. This is how many people reach financial independence sooner.
Then, let’s talk about a shoestring budget – an effective tool used to stretch finite resources, manage money wisely, and achieve financial goals, all while minimizing expenses.
If you’re familiar with the feeling of every dollar in your wallet counting, then this blog post is for you.
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 is a Shoestring Budget?
A ‘shoestring budget’ means to accomplish a task or a project within a very limited or bare minimum budget. The shoestring budget work strategy involves curbing discretionary spending dramatically to take care of high-priority expenses.
Understood across various contexts like travel, events, and lifestyle, the term implies an approach of resourcefulness and discovery of low-cost alternatives to achieve desired results.
Not exclusive to households with low incomes, working with a shoestring budget expresses the art of making what’s deemed impossible possible, navigating time constraints, and maximizing minimal available funds.
Shoestring Budget Idiom Definition
According to Merriam-Webster, the official definition of a shoestring budget is: 1
“involving a relatively small amount of money for planned spending.”
‘Shoestring Budget’ Origin
The phrase ‘shoestring budget’ has an intriguing origin story that dates back to the 1800s in the United States. Fact-checks reveal that this term is indeed a reference to the precarious nature of a thin and weak shoestring, metaphorically implying a scarce and strained budget.2
Several theories have been proposed regarding its original use.
One theory suggests that the term ‘shoestring gambler,’ meaning someone gambling with a limited budget, might be the precursor to the idiom.
Another theory, based on British history, suggests that prisoners would lower a shoestring out of their cell to collect small donations from passersby, symbolizing the idea of managing with few resources.
Despite the debates around the phrase’s exact origins, it is undisputed that it signifies a tight budget situation.
How to live on a shoestring budget?
Living on a shoestring budget can be challenging but doable with a bit of dedication and planning.
Start by reviewing your regular expenses per month.
Cut down on unnecessary expenses as much as possible.
Monitor your small, daily expenses as they can add up significantly over time.
Refinance any existing debt to reduce interest payments.
Renegotiate contracts with utility providers, subscription services (consider uninstalling unused ones), or insurance for better rates.
Shop at thrift stores or choosing used items over brand new can also help you save.
The key to surviving a shoestring budget is self-control and determination to avoid impulsive spending.
Your goal is to prioritize essential needs over wants – a no spend challenge will help you with this. Remember, regular tracking and analysis of your personal site usage can provide valuable insights to manage your budget better.
How to travel on a shoestring budget?
Embarking on an adventure while on a shoestring budget requires creativity and pre-planning.
Be flexible with your travel dates, destinations, and mode of transport to take advantage of the best deals available.
Consider options such as budget airlines, off-peak travel times, and less touristy locations.
Staying in budget accommodations, or even trying out housesitting, can significantly cut down your lodging costs.
Eating at local fresh markets rather than restaurants will not only save you money but also provide a more authentic experience.
Plan your daily activities; consider free local events, parks, and attractions.
Always carry a water bottle to avoid buying expensive drinks.
With careful planning, traveling on a shoestring budget can make your journey all the more rewarding and memorable.
How to Save Money on a shoestring budget?
Saving money while on a shoestring budget might appear challenging, but it’s not impossible. Begin by monitoring your expenditures and identifying areas where you can potentially save money. Also, consider substituting costly activities with more affordable or free ones.
Every small action counts when you’re on a shoestring budget, and these savings accumulate over time. Remember, consistent small savings can make a significant difference in the long run.
Starting a business on a shoestring budget
Starting a business on a shoestring budget requires careful financial planning and innovative thinking. Indeed, it may sound challenging, but numerous shoestring startups have surged to success by optimizing their business budgets. It is all about crafting a solid business plan that clearly delineates your budget and the efficient utilization of each dollar.
Maintain focus on essential expenses only. These expenses might include mandatory licenses, essential software for business operations, or even crucial industry-specific tools. Leverage your personal and professional networks for free advice and resources.
Also, make the most of free or low-cost online marketing strategies as these can be vital to shoestring business budgets. You can use effective strategies, like using different social media platforms for marketing or creating a blog, to broaden the reach of your business.
Remember, having the capital to start is important but it’s secondary to a truly novel idea, intense hard work, and a strategic approach. So, let your creativity thrive and work passionately towards growing your business.
Shoestring Budget Examples
Shoestring Vacation
Wedding or Honeymoon
Home Improvement
Business on a Shoestring Startups
Savings Goals
Financing your Next Car
A shoestring budget is not always related to bigger projects. It can also refer to the scenario where the money required for daily expenses, buying an item, or completing a project isn’t enough. Here, the person has to be creative and find ways to stretch the money to make ends meet.
Practical Tips for Surviving on a Shoestring Budget
In this section, we will present practical advice for managing a shoestring budget, derived from case studies of my readers and my own personal experience who have thrived despite financial limitations.
Whether you are budgeting on a low income or looking to reach FI number faster, this guide has you covered.
1. Starting with a Budget: Your First Step
Before you embark on your journey of living on a shoestring budget, the first step is to define a realistic budget.
Understand your total earnings and list all your monthly expenses.
Identify which expenses are necessary (rent, utilities, groceries) and which are discretionary (eating out, entertainment).
Now create a spending plan such that it covers all necessities, allocates some amount towards savings, and leaves a little for leisure.
A well-defined budget will be your roadmap to financial management success.
Remember, the goal is to live within your means but also to ensure you aren’t depriving yourself.
2. Make Saving Automatic
A proven way to save money on a shoestring budget is to make saving automatic.
In such a method, you can set up an automatic transfer when you get paid. Another idea is to use Acorns, which rounds up purchases made with your debit card to the nearest dollar and deposits the change daily into your savings account.
Essentially, you’re saving without even noticing it! These little amounts add up over a period and can really bolster your savings.
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3. Cut Back on Expenses
One of the most effective ways to operate within a shoestring budget is by reducing expenses. These can be small lifestyle changes, like cutting back on takeaways and preparing meals at home, walking or cycling instead of driving short distances or canceling unused subscriptions.
Specifically, you are looking to cut back your flexible expenses the most.
4. Look for Ways to Make Extra Money
Alongside cutting back on expenses, we continually stress the importance of finding ways to supplement your income. This could be from a side hustle, passive income, part-time job, or even a pay raise.
This additional income can help ease pressure on your shoestring budget. Also, it might provide an opportunity to explore new interests or passions. By diversifying your income streams, you make your financial situation more secure and flexible in unexpected circumstances.
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5. Utilize Free Resources
When it comes to saving money on a shoestring budget, the key is to utilize free resources and focus on essentials before spending money.
Thankfully, there are many vital ways to do this:
Find free things to do without spending money.
Use your local Buy Nothing group to find items before spending your hard-earned cash.
Learn and enhance your skills through free or low-cost online platforms like Udemy, Coursera, and YouTube.
Leveraging such resources can have a significant impact on your budget, leading to substantial savings for other meaningful expenses.
6. Look for Deals and Coupons
Another wise strategy when operating on a shoestring budget is seeking out deals and using coupons whenever possible. This game-changing approach can be applied to your grocery budget, dining, clothing purchases, and even travel.
Search for coupons in newspapers, magazines, or on coupon websites. Perhaps, subscribe to newsletters from your favorite retailers, a move that will provide straightforward access to information about sales and discount codes. Be mindful while shopping online or in stores, and always remember to rein in impulses, checking for any available discounts before purchasing.
Moreover, take advantage of holiday sales or Amazon Prime Day for larger purchases. Taking a little extra time to hunt for the best deals can significantly cut down your expenses and help you stick to your shoestring budget.
7. Utilize Household Resources
Leveraging what you already have in your household is another fantastic way to save money.
For instance, before running to the grocery store, take stock of what’s in your pantry and design meals around these items.
Also, consider repurposing and upcycling household items. An old ladder can turn into a chic bookshelf; jars can be used for storage.
Optimizing utility usage by switching off lights when not in use and limiting water usage can also reduce bills.
Start treating everything in your house as a resource with a specific purpose and value, including leftover food, old clothes, and used furniture. Every household item utilized efficiently can add up to visible savings over time.
8. Get Rid of Unnecessary Expenses
Perhaps the most crucial aspect of managing a shoestring budget is identifying and eliminating unnecessary expenses. These could include subscriptions to magazines or online services that you hardly use, dining out frequently, or buying expensive coffee daily.
Analyze where your money is going every month. You’d be surprised how the smallest changes can have a big impact on your budget. Eliminating even a few unnecessary monthly expenses can add up to substantial yearly savings.
Remember, the key is not to deprive yourself of everything but to find that balance between living comfortably and within your means.
9. Reduce Your Monthly Rent or Mortgage Payment
Want to slash a significant expense of your shoestring budget by considering ways to reduce your rent or mortgage payments? Could you move to a more affordable area or a smaller property?
For homeowners, look at refinancing your mortgage or negotiate better terms, resulting in lower monthly payments. Always remember to check if any fees would apply before proceeding with refinancing.
If relocation isn’t an option, consider renting out a spare room in your home or offering it on a vacation rental site.
If you are a renter, look at becoming a permanent housesitter.
Lowering these substantial expenses can make a huge difference in your budget, allowing you to allocate funds to other pressing areas, save, or even invest in building wealth.
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10. Be Creative When Paying Bills
When managing a shoestring budget, it can be helpful to get creative with the way you pay your bills. Sometimes, splitting payments between paychecks or paying on certain days can make managing your budget easier.
You could also consider bill negotiation services or check if you qualify for reduced rates based on your income. If meeting all payments becomes too strenuous, communicate with your service providers about it. They may have hardship programs or payment plans to assist during tough financial periods.
Remember, the key is to avoid late fees or penalties that could further strain your budget.
11. Leverage Technology to Save Time and Money
Make the most of technology to manage your shoestring budget. There are numerous mobile apps and online resources to help you track your expenditures, save money, pay bills, and even invest.
Budgeting apps can help you keep track of your income and expenditure, warn you when you’re nearing your limit, and provide valuable insight into your spending habits. Digital wallets can help you make secure transactions without the fear of losing cash.
Moreover, there are apps and websites to compare prices of different products, get the best deal alerts, apply instant coupons, or even earn cashback like Rakuten.
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12. Participate in a Mini Savings Challenge
As a fun and effective way to boost your savings, consider embarking on a mini savings challenge! These challenges break the intimidating concept of saving into manageable, small steps. They can vary based on duration and the amount you’re aiming to save.
For example, in a 52-week challenge, you save $1 in the first week, $2 in the second, and so on, until you’re saving $52 in the 52nd week. By the end of the year, you’ll have saved $1,378!
Not only does it make saving fun, but it also allows you to develop a consistent saving habit, crucial when budgeting on a shoestring.
Frequently Asked Questions (FAQ)
If you’re fortunate enough to have a budget that’s more than a shoestring, the principles discussed still apply. Having more resources doesn’t mean you should ignore opportunities to save and invest wisely.
So, whether your budget is minimal or ample, consider adopting these healthy financial habits to achieve your financial goals. Make sure to sock away any extra money into a savings or investment account so you aren’t tempted to spend it.
Starting to invest on a small budget involves several key strategies. You must pay yourself first each and every time you are paid.
Set up an auto savings plan through a high interest savings account to make sure you start earning interest.
Contribute enough to your 401(k) to take full advantage of your employer’s match, if available, and consider mutual funds with an initial investment as low as $500.
Pick one solid company wherein you believe data and financials are stable enough to invest in, and buy 1 share.
If you receive a work or tax refund bonus, allocate it towards your investments instead of immediate spending.
Key Takeaways: Managing Money Well on a Tight Budget
Managing finances on a shoestring budget can be a daunting task, but with the right strategies in place, it can become a way to achieve financial health.
This is something I did when I was a stay-at-home mom looking for ways to make money.
In the grand scheme of things, managing a shoestring budget is less about the money and more about your mindset. Yes, limited resources can present challenges, but your attitude and creativity can make a difference.
Embracing frugality, taking control of your financial choices, and building resourceful strategies can turn your constraints into opportunities.
Money comes and goes, but the ability to manage it effectively is a life skill that will always be beneficial. The real wealth lies in your ability to live within your means and make the most of what you have – turning your shoestring budget into a stepping stone towards financial independence and stability.
Remember, every journey starts small.
Day by day, these tips can help you improve your financial stability and achieve your goals, regardless of your budget size.
Source
Merriam-Webster. “on a small/tight/shoestring budget.” https://www.merriam-webster.com/dictionary/on%20a%20small%2Ftight%2Fshoestring%20budget. Accessed December 5, 2023.
Grammarist. “Shoestring Budget – A Creative Expression for Limited Money.” https://grammarist.com/idiom/on-a-shoestring-and-shoestring-budget/. Accessed December 5, 2023.
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Whether you’re a first-time homebuyer or selling and moving into a new house, you will most likely need to take out a home loan to finance your purchase. But choosing a loan can be more complicated than simply picking one off a list — there are myriad considerations that go into selecting and getting approved for the right mortgage.
Military members and veterans can take out a VA loan, which offers advantages like 0% down and no minimum credit score requirement. Still, it’s important to look into the specifics of VA loans and cross-compare with conventional loans to determine the best option for you and whether you should shop around for the best mortgage lenders or the best VA lenders.
This guide will break down the ins and outs of VA and conventional loans, explain their differences and help VA-qualifying homebuyers decide what type of loan to choose.
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What is a conventional loan?
Conventional home loans are any type of mortgage not backed or insured by a government agency like the Federal Housing Administration or the Department of Veterans Affairs. They’re offered by private lenders like banks and mortgage companies, and they typically require a down payment between 3% and 20% of a home’s sale price.
Two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, set the guidelines and requirements for conventional loans. Conventional loans will usually require a strong credit history and score — as well as a certain income and stable finances — for borrowers to qualify for competitive interest rates and terms. Borrowers may have more flexibility when it comes to property type and loan amounts compared to government-backed loans.
Types of conventional loans
There are several types of conventional home loans to consider, each with its own terms and requirements.
Conforming vs. non-conforming loans
Conforming home loans have lending criteria set by Fannie Mae and Freddie Mac. These guidelines can include factors like credit and income requirements, down payment minimum, debt-to-income ratios, and more.
Conforming loans usually have lower interest rates because lenders consider them lower risk for their strict standard lending criteria. GSEs set a maximum limit on conforming loans, which can vary depending on location.
Non-conforming loans don’t adhere to the criteria established by Fannie Mae and Freddie Mac. These loans have higher maximum loan limits than conforming loans, often making them necessary for larger loan amounts. For instance, “jumbo loans” are a common type of nonconforming loan for properties that exceed the maximums set by GSEs.
Interest rates are generally higher for non-conforming loans because they are riskier for lenders, who may also demand a bigger down payment than they would for a conforming loan. Eligibility for non-conforming loans can be more flexible and they’re often underwritten manually, which means an underwriter will evaluate your documents and verify whether you’re qualified to borrow.
Fixed-rate vs. adjustable-rate loans
When choosing a home loan, you’ll also have to decide between a fixed-rate loan or an adjustable-rate loan (ARM). Your selection will depend on your financial situation, risk tolerance, and how long you expect to live in the home you purchase.
A fixed-rate loan (aka fixed-rate mortgage) stays the same throughout the entire term, while an ARM’s interest rate can change at designated points of a loan’s term after an initial fixed-rate period. Fixed-rate loans offer more stability, which can help you plan out your expenses and budget more easily. When interest rates are low, they allow borrowers to lock in a favorable rate for the long term.
ARMs often have lower initial interest rates, which means your monthly payments will also be lower during the fixed-rate period. However, interest rate adjustments are unpredictable, and those payments may increase, resulting in higher housing costs.
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VA loans explained
VA loans are specifically designed to provide active-duty military, veterans and eligible spouses assistance in purchasing or refinancing a home. They’re backed by the U.S. Department of Veterans Affairs and offer various benefits, but you have to meet specific service requirements and provide a Certificate of Eligibility from the VA.
Key differences between a VA loan vs a conventional loan
There are a few advantages to VA loans, like a $0 down payment and competitive interest rates for eligible veterans and military personnel. While conventional loans are more widely available, you normally have to pay money down and meet more stringent criteria.
Loan eligibility requirements
Qualifying for a VA loan is primarily tied to your military service record and status. Active-duty service members, honorably discharged veterans, National Guard and Reserve members who meet service requirements and certain surviving spouses are typically eligible.
You will also need a Certificate of Eligibility from the VA as proof of your service. VA loans tend to be more flexible than conventional loans regarding credit requirements, but lenders can still look into your credit history and income to determine whether you can afford the loan you’re applying for.
The home you buy with a VA loan has to meet the VA’s standards for safety and habitability, and it must be your primary residence.
Conventional loan requirements vary but are typically more strict than government-backed loans. You will usually need a credit score of at least 700 to get the best interest rates. The stronger your credit history, the more likely you are to qualify — be prepared to provide documents that show proof of income, bank statements and more to prove financial stability.
You’ll also need to meet property standards for conventional loans and pay for an appraisal to determine the property’s condition and value.
Loan closing costs and fees
VA loans require a funding fee in most cases, a one-time payment that depends on factors like service status and whether you used a VA loan in the past. The amount of your fee depends on the amount of your loan and the type of loan you get.
Conventional loan closing costs also depend on the type of loan you get, your loan amount and where you live. Closing costs typically vary between 3% and 6% of your loan amount and can include appraisal fees, attorney fees and processing fees you pay your lender to process your loan.
Down payment requirements
Minimum requirements for conventional loan down payments usually start between 3% and 5% of a home’s sale price, though paying 20% is considered ideal by many lenders and can reduce the cost of your monthly mortgage payment.
VA loans do not require any down payment, which can make homeownership more affordable for qualifying borrowers. Paying money down can, however, reduce your funding fee and decrease your monthly mortgage payment and interest.
Loan limits
Loan limits are adjusted periodically to accommodate changes in the housing market — the baseline conventional conforming loan limit in the U.S. for 2023 is $726,200, according to the Federal Housing Finance Agency. It’s higher in Alaska and Hawaii ($1,089,300) because average home prices are more expensive in those regions.
The standard limit for VA loans also increased to $726,000 in 2023 for most U.S. counties.
Mortgage insurance requirements
With a conventional loan, if your down payment is less than 20%, your lender may require Private Mortgage Insurance (PMI) for protection against default. This adds to your monthly costs but can be removed once you reach a loan-to-value ratio of about 80% or lower.
VA loans do not require PMI or any other type of ongoing mortgage insurance.
Property restrictions
The condition and characteristics of a property can impact whether you qualify for a conventional loan. Requirements vary, but typically, you must ensure the property meets specific safety and habitability standards — so if there is significant damage to the foundation or roof, you may be denied or need to make repairs before closing.
An appraisal is required to determine the property’s value and confirm that it meets lender and loan-to-value ratio requirements. Property type matters, too: Most single-family loans in sound condition qualify for conventional loans, but eligibility can vary for condominiums, townhouses or multi-unit properties.
Lenders usually require homeowner’s insurance to protect their investment, especially if the home is in a high-risk area. You’ll need to ensure there are no issues with the home’s title like outstanding liens or disputes.
Many of the same property requirements apply to VA loans, although there are some differences. The property you’re purchasing must be your primary residence and satisfy the VA’s Minimum Property Standards, which concern areas like structural integrity, roofing, HVAC, plumbing and more. You will need to have a VA appraisal to assess the property’s value and confirm that it meets the Minimum Property Standards set by the VA.
Other requirements specific to VA loans include stipulations regarding distance to military facilities and private road access. The lender may impose additional safety restrictions if you purchase a home near a military facility, such as an airfield. Properties located on private roads must be accessible year-round and well-maintained, and you will need to have a written road maintenance agreement.
Resale and refinancing
If you want to refinance with a conventional loan, lenders will evaluate your eligibility by looking at your credit score, income stability and debt-to-income ratio. In most cases, you can refinance as soon as you want, although you may have to wait several months to refinance with the same lender.
You’ll sign the new loan agreement, replacing the old one, if you are approved. There is no time requirement for reselling a home after purchasing it with a conventional loan.
Homeowners with a VA loan looking to refinance can do so with VA-backed cash-out refinance loans or the Interest Rate Reduction Refinance Loan (IRRRL).
Both refinancing options require you to wait about 240 days, or six to seven payments, whichever period is longer. The VA does not impose any time requirements if you have a VA loan and want to resell your home.
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The benefits of a VA loan vs conventional loan
A VA loan can offer distinct advantages compared to a conventional loan, but only for active service members, veterans and qualifying spouses. Conventional loans typically require down payments of at least 3%, whereas VA loans do not.
Unlike conventional loans, VA loans can further reduce monthly costs because they don’t require private mortgage insurance and often have more lenient credit score requirements.
The benefits of a VA loan
No down payment required
No private mortgage insurance required
More lenient lending criteria
VA funding fee can be rolled into the loan amount, reducing upfront costs
Access to VA cash-out refinance and IRRRL loans
Low interest rates
More stringent appraisal process
Potentially longer closing timeline
The benefits of a conventional loan
Accessible to a wider pool of borrowers
Fewer property use restrictions
Competitive interest rates
Beneficial for buyers with strong credit
Diverse term options and potential for lower total interest cost
Down payment usually required
PMI requirements for down payments less than 20%
Stricter qualification requirements
Is a VA loan better than a conventional loan?
For those who qualify, VA loans can be more advantageous than conventional loans because of their low interest rates and no down payment requirement, which can mean significant long-term savings. Not having to pay any money down also makes homeownership more affordable for many people entering the market for the first time.
VA loans typically don’t require PMI, and they feature more lenient lending criteria than conventional loans, making them a better option for borrowers with a limited credit history.
Finally, including the VA funding fee in the loan, can reduce the upfront expense of buying a home.
Summary of Money’s VA loan vs conventional loans
Veterans, active duty military and some spouses can use a VA loan or a conventional loan when making a home purchase.
Conventional loans can benefit homebuyers with strong credit and enough money to make at least a 20% down payment. But with VA loans, there is no down payment or PMI requirement, which can lead to major savings on monthly mortgage payments.
VA loans aren’t as customizable as conventional loans, and it may take longer to close on a house because VA loans have a stricter appraisal process. However, the advantages of a VA loan, which typically include low interest rates and more lenient lending criteria, may outweigh these drawbacks.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 6, which is unchanged from yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 5.875%, which is 0.500 percentage points lower than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 6, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 5, which is 0.250 percentage points higher than yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 6.375%, which is 0.500 percentage points higher than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 5, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has made the rounds this week on Capitol Hill, providing testimony to Congress in their semi-annual reviews of the CFPB. On Thursday, Chopra took questions from members of the U.S. Senate Committee on Banking, Housing and Urban Affairs, including one on the controversial topic of mortgage trigger leads.
Sen. Jack Reed (D-R.I.), who serves as a senior member of the Banking and Housing Committee, took the opportunity to ask Chopra about the practice and what the Bureau might be able to do about it.
“Credit rating bureaus sell so-called trigger leads, which are essentially a tip that consumers shopping for a mortgage,” Reed said. “The trigger lead can generate contacts, and some of them [are] more confusing than helpful. You have responsibility for both the mortgage lending process and also the credit reporting bureaus. Is there anything you could do to help clarify the situation under existing authority to protect consumers from misinformation?”
Mortgage trigger leads
Chopra described the situation as complicated but did not challenge the senator’s premise regarding the confusion that consumers might have when trigger leads enter the equation.
“One of the things that [happens is that] a prospective homeowner will talk to a mortgage lender, and then all of a sudden, they’ll start getting a barrage of calls,” Chopra said. “And they actually think that the original mortgage lender told everyone [they were seeking a mortgage], and they wonder what’s going on. This is something that I think our authority is somewhat limited.”
Still, the Bureau is “happy” to look at potential solutions to make clear that it is not the mortgage lender openly divulging the shopping status of a particular consumer.
“That is not happening,” Chopra explained. “Because the credit reporting company is really making that information available. You know, you raise the issue of [the Fair Credit Reporting Act (FCRA)] and data on credit reports. We have a lot more of these companies collecting sensitive information, not just what loan you apply for.”
Trigger lead data can include geolocation information, Chopra said, which has privacy considerations for consumers.
“That data is increasingly being weaponized,” he said. “And so, we’re looking at all of these data issues, and figuring out how to make sure we’re protecting the public.”
Servicing rules
Democratic Sen. Jon Tester of Montana asked a focused question about what Chopra sees as the biggest risk that the CFPB can help with for the financial solvency of U.S. military veterans, and Chopra responded that homeownership issues were at the top of the list.
“Certainly, I think homeownership, being kicked out of your home, and being able to get a loan modification — by sheer dollars — it’s a huge amount of money,” Chopra said. “And that’s why we’re looking at streamlining some of our mortgage servicing rules to allow more people to more easily get loan modifications, and be able to avoid foreclosure.”
This response followed statements made by the CFPB this past summer, where it identified mortgage servicing rules as a priority.
“The CFPB observed that there were places where the rules could be revised to reduce unnecessary complexity,” Chopra said in a June blog post. “Last fall, the CFPB asked the public for input on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments, including input on the mortgage forbearance options available to borrowers.”
At the time, Chopra described seeking input on the features of COVID-19 forbearance programs, seeing those as a potential guide to the automation and streamlining of “long-term loss mitigation assistance,” he said.
Mortgage issues were generally not the focus of questioning, which was also the case in the House Financial Services Committee hearing Chopra sat in the day before. Much of Chopra’s opening remarks in the Senate hearing were similar, if not identical, to the same statement he provided for House lawmakers.
Rising home prices have pushed the third quarter’s tappable home equity amount near its 2022 peak, but interest rates are making homeowners reluctant to extract that wealth.
Mortgage holders withdrew a mere 0.41% of tappable equity in Q3, about 55% below the average withdrawal rate seen in the 12 years leading up to the Federal Reserve’s most recent tightening cycle, according to the latest ICE Mortgage Technology‘s mortgage monitor report.
“Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. That’s equivalent to $54 billion – $250 billion over the last 18 months – in ‘missing’ withdrawalsthat might have otherwise stimulated the broader economy,” said Andy Walden, vice president of enterprise research at ICE Mortgage Technology.
Rising equity levels are also contributing to low default and foreclosure activity.
Foreclosures starts rose to 33,000 in October – the highest level in 18 months – but still remained 35% below COVID-19 pandemic norms. Loans in active foreclosure inched up to 217,000, but remained more than 25% below pre-pandemic levels.
About 70% of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. In addition, about 58% of these seriously delinquent mortgage holders hold more than 20% equity stakes in their homes.
“Strong equity cushions not only provide borrowers incentive to work with their servicers to return to making mortgage payments, they also open up other options, such as salvaging earned equity with a traditional home sale rather than going through foreclosure. The more the industry can do to educate, and update, borrowers as to their equity positions, the better,” Walden said.
Mortgage originations
Purchase lending dominated the market overall, driving 86% of all first-lien lending in the third quarter. In 2024, roughly 75% of originations expected to come from purchase loans.
Despite compressed volumes, cash-out refinance loans fueled what is left of the refinance market accounting for 92% of the third quarter activity. Borrowers withdrew a record $104,000 on average.
Rising mortgage rates continued to put pressure on homebuyers, with the average debt-to-income (DTI) ratio on purchase loans hitting 40.5% in October, a series high dating back to January 2018.
The average DTI among conventional mortgages reached 37.8% in October, also a series high, while the average among FHA and VA loans hit 45.5% and 44.4%, respectively. These figures are both up sharply from recent months, but slightly below last year’s high of 45.7% for FHA loans and 44.5% for VA loans.
Lenders have responded by tightening credit requirements and the average credit score among conventional, FHA and VA loans.
Average credit scores for FHA loans rose 14 points in October over the past 12 months while VA loans climbed 13 points.
The decision to become a physician assistant, or PA, is a noble but big one. PAs work at hospitals, medical offices, nursing homes, retail clinics, community health centers, and in the federal government.
Becoming a PA often means taking on student loans, which begs the question: Is PA school worth the debt?
Average Cost of PA School
In the 2019-2020 school year, the average cost of PA school was $56,850 for two years at an in-state school and $101,500 for an out-of-state school, according to the American Academy of Physician Assistants.
Before sticker shock sets in, the average salary of certified PAs in 2022 was $125,270 per year. Those working in outpatient care centers, one of the highest paying locations, average a mean annual salary of $137,040.
Once those salaries are claimed and regularly earned, there’s the matter of loan repayment. This guide will help readers consider strategies to handle PA school debt.
Recommended: How Much Does PA School Cost?
Physician Assistant (PA) School Repayment Options
Fortunately, there are options available for PAs who are mindful of interest and debt accumulating in their name. The big one is the federal government’s Public Service Loan Forgiveness program, which kicks in “if you are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization.” PSLF forgives the remaining balance on Direct Loans after 120 qualifying payments (a big number that can often boil down to 10 years’ worth of payments) under a qualifying repayment plan.
Another option for PAs is an income-driven repayment plan. There are four plans to choose from, including Income-Contingent Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Based Repayment. Similar to Public Service Loan Forgiveness, the motivation for these plans is working toward student loan forgiveness — if PAs can’t qualify for PSLF, possibly because they work for a private employer, they could still receive loan forgiveness after 20 or 25 years of repayment under an income-driven repayment plan. 💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.
Other Payment Programs
There are also federal and state programs that reimburse health care workers in underserved areas, also called Health Professional Shortage Areas. The Health Resources & Services Administration offers a searchable online database of shortage areas by state and county, and a tool to check if a location has been officially designated as an underserved area.
Then there are State-based Loan Repayment Programs, whose financial incentive can vary depending on specialty. Colorado, for example, offers $90,000 for a full-time PA ($45,000 for a part-time PA), and PAs must “agree to work for a term of three years at an approved site, work part-time or full-time with a minimum of clinical contact hours, and also meet the hourly requirements during the entire service obligation.”
States vary in requirements and awards. The Health Resources & Services Administration also is of help in looking into SLRPs.
Planning for the Future
One way to minimize the shock of shouldering PA school debt is to build a budget — and stick to it. Although pretty much everyone knows that budgeting is a smart idea, few actually put it into practice: According to the National Foundation for Credit Counseling, more than half the population (56%) did not have a budget in 2021.
A simple way to create a budget is to list out all of your fixed expenses. Fixed expenses do not change month-to-month and include things like rent or mortgage payments, car payments, student loan payments, daycare costs, cell phone services, gym memberships, and more. Next, list out your variable expenses, which do change depending on the month. Variable expenses include food, gas, entertainment, utilities, clothing, and emergency expenses. If your income does not exceed your spending, create spending limits for your variable expenses. Make sure to budget for retirement, emergency savings, and other miscellaneous expenses that may crop up.
Refinancing School Debt
It’s no secret that pretty much any type of higher education career often means taking on considerable student loan debt. If it reaches a point where making real progress on repaying the loans feels nearly impossible, federal student loan repayment and forgiveness programs either don’t apply or aren’t the right fit, or personal loans are involved, then refinancing with a private lender might be a good option.
With refinancing, a new loan is used to pay off one or more existing federal or private loans. In addition to combining multiple loans into one, qualified borrowers may also land a better interest rate, reducing the amount they pay in interest over the life of the loan assuming the loan term does not change.
Recommended: Student Loan Refinancing Calculator
However, refinancing federal student loans with a private lender means a borrower is no longer eligible for many of the state and federal programs mentioned above, or other protections and benefits extended to federal student loan borrowers. Those looking to combine federal loans only can consider a student loan consolidation.
Refinancing Student Loans With SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.