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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.
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Today’s average mortgage rates
Current mortgage rates
If you’re in the market for a home, here are today’s mortgage rates compared to last week’s.
Product | Rate | Last week | Change |
---|---|---|---|
30-year fixed | 6.91% | 6.91% | -0.00 |
15-year fixed | 6.36% | 6.42% | -0.06 |
10-year fixed | 6.27% | 6.38% | -0.10 |
5/1 ARM | 6.61% | 6.63% | -0.02 |
30-year jumbo mortgage rate | 7.00% | 7.02% | -0.02 |
30-year mortgage refinance rate | 6.96% | 6.92% | +0.04 |
Average rates offered by lenders nationwide as of April 3, 2024. We use rates collected by Bankrate to track daily mortgage rate trends.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
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.
Mortgage rate news
Over the last few years, high inflation and the Federal Reserve’s aggressive interest rate hikes pushed up mortgage rates from their record lows around the pandemic. Since last summer, the Fed has consistently kept the federal funds rate at 5.25% to 5.5%. Though the central bank doesn’t directly set the rates for mortgages, a high federal funds rate makes borrowing more expensive, including for home loans.
Mortgage rates change daily, but average rates have been moving between 6.5% and 7.5% since late last fall. Today’s homebuyers have less room in their budget to afford the cost of a home due to elevated mortgage rates and steep home prices. Limited housing inventory and low wage growth are also contributing to the affordability crisis and keeping mortgage demand down.
Mortgage predictions for 2024
Mortgage forecasters base their projections on different data, but most housing market experts predict rates will move toward 6% by the end of 2024. Ultimately, a more affordable mortgage market will depend on how quickly the Fed begins cutting interest rates. Most economists predict that the Fed will start lowering interest rates later this summer.
Since mortgage rates fluctuate for many reasons — supply, demand, inflation, monetary policy and jobs data — homebuyers won’t see lower rates overnight, and it’s unlikely they’ll find rates in the 2% range again.
“We are expecting mortgage rates to fall to around 6.5% by the end of this year, but there’s still a lot of volatility I think we might see,” said Daryl Fairweather, chief economist at Redfin.
Every month brings a new set of inflation and labor data that can change how investors and the market respond and what direction mortgage rates go, said Odeta Kushi, deputy chief economist at First American Financial Corporation. “Ongoing inflation deceleration, a slowing economy and even geopolitical uncertainty can contribute to lower mortgage rates. On the other hand, data that signals upside risk to inflation may result in higher rates,” Kushi said.
Here’s a look at where some major housing authorities expect average mortgage rates to land.
Mortgage terms and types
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The average interest rate for a standard 30-year fixed mortgage is 6.91%, which is a decline of 0 basis point compared to one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.36%, which is a decrease of 6 basis points from seven days ago. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.61%, a decrease of 2 basis points compared to a week ago. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
What factors affect mortgage rates?
While it’s important to monitor mortgage rates if you’re shopping for a home, remember that no one has a crystal ball. It’s impossible to time the mortgage market, and rates will always have some level of volatility because so many factors are at play.
“Mortgage rates tend to follow long-date Treasury yields, a function of current inflation and economic growth as well as expectations about future economic conditions,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
Here are the factors that influence the average rates on home loans.
- Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
- Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
- The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
- Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
- Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
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.
How to find the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
- Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
- Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
- Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
- Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
- Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
Source: cnet.com
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Key takeaways
- Jumbo loans are large-amount mortgages, generally used to buy more expensive properties.
- The size of a jumbo varies by geographic location, but it generally means a loan of more than $766,550 in most parts of the U.S. (as of 2024).
- The interest rates on jumbo loans are different (usually higher) than those on regular, conforming mortgages.
- Jumbo loans have stricter criteria for borrowers: a higher credit score, larger income/assets, and bigger down payments.
A jumbo loan is a mortgage for an amount that exceeds the standard loan size, as set by the federal government. If you’re buying a mansion — or just a regular home in a highly pricey neighborhood — you’ll need an extra amount of financing to get it.
It’s not just the principal amount, though: Everything on these mortgages can be super-sized. Let’s look at what jumbo loans are, and when you need one.
What is a jumbo loan?
As the name implies, a jumbo loan covers a larger-than-normal loan amount. More specifically, a jumbo loan is any mortgage that exceeds an area’s conforming loan limits, which are set yearly by the Federal Housing and Finance Agency (FHFA).
Many mortgage lenders offer jumbo loans up to $3 million or $5 million. You might be able to find jumbo loans in even higher amounts, especially if you work with a mortgage broker who specializes in them.
Jumbo loans can be used for primary residences, investment properties and vacation homes.
How do jumbo loans work?
Despite their “nonconforming” status, jumbo loans aren’t much different from traditional mortgages when it comes to the way they work. The payment schedules and other details are generally the same. Borrowers can get fixed- or adjustable-rate jumbo mortgages with various term options.
However, the interest rates on jumbo loans often differ from their conforming loan counterparts. Historically, they’ve been higher; however, the gap has closed of late. As of April 1, 2024, the 30-year jumbo rate was 7.06 percent, according to Bankrate’s survey of national lenders, vs. 6.93 percent for the traditional 30-year fixed loan. Part of the reason for this is an increase in guaranteed fees charged on conforming loans to lenders by Fannie Mae and Freddie Mac.
The maximum size of a jumbo loan varies by your mortgage lender and location, as does the exact qualifying guidelines. Because the market for jumbo loans is smaller, you might need to shop around a bit more to find one. It’s usually beneficial to work with a mortgage lender who specializes in them.
Jumbo loans vs. conforming loans
Most loans are conforming loans, meaning they conform to, or follow, specific criteria followed by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy most U.S. home loans. Jumbo loans do not adhere to these criteria; hence, they fall into the financing category of nonconforming loans.
You’ll have more buying power with a jumbo loan than with a conforming loan, but you’ll pay more in interest since your balance is bigger. To qualify for a jumbo loan, you’ll need a higher credit score — and possibly a higher income, down payment or more assets — than you would for a conforming loan. For example, U.S. Bank calls for a minimum 740 credit score to be considered for a jumbo loan versus 620 for a conforming loan.
Jumbo loan limits
You need a jumbo loan if you want to finance a property that costs more than a certain amount the FHFA sets for your state each year. If a mortgage exceeds the FHFA’s conforming loan limit, market-makers Fannie Mae and Freddie Mac won’t back or purchase it, thus making it a riskier proposition for a lender.
For 2024, the limit for conforming loans for most of the continental U.S. is $766,550. In Hawaii, Alaska and certain counties where median home prices are significantly higher than average, the conforming loan limit goes up, too — as high as $1,149,825.
Because homes that cost above these sums require a jumbo loan, these ceilings are often referred to as “jumbo loan limits” — though technically, they’re the starting points for jumbos.
Loan limits by state
The table below provides state-by-state conforming loan limits for 2024. In many states, the limits vary by county, depending on how high-cost the real estate market is there.
How to qualify for a jumbo loan
Jumbo lenders typically impose stricter underwriting guidelines than conforming mortgage lenders do. Because the loans aren’t backed by Fannie or Freddie, jumbo mortgages pose more risk to the lender. Overall, if you want to take out one of these hefty loans, you will need to make sure your financial profile is very good or excellent.
There are three common hurdles borrowers must clear to get approved for a jumbo loan: income, credit score and cash reserves (for making a down payment).
Jumbo loan income requirements
Yes, it’ll help if you have a large income — and, just as importantly, if you have a low-debt-to-income (DTI) ratio, the percentage of your monthly income that goes to debt payments. If your outgo is a significant part of your incoming — like more than one-third — you might not qualify for a jumbo loan unless your credit score is excellent or you have a sizable amount of reserves or liquid assets.
Jumbo loan credit score
Higher credit scores are needed to qualify for a jumbo versus a conforming loan. You will need, at the very least, a minimum score of 700 (most likely) to qualify for one. “The average is around 740, although I have seen some as low as 660,” says Robert Cohan, president of Carlyle Financial based in San Francisco. “[But] if you’re high-leveraged and you have a low credit score, it’s going to be hard to get a jumbo loan.”
Keep in mind:
Most jumbo loans are conventional loans (offered by private lenders, vs. a government agency). One exception is the VA jumbo loan. Active military or veterans can qualify with a significantly lower credit score, like in the mid-to-low 600s.
Jumbo loan down payment
You may have to make a significant down payment to qualify for the jumbo loan. The down payment on a jumbo loan is typically 10 percent to 20 percent (and sometimes more). “Anything lower than a 10 percent down payment and you’re probably going to pay for it in higher rates,” says Cohan (assuming you can get the loan at all). Be prepared to show enough reserves, or liquid assets, to cover between six and 12 months’ mortgage payments.
Is a jumbo loan right for me?
Jumbos are meant for buyers with a substantial stable income and ample resources. You’ll need strong credit, a low debt-to-income ratio and at least six months of cash reserves to qualify.
Research the conforming loan limits in your region. If the homes you’re interested in buying do not fall within conforming loan guidelines, a jumbo loan might be an appropriate alternative — in fact, your only alternative, if you want to live in a high-cost county.
That said, a jumbo loan is not for you if it means you must stretch your finances to the brink to get one. Or if it means you’ll end up being house broke or house poor, meaning your homeownership costs squeeze out everything else in your budget.
Pros and cons of a jumbo loan
Jumbo loans can help you finance a large home purchase, however, you’ll pay more in interest over time than with a conforming loan. Here are some additional pros and cons:
Pros
- Allows you to borrow more than a traditional mortgage
- Competitive interest rates
- Opportunity to buy a more expensive home/live in a high-cost region
Cons
- A higher credit score is required to qualify, plus a larger annual income
- Must have cash reserves to cover 6 to 12 months of payments
- Higher interest rates
There may also be situations in which a jumbo loan loan makes sense. For instance:
- If you have to live in a more expensive part of the country
- If you see a good deal on a luxury piece of property
- If the jumbo loan rates are close to conforming loan rates (why not get more bang for your financing buck)
- If you have gotten, or expect to soon get, a windfall or big rise in income, so the cash reserve requirement is no problem (real estate isn’t the worst investment in the world)
Jumbo loan FAQ
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If you would like to take out a jumbo mortgage, you’ll need to make sure your credit is very good to excellent, as a strong credit score is crucial for getting the best rates. Like any home loan, it is worth shopping around with lenders to see who might offer you the best rate. If you can put down a larger down payment — above and beyond the standard 20 percent — it may help you qualify for a lower rate as well.
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The closing costs for a jumbo loan are similar to its conforming loan counterpart — 2 to 5 percent of the home’s purchase price. But while the percentage is the same, the property’s higher price means you’ll end up paying more in fees. For example, with 2 to 5 percent in closing costs, a loan on a $1 million dollar property could cost $20,000 to $50,000 in closing costs alone. For a $500,000 property, your costs would be half that range.
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There are reduced tax benefits with a jumbo loan compared to a standard mortgage. For mortgages taken out after Dec. 16, 2017, the IRS allows for deducting home mortgage interest on the first $750,000 of mortgage debt, or $375,000 if you are married and file separate tax returns. So, taking out a jumbo loan could mean you will not be able to write off the entirety of your mortgage interest on federal tax returns each year. There are higher mortgage interest deductions, however, for homeowners whose mortgage was established before December 16, 2017. In that case, mortgage interest up to $1 million or $500,000 for those who are married filing separately, can be deducted on tax returns.
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Yes, the Department of Veterans Affairs (VA) guarantees (it technically doesn’t offer) jumbo loans. The minimum financial requirements the VA sets are more lax than a conventional jumbo loan: you’ll need a 620 credit score and no cash reserves are required (though lenders may set higher requirements). If you’re a qualified buyer with your full VA entitlement, you may also not need a down payment. Bear in mind, though, that lenders may set their own stricter requirements.
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You can refinance your jumbo loan, but it may be more difficult than refinancing a conforming loan. That’s largely because lenders have different financial requirements when it comes to jumbo mortgages, potentially limiting the pool of lenders you can work with. On top of that, jumbo loans come with higher closing costs, which makes your break-even period longer than it would with a conforming loan.
Additional reporting by Mia Taylor
Source: bankrate.com
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LOS ANGELES (AP) — Home loan borrowing costs fell for the second week in a row, pulling the average long-term U.S. mortgage rate to its lowest level since early February — good news for prospective home shoppers as the spring homebuying season gets underway.
The average rate on a 30-year mortgage dropped to 6.74% from 6.88% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.60%.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also fell this week, pulling the average rate down to 6.16% from 6.22% last week. A year ago it averaged 5.90%, Freddie Mac said.
“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”
The recent pullback in rates follows a string of rate increases. Mortgage rates rose for most of February as stronger-than-expected reports on inflation and the economy fueled speculation among bond investors that the Federal Reserve would have to hold off on cutting interest rates longer than expected.
The Fed has signaled that it will likely cut its key interest rate this year, once it sees more evidence that inflation is falling sustainably back to its 2% target. The Fed’s main interest rate is at its highest level since 2001.
Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with interest rates can influence rates on home loans.
Economists expect that mortgage rates will ease further this year, though most forecasts have the average rate on a 30-year mortgage going no lower than 6% by the end of the year. But that’s not likely to happen until the Fed begins cutting its short-term interest rate, something Wall Street is largely betting won’t happen until June, according to data from CME Group.
Despite the choppy trajectory in mortgage rates this year, the average rate on a 30-year home loan is still down from the 23-year high of 7.79% it reached in late October.
“Rates are much lower than they were last fall when they hovered near 8%,” said Lisa Sturtevant, chief economist at Bright MLS. “Any downward trend in rates later this spring will bring more buyers and sellers into the market.”
The decline in rates since their peak last fall has helped lower monthly mortgage payments, providing more financial breathing room for homebuyers facing rising prices and a shortage of homes for sale.
Lower rates helped lift sales of previously occupied U.S. homes by 3.1% in January versus the previous month to the strongest sales pace since August.
Still, the average rate on a 30-year mortgage remains well above where it was just two years ago at 4.16%. That large gap between rates now and then has helped limit the number of previously occupied homes on the market by discouraging homeowners who locked in rock-bottom rates from selling.
Source: apnews.com
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*Rates and APYs are subject to change. All information provided here is accurate as of March 28, 2024.
Our writers and editors have invested thousands of hours analyzing and vetting lenders offering VA loans. Through exhaustive research, we’ve come up with a list of the best VA mortgage lenders for military members and their families, including Navy Federal, Rocket Mortgage and Veterans United. Read on for our Best VA loan lender reviews and a comprehensive lending guide on how to find and apply for a VA loan.
Money’s Main Takeaways
- VA loans are one of the main benefits the federal government offers to retired and active-duty members of the military
- Borrowers can qualify for a VA loan with a lower credit score and 0% down payment compared to conventional loans
- There is no private mortgage insurance, but borrowers will be required to pay a funding fee
- VA loans offer competitive interest rates compared to other loan options
Our Top Picks for Best VA Loan Lenders of April 2024
Best VA Loan Lenders Reviews
- Lowest fees on our list
- Non-VA mortgage options that require no down payment
- 356 branches worldwide
- No lender fees
- Small number of branches within the U.S.
- Membership strictly limited to military members, spouses, family members, veterans and the Department of Defense
- Customized rates only offered to members
HIGHLIGHTS
- Sample rate
- 5.750% (6.223% APR) on a 30-year fixed-rate purchase loan of $300,000
- Minimum credit score
- Unstated, VA recommendation of 620 is suggested
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- Continental U.S.
- Pre-approval time
- Approximately 3 business days
- Mobile app
- Yes
- NMLS ID
- 399807
Why we chose it: A combination of low lender fees, several loan assistance programs and a wide selection of mortgage loans make Navy Federal Credit Union our best VA loan lender overall.
Navy Federal Credit Union offers military families low rates on financial products, such as personal loans, auto loans and credit cards. The credit union’s VA home loan program features a fast pre-approval process and loan options with no down payment. No PMI is required, either. Navy Fed also recently introduced its no-refi rate drop, where you could qualify for an interest rate reduction without going through the refinancing process.
Additionally, Navy Federal’s Shop & Lock feature allows you to lock in your rate for up to 60 days while you shop for a home, plus an additional 60-day lock once you’ve submitted a purchase agreement. Other perks include up to $9,000 cash back for working with a real estate agent at RealtyPlus, the credit union’s real estate service and a rate match guarantee where Navy Federal will match a better rate offered by another lender or give you $1,000 if all qualifying conditions are met.
Membership is required to use Navy Federal’s services. All active duty, retired and veteran service members of all armed forces branches — plus their families, immediate relatives and some household members — are eligible. Membership is also open to Department of Defense civilian personnel. To become a member, you simply open a savings account with a minimum of $5.
- Access to your loan information is available 24/7 with the proprietary mobile app
- Credit scores as low as 580 accepted
- Debt-to-income ratios as high as 60% accepted
- No HELOCs offered
- No USDA loans offered
- No physical locations for in-person service
HIGHLIGHTS
- Sample rate
- 5.99% (6.429% APR) with 2.125 points purchased ($5,843.75) on a purchase loan of $275,000
- Minimum credit score
- 580
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- All 50 U.S. states
- Pre-approval time
- 10-15 minutes
- Mobile app
- Yes
- NMLS ID
- 3030
Why we chose it: Rocket Mortgage’s (formerly Quicken Loans) fully online application and closing process, along with its multiple tools for keeping track of your in-process and existing loans make it our pick for best online VA loan lender.
Rocket Mortgage is an online lender that stands out for its relatively seamless online mortgage application process. While the experience may vary depending on each borrower’s situation, Rocket Mortgage’s website and mobile app allow you to submit all of your paperwork digitally and track every step of your loan’s processing.
While you have the option of speaking with a live representative, you can also communicate with Rocket Mortgage through online or mobile messaging.
Although Rocket Mortgage doesn’t have the broadest loan offering, it does work with all the major VA loans (purchase, refinance, IRRRL) and considers credit scores as low as 580 and debt-to-income ratios as high as 60%. Borrowers buying a home through Rocket Homes and financing through Rocket Mortgage could get a 1.25% closing credit, up to a maximum of $10,000.
For more detailed information, read our full review of Rocket Mortgage (Quicken Loans).
- Broader selection of veteran-focused loans than competitors
- Offers real estate services for veterans
- Customer support is available 24/7
- No HELOC products offered
- Only 26 affiliate branches across 17 states
HIGHLIGHTS
- Sample rate
- 5.875% (6.307% APR) with 1.5630 points purchased ($4,610.85) on a 30-year fixed-rate purchase loan of $295,000
- Minimum credit score
- 600
- Minimum down payment
- $0 for qualifying borrowers
- Availability
- All U.S. states
- Pre-approval time
- Not stated
- Mobile app
- Yes
- NMLS ID
- 1907
Why we chose it: Veterans United offers more veteran-focused mortgage options than the standard purchase, refinance and streamline products, making it our choice for best VA loan lender for VA loan variety.
Veterans United guarantees more loans than any other VA-approved lender, according to The Department of Veterans Affairs. The VA compiles a list each month of the top lenders, and Veterans United Home Loans hasn’t budged from its number-one spot in more than six months.
In addition to its reasonable qualifying credit score and income requirements, Veterans United offers a wide variety of loan types: purchase, refinance, IRRRL (streamline) VA loans, Jumbo VA loans, VA energy-efficient mortgages and VA cash-out refinance loans.
Jumbo VA loans can be a good option for veterans who no longer have their full VA entitlement, which means that their VA loans have a limit placed on the total amount borrowed (unlike veterans with full entitlement). Energy-efficient mortgages are not common to VA loans and are a good option for anyone looking to add energy-efficient improvements to their new home.
- Second-lowest fees of any lender we’ve reviewed
- Loan amounts up to $1 million
- No PMI insurance required
- Alternative or non-traditional credit and income data not considered for loan applications
- Funding fee required
HIGHLIGHTS
- Sample rate
- 5.75% (6.024% APR) with 1.125 points purchased on a 30-year fixed-rate purchase loan of $450,000
- Minimum credit score
- 620
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- All U.S. states
- Pre-approval time
- Within three business days
- Mobile app
- Yes
- NMLS ID
- 401822
Why we chose it: PenFed currently offers the lowest mortgage rate for a 30-year fixed-rate loan, which makes it our pick for the best VA loan lender for competitive rates.
When it comes to VA loans and mortgages, PenFed Credit Union stands out for offering some of the lowest rates across the board on conventional, FHA, VA, Jumbo and adjustable-rate mortgages. Eligible borrowers may qualify for zero down payment. Additionally, PenFed doesn’t require borrowers to acquire private mortgage insurance (PMI).
You must be a member of PenFed to use PenFed’s VA loan services, but joining is an easy process: Simply open a savings account at the credit union with a minimum of $5.
For more detailed information, read our full review of Penfed.
- Accepts credit scores as low as 600
- Variety of mortgage products available
- Self-employment and nontraditional income accepted
- Physical branches only in Missouri
- Other fees apply
HIGHLIGHTS
- Sample rate
- 6.625% (6.864% APR) on a 15-year fixed-rate purchase loan of $300,000
- Minimum credit score
- 600
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- All U.S. states
- Pre-approval time
- Not stated
- Mobile app
- Yes
- NMLS ID
- 400039
Why we chose it: North American Savings Bank is dedicated to servicing customers in the Kansas City, MO area, but it extends its mortgage services to individuals all over the U.S. Notably, NASB works with borrowers with credit scores as low as 600, lower than what other many lenders allow.
No origination fees are charged on VA loans from NASB, but a VA loan funding fee may be required. Many loans don’t require a down payment, either. NASB offers a loan payment calculator on its site where borrowers can see potential VA home loan rate scenarios.
In addition to standard VA loan products (purchase, IRRRL, cash-out refinance), North American Savings Bank offers the widest variety of mortgage options for individuals who are unable to provide “traditional” credit and income data, such as people who are self-employed.
- VA Cash-out refinance, IRRRL and Jumbo IRRRL available
- Discounts for bundling services (e.g. home and auto insurance)
- Variety of discounts through USAA Perks (car rental, travel, shopping)
- Requires membership in USAA
- No home equity loans or lines of credit
HIGHLIGHTS
- Sample rate
- 6.125% (6.447% APR) with 0.801 points purchased for a fixed-rate purchase loan and 5.875% (6.196% APR) with 0.933 points purchased for a VA Jumbo purchase loan
- Minimum credit score
- 620
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- All U.S. states
- Pre-approval time
- Not disclosed
- Mobile app
- Yes
- NMLS ID
- 401058
Why we chose it: For those looking to refinance their existing VA loan, USAA offers all of the possible options with competitive rates and terms.
USAA stands out as a VA loan refinance leader for offering all the available options: VA Interest Rate Reduction Refinance Loans (IRRRL), VA Jumbo Interest Rate Reduction Loans, VA Cash-Out Refinance Loans and Jumbo VA Cash-Out Refinance Loans. With either cash-out refinance, you can refinance up to 90% of your home’s value. With IRRRLs, you can refinance up to 100%.
However, rates at USAA aren’t the lowest among the lenders in our top picks. Still, the company’s rates are within the typical range for the market and the option to finance your VA funding fee into your total loan amount is available with all four refinance types.
USAA offers additional financial products and services, such as insurance, banking and investing. All of its products are available only to members. Military members, veterans, their spouses, children, and pre-commissioned officers are eligible.
Members also get discounts for bundling (e.g. home and auto insurance) as well as discounts on car rentals, travel packages, home security, moving services, select retailers and more.
*USAA does not disclose the credit score, loan amount or down payment of its advertised rates. To get a better estimate of your potential monthly payment, use the USAA VA Home Loan Mortgage Payment Calculator.
- Allows you to compare multiple mortgage lenders’ rates at the same time
- Over 1,500 partnered lenders in its network
- Offers credit monitoring tools
- Limited contact options
- Customer support does not address issues with the lender of your choice
- Does not service loans
HIGHLIGHTS
- Minimum credit score
- Varies by lender
- Minimum down payment
- Varies by lender
- Availability
- Varies by lender
- Pre-approval time
- Varies by lender
- Mobile app
- Yes
- NMLS ID
- 1136
Why we chose it: LendingTree is an online marketplace that allows you to compare rates on multiple products, from mortgages to personal loans and even credit cards, making it our pick for the best marketplace for comparing VA loan rates.
LendingTree stands out from its competition due to its more than 1,500 partnered mortgage lenders and easy-to-use mobile app.
Borrowers can request multiple quotes (up to three at the same time), which include projected rates and closing costs all in one place. It is also free to use and doesn’t impact your credit score.
The only notable downside to LendingTree’s services is that the company is not a loan servicer or originator, meaning that its customer support will not handle most issues that may come up during your loan process.
LendingTree does not provide sample rates for VA loans specifically. However, you can use the online marketplace’s mortgage comparison tool to check potential rates.
For more details read our full review of Lending Tree.
- Minimum credit score is 580
- “I CAN” loan offers customizable loan terms
- Buydown option to lower interest rate for first 1-3 years
- No interest rate or APR info publicly available
- Must enter contact info to get rate estimates
HIGHLIGHTS
- Sample rate
- 6.250% (6.563% APR) with 3 points purchased on a 30-year fixed-rate for a purchase loan of $726,200
- Minimum credit score
- 580
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- All 50 U.S. states
- Pre-approval time
- Within 24 hours
- Mobile app
- Yes
- NMLS ID
- 6606
Why we chose it: New American Funding is our top pick for low credit score requirements for VA loans. While its 580 minimum credit score requirement is not unique on the list, it has a vast selection of mortgage loans. Beyond the VA Purchase Loan, there’s also a VA Native American Direct Loan, VA Energy Efficient Mortgage, VA Streamline Refinance Loan and VA Cash-Out Refinance.
Notably, it offers what NAF refers to as an “I CAN” loan, which allows you to choose a custom fixed loan term between eight and 30 years. It also offers a “buydown mortgage” option for VA loans, which allows borrowers to reduce the interest rate on their mortgage for the first one to three years of their loan.
To get a quote, you must contact a representative online or by phone, which requires providing personal information — first and last name, email address and phone number.
For more detailed information, read our full review of New American Funding.
- Over 400 branches across 48 states
- Accepts credit scores as low as 580
- Offer specialized mortgages for physicians
- No branches in Alaska or West Virginia
- Rates not disclosed unless you call or submit an online form requesting a callback
- Phone customer service hours (M-F, 8:30 am-5 pm CST) may be too restrictive for some
HIGHLIGHTS
- Sample rate
- Unavailable
- Minimum credit score
- 580
- Minimum down payment
- 0% for qualifying borrowers
- Availability
- Licensed in all 50 U.S. states; in-person service available in ll U.S. states except Alaska and West Virginia
- Pre-approval time
- Undisclosed
- Mobile app
- Yes
- NMLS ID
- 2289
Why we chose it: Fairway Independent Mortgage’s presence in 48 out of 50 U.S. states makes it our top pick for in-person mortgage loan servicing.
Fairway Independent Mortgage is notable for its many branches across all but two U.S. states (Alaska and West Virginia), making it an ideal choice for individuals who prefer in-person service. The company offers VA mortgage loans with 100% financing if you have full VA entitlement.
A down payment will be required if you don’t have full VA entitlement or the loan exceeds the VA county limits. Like other VA loan lenders, Fairway Independent Mortgage also considers factors such as credit score and income when determining loan terms.
Fairway also offers a broad range of mortgage products which can be helpful for those who are unable to qualify for a VA loan. Among these loan products are specialized physician loans aimed at medical professionals still working through repaying their student loans.
For more detailed information, read our full review of Fairway Independent.
Other VA loan lenders we considered
While there are many mortgage lenders with outstanding products and features, they don’t necessarily have everything that could make them one of our top picks.
We reviewed the following lenders, and while they meet some of our criteria for “Best VA home loan lenders” (low rates, VA loan experience, good customer service), they ultimately didn’t make the cut.
Freedom Mortgage
- 550 credit score minimum is the lowest on our list
- Fully online loan process
- Variety of calculators and educational resources on their site
- Rates are only provided by calling for an estimate or signing up for online alerts
- High number of CFPB complaints
- Does not offer HELOCs
Why Freedom Mortgage didn’t make the cut: The lender has over 2,800 complaints lodged with the Consumer Financial Protection Bureau since March 2021. The Better Business Bureau has received over 1,200 complaints about the lender in the last three years and its accreditation was revoked.
Freedom Mortgage is a fully online lender that offers standard mortgage products such as conventional purchase and refinance loans, FHA, VA and USDA loans. What makes it stand out is its credit score requirement of 550 for VA loans, which is the lowest of any lender we considered.
Veterans First
- Fully online loan process, helpful for military members deployed overseas
- Educational resources
- Specializes in VA loans
- Higher credit score requirements than any lenders we’ve reviewed (mid-600s)
- Offers no home equity loans
- No rate information on its website
Why Veterans First didn’t make the cut: The higher-than-average credit score requirement (mid-600s) was a deciding factor in keeping it out of our top list.
Thanks to its fully online mortgage process, Veterans First (NMLS ID 449042) is a great choice for military members deployed overseas. Its focus on VA loans also means that the company is better prepared to attend to the specific needs of military members and veterans during the mortgage process.
Paramount Bank
- Origination fees waived for VA loans
- No prepayment penalties for VA loans
- No fee or rate information on its website
- No information on loan requirements on its website (minimum credit score, DTI, etc.)
Why Paramount Bank didn’t make the cut: Its general lack of upfront information about rates, fees and credit score requirements kept it out of our top lenders.
Paramount Bank (NMLS ID 551907) waives the lender’s origination fee ($1095) on all of its VA loans, making it an option worth considering. There are no prepayment penalties, either.
Flagstar Bank
- Considers credit scores as low as 580 for VA loans
- Collaborates with down payment assistance and other special mortgage programs
- Large selection of mortgage products for those who don’t qualify for a VA loan
- Branches located in only 28 states
- $75 annual fee for home equity line of credit (HELOC) loans
- High number of complaints with CFPB in the last three years (1,000+)
Why Flagstar Bank didn’t make the cut: Flagstar’s lack of branches in almost half of the U.S. and limited rate and fee information on its website kept it out of our top picks. For more details, read our full review of Flagstar Bank.
Flagstar Bank (NMLS ID 417490) is a notable mortgage lender thanks to its wide variety of mortgage loans offered and its collaboration with several special mortgage programs such as down payment assistance and home loan grants.
PNC
- Mortgage rate calculator allows for scenarios with credit scores as low as 620
- Individuals with credit scores under 620 may be offered alternative loan options
- Mortgage rates are only slightly above average (~0.2%)
- Relatively small selection of loan products
- No specialized VA loans
- Contact information and branch locations are not easy to locate
Why PNC didn’t make the cut: While full details aren’t available without speaking to an agent, PNC’s rate calculator shows rates slightly higher than many of our top picks.
PNC (NMLS ID 446303) has a standard offering of mortgage products, including conventional, FHA, VA, refinance and HELOC loans. PNC only offers a partially online loan application process. You can perform a digital income and asset verification, but you must speak with a loan officer to go over your loan details.
LoanDepot
- Strong focus on digital mortgage processing allows a fully online mortgage experience
- Over 200 affiliate branches nationwide
- Credit score minimums and loan eligibility criteria are not disclosed upfront
- Relatively small loan offering
- No HELOCs offered
Why LoanDepot didn’t make the cut: Its website doesn’t disclose credit score and other loan eligibility requirements. For more details, read our full review of LoanDepot.
LoanDepot (NMLS ID 174457) is a primarily online mortgage loan lender with several affiliate branches across the U.S. Its loan products include conventional purchase mortgages, FHA, VA, ARM (adjustable-rate) and 203k (FHA home renovation) loans. LoanDepot’s digital income and assets verification tools can significantly speed up the loan approval process in some cases.
Guild Mortgage
- Broad mortgage loan offering, including energy-efficient home mortgages
- Accepts down payment assistance programs
- Services its own loans
- Rates are only disclosed after reaching out to Guild
- No branches in IN, KY, MI, MN, MS, NY, or WV
Why Guild Mortgage didn’t make the cut: No rate information is publicly available; you must contact Guild for details. For more information, read our full review of Guild Mortgage.
Guild Mortgage (NMLS ID 3274) offers a variety of mortgage options beyond VA loans, including bridge mortgages that can help you sell your current home while shopping for a new one and energy-efficient mortgages.
Guild is also a good choice for people who prefer in-person service, since they have branches in all but seven U.S. states. Notably, Guild services its loans, which is something that not all mortgage loan originators do.
Guaranteed Rate
- Housing market research tool available
- Home valuation tool available
- Credit scores as low as 580 accepted for VA loans
- Conventional mortgage rates are higher than average (around 0.7% higher)
- Limited offering of VA loan products
Why Guaranteed Rate didn’t make the cut: Its VA loan product offerings are limited.
Guaranteed Rate (NMLS ID 2611) is a mortgage lender that allows borrowers to fully process their loan applications online, from start to finish. Individuals who prefer in-person service can also go to one of its 500+ locations across 46 states.
Movement Mortgage
- Offers several high-balance mortgage products (jumbo loans)
- Considers credit scores as low as 580 for VA loans
- Down payment assistance options available
- Streamlined underwriting process that can close loans in as little as a week
- Mortgage rates can only be obtained after contacting Movement
- No 24/7 customer service
- No physical locations
Why Movement Mortgage didn’t make the cut: Rate information isn’t publicly available to potential borrowers; you must contact the company for details. For more information, read our full review of Movement Mortgage.
Movement Mortgage (NMLS ID 39179) is an online mortgage lender that claims to be able to fully close on a loan in under two weeks, though these results will depend on each borrower’s situation. Notably, Movement considers credit scores as low as 580 for VA loan applications, well under the VA’s suggested 620.
Besides its VA loan products, Movement also has several down payment assistance and high-balance mortgage options, which are helpful for individuals looking to purchase in high cost-of-living areas.
NBKC Bank
- Provides nationwide mortgage service, despite being a regional bank
- Mortgage rate calculator allows credit scores in the 300s
- Offer specialized mortgages for pilots
- Only four branches split between Kansas and Missouri
- Mortgage rates can be as much as 1.5% higher than our top picks
- Mortgage rate calculator is not easy to access
Why NBKC Bank didn’t make the cut: Its VA loan rates are a bit higher than those of our top picks. For more details, read our full review of NBKC.
NBKC Bank (NMLS ID 409631) is a Kansas/Missouri regional bank that extends its mortgage services nationwide. While its loan offerings are standard (conventional, FHA, VA), it offers specialty home loans for pilots.
Notably, it is one of the few lenders that allows customers to obtain mortgage rates for credit scores under 500, although you’re not guaranteed results below that threshold. Its mortgage rates are also considerably higher than average (up to 1.5% higher).
VA Loans Guide
A VA loan is a home loan issued by private lenders and backed by the U.S. Department of Veterans Affairs (VA). Read on to learn more about VA home loans, their pros and cons, the associated costs and how to apply.
How does a VA loan work?
VA loans are one of the main benefits the government provides to active duty and retired members of the armed forces. Eligibility will depend on the borrower’s years of service. There are also property requirements that must be met. Read more on VA loans to find full details and see how a VA loan can help you achieve your homeownership goal.
Beyond military service requirements, some VA loan lenders require specific standards of creditworthiness. These details will vary by lender, but can include a credit score of 620 or higher and a debt-to-income ratio of 41% or less. (You can calculate your specific percentage using our debt-to-income ratio calculator.)
VA loans offer two big advantages for qualifying homebuyers. There is no required down payment, and the mortgage rates tend to be lower than those on conventional mortgages or FHA loans. Both of these features make a VA loan a more affordable financing option, especially for first-time homebuyers.
The VA no longer places maximum loan limits, but your VA mortgage lender might. In most U.S. counties, the maximum loan amount for 2024 is $766,550, but it can be as high as $1,149,825 in more expensive areas. Jumbo loans will have a higher limit.
Types of VA loans
The U.S. Department of Veterans Affairs offers four different types of mortgages — VA purchase loan, interest rate reduction refinance loan (IRRRLs), cash-out refinance loan, and Native American direct loan — each with its own set of requirements and limitations. Evaluate all loan options before deciding which best VA mortgage lender suits your needs.
Purchase loan
Purchase loans are used to finance the buying of a primary residence, make energy-efficient upgrades to an existing home or buy property to build a house. They cannot be used to buy investment properties, vacation homes, rental properties or fixer-uppers in need of significant repairs.
To learn more, read our guide on VA purchase loans.
Interest Rate Reduction Refinance Loan (IRRRL)
Designed to refinance an existing VA mortgage, a streamlined refinance can get you a lower interest rate, reduce the loan term, or go from a variable-rate to a fixed-rate mortgage.
Cash-out refinance loan
A VA cash-out refinance allows you to access the equity you’ve built up in your home by applying for a new mortgage with a higher balance. The proceeds of the new loan will pay off your old mortgage and you’ll receive the excess amount in the form of a lump sum payment.
Learn more about how to tap into your home equity with a VA cash-out refinance or read our guide on on how to refinance a VA loan to get more information on refinancing.
Native American Direct Loan (NADL)
NADL is the only VA loan managed and funded directly by the government entity. Veterans who are Native American (or whose spouses are Native American) are eligible for this loan. Borrowers can use this loan to buy, build, or improve a home on federal trust land.
As of this writing, there is no limit to the amount of money that can be borrowed with this program (aside from the limitations imposed by creditworthiness, DTI, and general Fannie Mae/Freddie Mac conforming limits, though borrowers can access higher limits if they choose to make a down payment).
Additional VA-backed loan programs
VA Energy Efficient Mortgage (EEM)
Finance energy efficient home improvements, such as a solar water heater, solar panels, storm doors on windows and furnace efficiency modifications, through an EEM. Ineligible home upgrades include A/C units, vinyl siding and new roofing or shingles.
VA renovation loan
Also called a VA rehab loan or a reno loan, a VA renovation loan is a way to include the cost of home repairs and improvements in your VA home loan amount. No luxury upgrades are allowed. This loan is intended for repairs such as heating and cooling system replacement, upgrades to make the home more accessible for people with disabilities and the replacement of old appliances.
VA loans for manufactured homes
You can get financing for a manufactured home, also known as a mobile home or a modular home. However, there is a 25-year maximum loan term on larger units, and a 20-year loan term limit on smaller units. Lender credit requirements for VA mobile home loans may also be higher than loans for conventional homes. The mobile home must also have a permanent foundation and comply with safety standards set by the U.S. Department of Housing and Urban Development (HUD).
To explore other home loan options or check out current mortgage rates, our page of the best mortgage lenders can be an excellent place to start.
There are specific requirements you must meet to qualify for a VA home loan.
How to qualify for a VA Loan
There are specific requirements you must meet to qualify for a VA home loan.
The VA home loan program and its military benefits are available for:
- Active-duty military members
- Veterans
- Past and present members of the National Guard
- Surviving spouses of military personnel who died in combat
A VA home loan does not have a minimum credit score requirement, but most participating VA loan lenders require a minimum credit score of 620. Our advice? Always check your credit report and debt-to-income ratio before applying for a loan and improve it if you can. (Be sure to read our guide on how to dispute your credit report.)
Service requirements
VA loan eligibility depends on the length of service of the applicant. These are the requirements as set by the VA:
- Veterans and active-duty service members must have served at least 90 days during wartime or 181 days during peacetime.
- National Guard members must have served at least 90 days of active-duty service during wartime or six years of creditable service in the Select Reserves or Guard.
- Two kinds of discharges from military service may affect eligibility determination: Other Than Honorable (OTH) and Bad Conduct.
- The specific circumstances of a veteran’s discharge will be considered, which could take Veterans Affairs (VA) months to evaluate.
In all cases, once deemed eligible, you must apply for a Certificate of Eligibility (COE). The COE proves to the VA mortgage lender that you meet the VA’s eligibility requirements.
How to apply for a VA home loan
After confirming eligibility for a VA loan, take the following steps to apply:
- Shop around for a lender and compare rate quotes before settling on the one that best fits your needs.
- Submit your loan application. The lender will request a VA appraisal of the house. The lender reviews the appraisal, your credit history and income and decides if it accepts your loan application.
- Apply for your COE and contact your state’s regional VA loan center to start the process directly with the government, in the case of Native American Direct Loans.
Once your lender accepts your application, they’ll work with you to select a title company (or entity) to close on the house.
If you have any questions that your lender can’t answer, please call your VA regional loan center at 877-827-3702. You can also watch a video on the official U.S. Dept. of Veteran Affairs’ YouTube page to learn more about VA home loans and how to apply.
How to get a VA loan with bad credit
Some lenders will issue a VA loan to veterans and service members with credit scores as low as 580 or lower. Freedom Mortgage, for example, will accept a credit score as low as 550. However, most lenders will require a minimum credit score of 620.
If you don’t meet the minimum credit score required, you should work on improving your personal finances. Paying the bills on time, paying off any debt you currently have and contacting the reporting agency to fix any errors are some steps that can help improve your score.
More About VA Mortgage Loans
Best VA Loan Lenders FAQs
What is a VA home loan?
A VA loan is a no-down-payment mortgage military benefit partially backed by the Department of Veterans Affairs (VA). Borrowers can use the loans for the purchase of a primary residence or to refinance an existing mortgage.
Who qualifies for a VA loan?
To qualify for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility, and meet the lender’s income and credit requirements.
How many times can you use a VA loan?
You can use a VA loan more than once but only to purchase or refinance a principal residence, provided you meet the availability requirements. However, you may be able to use a partial entitlement for a second loan if you haven’t used it all on your first mortgage. Remember that using a partial entitlement may mean you’ll need to shell out a down payment and a higher VA funding fee.
Are VA loans assumable?
Because VA loans are backed by the U.S. government, they can be assumed by a new lender even if they are not active military or veterans. In order to assume a VA loan, the new borrower must have a minimum credit score of 580, a DTI of 45% or lower, pay the VA funding fee and ensure the home will be their primary residence. In some cases, a down payment may also be required.
How long does it take to close a VA loan?
VA loans typically take a little longer than a traditional mortgage loan to close. Although the experience may vary from one person to another, VA loans take about 50 to 55 days to close on average. However, it is possible to close on a VA in as little as 30 days in some cases.
Does a VA loan require mortgage insurance?
No, VA loans do not require private mortgage insurance or any other type of mortgage insutance that is required by other loan types, such as conventional and FHA loans. The lack of an insurance requirement is one of the main benefits of obtaining a VA loan, along with not having to make a down payment.
Do VA loans have closing costs?
Yes, VA loans have closing costs, which can amount to 3% to 6% of the loan amount. These costs include fees associated with the loan origination and underwriting, title insurance and recording fees and the VA appraisal fee, among others. The VA funding fee, which ranges between 1.25% and 3.3% of the loan amount, is also due at closing but can be rolled into the loan. The home seller can pay up to 4% of the closing costs on a VA loan.
How We Chose the Best VA Loan Lenders
Given that many mortgage lenders offer similar products across the board, we narrowed our search criteria to three factors: rates, experience and customer service.
- Rates – We chose VA loan lenders that offered the lowest rates to ensure your mortgage payments fall in line with your budget.
- Experience in VA Loans – We prioritized VA mortgage lenders that process many VA loans. Having a VA mortgage lender who is familiar with this process ensures that every step of your home purchase is taken care of on time.
- Customer Service – We highlighted VA mortgage lenders that excel in customer satisfaction and provide first-time homeowners step-by-step guidance throughout the pre-approval, application and loan closing.
We also made sure that our picks are registered with the Nationwide Multistate Licensing System and Registry (NMLS) and meet the minimum certification requirements for mortgage lending.
Though we always try to include accurate and up-to-date information on regulatory and legal actions, we don’t claim this information is complete or fully up to date. Interest rates and annual percentage rates are subject to change. As always, we recommend you do your own research as well.
Summary of Money’s Best VA Home Loan Lenders of April 2024
Source: money.com
Apache is functioning normally
Rising mortgage rates this week cast further doubt on meaningful rate cuts happening soon for homebuyers.
The average rate for a 30-year loan inched past 7% this week, settling at 7.07% on Wednesday, according to Mortgage News Daily.
A separate measurement tracking weekly average rates rose to 6.82% from 6.79%, Freddie Mac reported.
Homebuyers continued to pull back as affordability challenges worsened and consumer optimism diminished over how soon and how much interest rates could ease this year. Waiting for loan rates to decline is now the top reason buyers say they are not actively searching for a home.
“Elevated mortgage rates have been a persistent market challenge, holding back first-time homebuyers and repeat homebuyers alike, albeit for different reasons,” said Danielle Hale, chief economist at Freddie Mac. “In order for rates to decline meaningfully and sustainably, inflation needs to be convincingly on a path to the Fed’s 2% target.”
Read more: Mortgage rates remain around 7% — is this a good time to buy a house?
Homebuyers stay on the sidelines
Homebuyer affordability continued to decline, with the US median mortgage payment increasing 2% monthly in February and 6% annually to nearly $2,200, according to the Mortgage Bankers Association (MBA).
Rising mortgage payments across the US — driven by either higher interest rates or higher home prices, or both — have considerably cooled buyers’ demand.
The volume of home-purchase applications stayed unchanged this week and dropped 13% compared to the same week one year ago, MBA data showed.
“Challenging affordability conditions and low housing supply are keeping some prospective homebuyers on the sidelines this spring,” Edward Seiler, MBA’s associate vice president, said. “The eventual, expected decline in rates in the coming months will hopefully spur new activity in the housing market.”
Expectations of a rate decline have been waning, though. Investors are now betting the Fed will cut rates by less than a percentage point instead of the 1.5% forecast at the beginning of 2024.
Despite the market shift, Fed Chair Jerome Powell recently assured the public that inflation is easing and the central bank is still expected to cut rates at “some point” this year.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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Source: finance.yahoo.com
Apache is functioning normally
Key takeaways
- A home equity loan or line of credit (HELOC) leverages your ownership stake to help you finance large costs over time.
- Home equity financing offers more money at a lower interest rate than credit cards or personal loans.
- Some of the most common (and best) reasons for using home equity include paying for home renovations, consolidating debt and covering emergency or medical bills.
- Although allowable, it’s best to avoid using home equity for discretionary purchases and expenses.
The U.S. seems to have dodged a recession, but elevated interest rates, rising prices and shrinking savings continue to imperil many Americans’ financial security. Borrowing hasn’t been this expensive in 20 years and, to add insult to injury, it’s harder to get financing or credit, too. Half of Americans who’ve applied for a loan or financial product since March 2022 (when the Fed started raising its key benchmark rate) have been rejected, according to Bankrate’s recent credit denials survey).
But amid still-high mortgage rates and home prices, there’s a silver lining for homeowners. The rise in property values has increased the worth of their home equity, or outright ownership stake. You can borrow against that equity to meet new expenses — or settle old ones.
Two options to tap into your equity are home equity loans and home equity lines of credit (HELOCs). They may not be as well-known as other financing options (in Bankrate’s credit denials survey, only 4 percent of Americans have applied for one since March 2022), but they have several advantages.
If you’re a homeowner needing cash, here are 10 reasons to use home equity — some better than others. In each case, we’ve noted the pros and cons.
$299,000
Amount the average mortgage-holder had in home equity as of year-end 2023, up $25,000 from 2022
Source:
ICE Mortgage Technology
Why use home equity?
Key terms
- Home equity
- Home equity is the difference between what your home is worth and how much you still owe on your mortgage. As you pay down your mortgage and your home’s value increases, your equity stake grows.
- Home equity loan
- A home equity loan is a type of second mortgage in which you receive a lump sum upfront and then make regular monthly repayments over the loan term, usually at a fixed interest rate.
- HELOC
- A HELOC is a revolving line of credit, much like a credit card, that comes with a variable rate. You can borrow, repay and then re-use funds as needed during a set draw period and then pay off your balance during a repayment period.
Tapping your home’s equity can help you cover significant expenses, improve your financial situation or achieve any other money goal. The interest rates on a home equity loan or HELOC are usually lower than those on other forms of financing, and you can often obtain more funds with an equity product compared to a credit card, which might have a lower limit, or a personal loan. Home equity loans and HELOCs are also repaid over a longer term, meaning you’ll have more manageable payments month to month.
10 reasons to use a home equity loan
There aren’t any restrictions on how to use equity in your home, but there are a few ways to make the most of a home equity loan or HELOC. Here are 10 ways to use your home equity, along with their pros and cons.
1. Home improvements
Home improvement is one of the most common reasons homeowners take out home equity loans or HELOCs. Besides making the home more comfortable, upgrades could make it more valuable.
“Home equity is a great option to finance large projects like a kitchen renovation that will increase a home’s value over time,” says Glenn Brunker, president of online lender Ally Home. “Many times, these investments will pay for themselves by increasing the home’s value.”
Another reason to consider a home equity loan or HELOC for renovations: You could deduct the interest paid on the loan, assuming you itemize your deductions on tax return.
Pros
- You can reinvest your home’s equity to increase the value of your property.
- If you itemize your tax return, you could deduct the interest on your home equity loan or HELOC, up to the limit.
- A HELOC, which allows gradual withdrawals, in particular can be ideal for long-term projects in which you pay contractors at set intervals, or ones in which the final cost is indefinite.
Cons
- The monthly payments on a home equity loan or HELOC, coupled with your monthly mortgage payments, could stretch your budget too thin.
- Depending on the scope of the remodel, you might need more than what you can borrow from your equity.
- If you can’t repay the home equity loan or HELOC, the lender could foreclose on your home.
2. Education costs
A home equity loan or HELOC can help you fund higher education or continuing education, whether for you, your children or other loved ones. This route typically only makes sense, however, when home equity rates are lower than student loan rates. That doesn’t happen often, especially compared to federal student loans.
Consider, too, the type of education you’re financing. Someone obtaining a teaching certification, for example, might be able to get the cost covered by their future employer. Some public service professions are also eligible for student loan forgiveness after a period of time. In these cases, it wouldn’t be smart to put your home on the line with an equity loan.
Pros
- Could be a lower-interest option than a private student loan, a federal parent loan or a personal loan.
- HELOC gradual withdrawal structure tailor-made for annual or semi-annual tuition payments.
- Could furnish a greater sum than a student loan.
Cons
- Repayment starts sooner (with a home equity loan).
- Rates not as competitive as federal student loans’.
- Tapping home equity is riskier: If you default, you could lose your home.
- The student might be able to get financial help in other ways, such as from a future employer or via loan forgiveness.
3. Debt consolidation
Americans’ credit card debt is skyrocketing. According to Bankrate’s recent credit card survey, nearly half (49 percent) of credit card holders carry a balance from month to month, up from 39 percent in 2021. Given their average interest rate of 22.75 percent, paying down that debt can be tricky — and expensive.
A HELOC or home equity loan can be used to pay off the plastic, along with other high-interest loans. “This is another very popular use of home equity, as one is often able to consolidate debt at a much lower rate over a longer term and reduce monthly expenses significantly,” says Matt Hackett, operations manager at mortgage lender Equity Now.
Pros
- You could save on interest and lower your monthly payments.
- Eliminating credit card debt boosts your credit score.
Cons
- You’re turning an unsecured debt, such as a credit card, into secured debt now backed by your home. If you default on your equity loan or HELOC, you could lose your house to foreclosure.
- If you haven’t broken the financial habits that got you into debt in the first place, or come up with a plan for repayment, you’re simply swapping one form of debt for another.
4. Emergency expenses
Many financial experts agree you should have an emergency fund to cover three to six months of living expenses, but that’s not the reality for many Americans, according to Bankrate’s 2024 annual emergency savings survey. If you find yourself in a costly situation — maybe you’re facing large medical bills or unexpected home repairs — a home equity loan or HELOC can be one way to stay afloat.
However, this is only a viable option if you have a plan for how to repay the debt. While you might feel better knowing you could access your home equity in case of an emergency, it still makes smart financial sense to set up and start contributing to an emergency fund. Plus, the application process for a HELOC or home equity loan takes time (though it’s speeded up of late: Some online lenders, such as Better, are offering approval decisions within one day). In a true emergency when you need cash fast, you’d need to already have the loan in place to use it.
Pros
- If you’re in an emergency situation and have no other means to come up with the necessary cash, a home equity loan or HELOC could be the answer.
Cons
- If you don’t have a HELOC or home equity loan already established, you’ll need to complete the application process first. So these loans won’t do you any good in a time-sensitive emergency.
- You’re depleting your ownership stake, diluting the worth of a major asset: your home.
5. Weddings
The average cost of a wedding in 2023 was $35,000, according to the planning site The Knot — up $5,000 from 2022. For some couples, it might make sense to take out a home equity loan or HELOC to cover this expense, rather than a wedding loan, a type of personal loan. That’s because the interest rates on personal loans are typically higher than interest rates for home equity loans and HELOCs.
The major disadvantage, however: You’d be putting your home on the line for a discretionary expense. This can be risky if you don’t have a solid plan to repay the loan. It also tacks on interest to an expense that didn’t have interest to begin with, ultimately costing you more.
If you do go this route, be careful not to take out more than you need. If you’re unsure of the total tab for your big day, a HELOC is the better option.
Pros
- Rates probably cheaper than those of personal loans or credit cards.
- You may be able to access more funds than you would with other loans.
Cons
- It’s a questionable move to put your home on the line for what’s essentially a big party.
- You’re paying interest, so your wedding will cost more than you think: You could be paying for it decades after you wed.
- When the loan’s used this way, the interest isn’t tax-deductible.
6. Business expenses
Some business owners use their home equity to start or grow their company. If you need capital, you might be able to save money on interest by taking equity out of your home instead of taking out a business loan. Before you commit, though, run the numbers. A return on investment isn’t guaranteed, and you’re putting your house on the line.
Pros
- You might be able to borrow money at a lower interest rate with a home equity loan than you would with a small business loan.
- It might be easier to obtain capital with a home equity loan than with a loan tied to your business, especially if you’re just starting out.
Cons
- If your business fails, you’d still need to make payments on what you borrowed, regardless of lack of earnings. If you can’t, you could face foreclosure.
7. Investment opportunities
It’s possible to use home equity to invest in the stock market or buy a rental property — though both propositions are risky and require serious care and consideration. A well-qualified borrower might be able to take out a home equity loan on an investment property, as well.
Consider the interest rate on home equity borrowing, especially if you’re using the funds for investment purposes. “With interest rates of 9 percent, 10 percent or even higher, this is no longer low-cost debt,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “At rates that high, it is a tough hurdle to clear to get a positive return on your investment.”
Pros
- Investing in the stock market or real estate can be a great way to build wealth.
- Leveraging assets to invest increases your rate of return.
Cons
- Investments always carry risk, but that’s especially true when you’re putting your home on the line. It’s possible that you won’t earn a high enough return to outweigh your loan debt.
- You can’t take advantage of the home equity loan’s tax deduction on interest, except in a few cases, such as buying adjacent property or land.
8. Retirement income
If your retirement savings are falling short, tapping home’s equity can help supplement your income so you can better manage expenses. These funds can be used to cover bills, emergency expenses or even home improvements to make you more comfortable as you age. A big caveat: This strategy relies on your ability to repay the loan or HELOC. If you’re not yet drawing Social Security, you might be able to repay HELOC funds with the benefit money later on. If you’re fully retired and struggling to make ends meet, however, it’s possible you won’t have the means to repay the debt, even if you have a HELOC you don’t have to pay back right away.
There are other roadblocks to this strategy, too: If you’re still paying your first mortgage, tapping your equity adds to your expenses and puts you in debt that much longer. It might also be harder to even get an equity loan if your income has decreased in retirement.
Pros
- Using your hard-acquired home wealth as source for retirement income can be a smart use of assets.
Cons
- You’ll need to think through how to repay your loan while you’re retired, and even afterwards. Home equity debt doesn’t disappear when you pass away — your heirs will have to work with your lender if they want to keep the home.
- It could be harder to qualify for a home equity loan with a lower retirement income.
The advantages: There are no monthly repayments while you’re living in the home, and there are no income or credit score requirements, so you can qualify even if you’re struggling financially. However, to get a reverse mortgage, you usually need to be 62 or older and have substantial equity in your home — meaning, your primary mortgage be substantially, if not entirely, paid off.
9. Funding a vacation
Traveling can come with a steep price tag, and tapping your home’s equity could help cover the costs without having to increase your credit card debt. Even the best vacations don’t last forever, though, and home equity debt can linger for decades, so weigh your decision carefully. Is the trip worth potentially risking your house to pay for?
Pros
- Home equity loans typically have lower interest rates than credit cards, which could save you money.
Cons
- Putting your home on the line is an extremely risky way to finance a trip that will be over in a matter of days — and you’ll still be paying for it many years after it’s over, which could ultimately cost you more in interest.
10. Other big-ticket items
It’s possible to use your home equity for big-ticket purchases, but it doesn’t add up in many cases. Home equity loans have much longer repayment terms than auto loans, for example, resulting in lower monthly payments, but much more interest over time. Cars are also depreciating assets, meaning your car will be worth much less than you paid for it by the time you finish repaying the equity loan.
Pros
- You could finance a larger purchase, like a car.
Cons
- Your home’s equity isn’t worth leveraging on an expense that won’t give you a solid return. With the example of buying a car, you’ll be risking your home for an asset that will be worth less than what you paid for it by the time you’ve finished repaying the loan.
Using home equity FAQ
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The amount of home equity you can borrow against depends on a number of factors, including how much the home is worth, the outstanding balance on your mortgage and your credit score. Assuming you’re well-qualified, many home equity lenders allow you to tap up to 80 percent of your equity.
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As with any loan product, a home equity loan or HELOC can hurt your credit score in the short term, in part because you’re taking on more debt and potentially raising your credit utilization ratio. Over time, however, your credit score could go up as you make regular monthly payments on your home equity loan. It’s possible to get a home equity loan with bad credit, too.
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It can be. You can deduct home equity loan interest if you use the funds to “buy, build or substantially improve” the home that was used to secure the loan, according to the IRS. You must itemize deductions on your tax return, and — similar to the mortgage deduction — there are limits as to how much you can deduct.
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Yes. The closing costs for home equity loans and HELOCs can range from 1 percent to 5 percent of your loan amount. These can include many of the same closing costs as a typical real estate closing, such as origination, appraisal and credit report fees. HELOC lenders also often charge annual fees to keep the line open, as well as an early termination fee if you close it within three years of opening. You could also incur a charge if you decide to convert your HELOC balance to a fixed interest rate.
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If you’ve just closed on a home and need cash, you can generally tap into your home equity right away. However, some lenders require borrowers to wait several months before applying for a home equity loan or HELOC. And whether there’s a waiting period or not, you’ll have to meet the lender’s eligibility requirements. These can include credit score minimums, income verification and debt-to-income (DTI) ratio maximums. Most importantly, you’ll also need at least 20 percent equity in your home to qualify, though some lenders accept 15 percent.
Source: bankrate.com
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A home equity loan is a lump sum of money you can borrow at a fixed rate based on the equity, or ownership stake, in your home. If you already paid off 15% to 20% of your house, this one-time installment loan can be used to cover major expenses, from home renovations to paying off debt.
Home equity loans have fixed interest rates, so your monthly payments are predictable and easy to budget for. But because your home acts as collateral for the loan, you could risk foreclosure if you fall behind on repayments.
I’ve spoken with experts about the advantages and disadvantages of home equity loans, how they work and where to find the best rates. Here’s what I’ve uncovered.
This week’s home equity loan rates
Here are the average rates for home equity loans and home equity lines of credit as of March 27, 2024.
Loan type | This week’s rate | Last week’s rate | Difference |
---|---|---|---|
10-year, $30,000 home equity loan | 8.73% | 8.73% | None |
15-year, $30,000 home equity loan | 8.70% | 8.70% | None |
$30,000 HELOC | 9.01% | 8.99% | +0.02 |
Current home equity loan rates and trends
Though home equity loan rates will vary depending on the lender and loan type, their rates are generally lower than personal loans or credit card annual percentage rates.
Home equity loan rates aren’t directly set by the Federal Reserve, but adjustments to the federal funds rate impact the borrowing cost for financial products like home equity loans and home equity lines of credit, aka HELOCs.
Since March 2022, the Fed has hiked its benchmark rate a total of 11 times in an attempt to slow the economy and bring inflation down, driving home equity loan rates up alongside. Though the Fed has kept interest rates steady since last summer, home equity loan rates have remained elevated for borrowers. Home equity rates are likely to stay high until the central bank begins cutting interest rates, projected for later this year.
With home equity loans, you tap into your equity without giving up the rate on your primary mortgage, making them a popular alternative to cash-out refinances. If you use a home equity loan to install solar panels or renovate your kitchen, you get the added benefit of increasing your home’s value.
“Most homeowners with mortgages in 2024 are choosing home equity loans or HELOCs, instead of a cash-out refinance, to avoid losing their attractive interest rates,” said Vikram Gupta, head of home equity at PNC Bank.
Best home equity loan rates of March 2024
Lender | APR | Loan amount | Loan terms | Max LTV ratio |
---|---|---|---|---|
U.S. Bank | From 8.40% | Not specified | Up to 30 years | Not specified |
TD Bank | 7.99% (0.25% autopay discount included) | From $10,000 | 5 to 30 years | Not specified |
Connexus Credit Union | From 7.20% | From $5,000 | 5 to 15 years | 90% |
KeyBank | From 10.29% (0.25% autopay discount included) | From $25,000 | 1 to 30 years | 80% for standard home equity loans, 90% for high-value home equity loans |
Spring EQ | Fill out application for personalized rates | Up to $500,000 | Not specified | 90% |
Third Federal Savings & Loan | From 7.29% | $10,000 to $200,000 | Up to 30 years | 80% |
Frost Bank | From 7.3% (0.25% autopay discount included) | $2,000 to $500,000 | 15 to 20 years | 90% |
Regions Bank | From 6.75% to 14.125% (0.25% autopay discount included) | $10,000 to $250,000 | 7, 10, 15, 20 or 30 years | 89% |
Discover | 6.99% for 1st liens, 7.99% for 2nd liens | $35,000 to $300,000 | 10, 15, 20 or 30 years | 90% |
BMO Harris | From 8.84% (0.5% autopay discount not included) | From $25,000 | 5 to 20 years | Not specified |
Best home equity loan lenders of March 2024
U.S. Bank
Good for nationwide availability
U.S. Bank is the fifth largest banking institution in the US. It offers both home equity loans and HELOCs in 47 states. You can apply for a home equity loan or HELOC through an online application, by phone or in person. If you want a loan estimate for a home equity loan without completing a full application, you can get one by speaking with a banker over the phone.
- APR: From 8.40%
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: 660
- Loan amount: $15,000 to $750,000 (up to $1 million for California properties)
- Term lengths: Up to 30 years
- Fees: None
- Additional requirements: Subject to credit approval
- Perks: You can receive a 0.5% rate discount by enrolling in automatic payments from a U.S. Bank checking or savings account.
TD Bank
Good for price transparency
Primarily operating on the East Coast, TD Bank offers home equity loans and HELOCs in 15 states. You can apply for a TD Bank home equity loan or HELOC online, by phone or by visiting a TD Bank in person. The online application includes a calculator that will tell you the maximum amount you can borrow based on the information you input. You can also see a full breakdown of rates, fees and monthly payments. No credit check is required for this service.
- APR: From 7.99% (0.25% autopay discount included)
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $10,000
- Term lengths: Five to 30 years
- Fees: $99 origination fee at closing. Closing costs only application to loan amounts greater than $500,000.
- Additional requirements: Loan amounts less than $25,000 are available only for primary residence property use.
- Perks: You will receive a 0.25% discount if you enroll in autopay from a TD personal checking or savings account.
Connexus Credit Union
Good branch network
Connexus Credit Union operates in all 50 states, but it offers home equity loans and HELOCs in 46 states (excluding Alaska, Hawaii, Maryland and Texas). The credit union has more than 6,000 local branches. To apply for a home equity loan or HELOC with Connexus, you can fill out a three-step application online or in person. You won’t be able to see a personalized rate or product terms without a credit check.
- APR: From 7.20%
- Max LTV ratio: 90%
- Max-debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $5,000
- Term lengths: Five to 15 years
- Fees: No annual fee. Closing costs can range from $175 to $2,000, depending on your loan terms and property location. It has returned loan payments fees of $15, convenience fees of $9.95 (for paying by debit or credit card online) and $14.95 (for paying by phone) and a forced place insurance processing fee of $12.
- Additional requirements: Because Connexus is a credit union, its products and services are only available to members. Member eligibility is open to most people: you (or a family member) just need to be a member of one of Connexus’s partner groups, reside in one of the communities or counties on Connexus’s list or become a member of the Connexus Association with a $5 donation to Connexus’s partner nonprofit.
- Perks: Flexible membership options
KeyBank
Good online application user experience
Based in Cleveland, KeyBank offers home equity loans to customers in 15 states and HELOCs to customers in 44 states. Aside from a standard home equity loan, KeyBank offers a few different HELOC options. The KeyBank application allows you to apply for multiple products at one time. If you’re not sure whether KeyBank loans are available in your area, the application will tell you once you input your ZIP code. If you’re an existing KeyBank customer, you can skim through the application and import your personal information from your account.
- APR: From 10.29% (0.25% client discount included)
- Max LTV ratio: 80% for standard home equity loans, 90% for high-value home equity loans
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $25,000
- Term lengths: One to 30 years
- Fees: Origination fee of $295. Closing costs aren’t specified.
- Additional requirements: Borrowers must be at least 18 years of age and reside in one of the states KeyBank operates in.
- Perks: KeyBank offers a 0.25% rate discount for clients who have eligible checking and savings accounts with them.
Spring EQ
Good option for high debt-to-income ratio limits
Spring EQ was founded in 2016 and serves customers in 38 states. Spring EQ offers home equity loans and HELOCs. Spring EQ doesn’t display rates for its home lending products online — you must complete an application to see your personalized rate. The Spring EQ loan application process is simple though. Customers can see an extensive breakdown of their loan term and rate options without needing to undergo a credit check or provide their Social Security number.
- APR: Not specified
- Max LTV ratio: 90%
- Max debt-to-income ratio: 50%
- Min credit score: 640
- Loan amount: Up to $500,000
- Term lengths: Not specified
- Fees: Spring EQ loans may be subject to an origination fee of $995 and an annual fee of $99 in some states.
- Additional requirements: Spring EQ does not display rates for its home lending products online — you must complete an application to see your personalized rate.
- Perks: Spring EQ has a higher maximum DTI ratio than most other lenders — compare 50% with the typical 43% average.
Third Federal Savings & Loan
Good option for rate match guarantee
Third Federal Savings & Loan first opened in 1938. Today, the bank offers home equity loans in eight states and HELOCs in 26 states. Third Federal offers a lowest rate guarantee on its HELOCs and home equity loans, meaning Third Federal will offer you the lowest interest rate relative to other similar lenders or pay you $1,000. You can apply for a home equity loan or HELOC on the Third Federal website. You won’t have to register an account to apply, but you’re still able to save your application and return to it later.
- APR: From 7.29%
- Max LTV ratio: 80%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $10,000 to $200,000
- Term lengths: Five to 30 years
- Fees: Home equity loans and HELOCs with Third Federal have an annual fee of $65 (waived the first year). There are no application fees, closing fees or origination fees.
- Additional requirements: Specific requirements aren’t listed.
- Perks: If you set up autopay from an existing Third Federal account, you’ll be eligible for a 0.25% rate discount.
Frost Bank
Good option for Texas borrowers
Frost Bank’s home equity loans and HELOCs are only available to Texas residents. You can apply for a home equity loan or HELOC on the Frost Bank website, but you’ll need to create an account. According to the website, the application will only take you 15 minutes.
- APR: From 7.3% (0.25% autopay discount included, only available for 2nd liens)
- Max LTV ratio: 90%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $2,000 to $500,000
- Term lengths: 15 or 20 years
- Fees: No application fee, annual fee or closing costs. Frost Bank does charge a $15 monthly service fee, which can be waived with a Frost Plus Account.
- Additional requirements: Borrowers must reside in Texas. The bank also requires proof of homeowners insurance.
- Perks: 0.25% rate discount for clients who enroll in autopay from a Frost Bank checking or savings account. However, this feature is only available for second liens.
Regions Bank
Good rate discounts
Regions Bank is one of the nation’s largest banking, mortgage and wealth management service providers. Regions offers home equity loans and HELOCs in 15 states. You can apply for a Regions home equity loan or HELOC online, in person or over the phone. You’ll have to create an account with Regions to apply. Before you create an account, though, you can use the bank’s own rate calculator to estimate your rate and monthly payment.
- APR: From 6.75% to 14.125%(0.25% autopay discount included)
- Max LTV ratio: 89%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $10,000 to $250,000
- Term lengths: Seven, 10, 15, 20 or 30 years
- Fees: No closing costs and no annual fees. Late fees apply for 5% of the payment amount. There is a returned check fee of $15 and an over limit fee of $29.
- Additional requirements: Not specified.
- Perks: Rate discounts between 0.25% and 0.50% to those who elect to have their monthly payments automatically debited from a Regions checking account.
Discover
Good option for no fees or closings costs
Discover is known primarily for its credit cards, but it also offers home equity loans — available in 48 states. The lender does not offer HELOCs at all. You can apply for a home equity loan from Discover online or over the phone. The application process takes approximately six to eight weeks in total, according to Discover’s website.
- APR: 6.99% for first liens, 7.99% for second liens
- Max LTV ratio: 90%
- Max debt-to-income ratio: 43%
- Min credit score: 620
- Loan amount: $35,000 to $300,000
- Term lengths: 10, 15, 20 and 30 years
- Fees: None
- Additional requirements: Specific requirements not listed.
- Perks: The lender charges no origination fees, application fees, appraisal fees or mortgage taxes.
BMO Harris
Good option for second liens
BMO Harris products and services are available in 48 states (all but New York and Texas). BMO Harris offers home equity loans and three variations of a HELOC. You can apply for a home equity loan or HELOC online or in person, but in order to get personalized rates, you’ll have to speak with a representative on the phone. Getting personalized rates doesn’t require a hard credit check.
Home equity loans from BMO Harris are only available as second liens. If you have already paid off your mortgage, a rate-lock HELOC from BMO Harris may be a better option.
- APR: From 8.84% (0.5% autopay discount not included)
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: 700
- Loan amount: From $5,000
- Term lengths: Five to 20 years
- Fees: There is no application fee. BMO Harris will also pay closing costs for loans secured by an owner-occupied 1-to-4-family residence. If you pay off your loan within 36 months of opening, you may be responsible for recoupment fees.
- Additional requirements: Home equity loans are only available as a second lien (meaning you can’t be mortgage free)
- Perks: If you enroll in autopay with a BMO Harris checking account, you’ll be eligible for a 0.5% rate discount.
What is a home equity loan?
A home equity loan is a fixed-rate installment loan secured by your home as a second mortgage. You’ll get a lump sum payment upfront and then repay the loan in equal monthly payments over a period of time. Because your house is used as a collateral, the lender can foreclose on it if you default on your payments.
Most lenders require you to have 15% to 20% equity in your home to secure a home equity loan. To determine how much equity you have, subtract your remaining mortgage balance from the value of your home. For example, if your home is worth $500,000 and you owe $350,000, you have $150,000 in equity. The next step is to determine your loan-to-value ratio, or LTV ratio, which is your outstanding mortgage balance divided by your home’s current value. So in this case the calculation would be:
$350,000 / $500,000 = 0.7
In this example, you have a 70% LTV ratio. Most lenders will let you borrow around 75% to 90% of your home’s value minus what you owe on your primary mortgage. Assuming a lender will let you borrow up to 90% of your home equity, you can use the formula to see how that would be:
$500,000 [current appraised value] X 0.9 [maximum equity percentage you can borrow] – $350,000 [outstanding mortgage balance] = $100,000 [what the lender will let you borrow]
A standard repayment period for a home equity loan is between five and 30 years. Under the loan, you make fixed-rate payments that never change. If interest rates go up, your loan rate remains unchanged.
Second mortgages such as home equity loans and HELOCs don’t alter a homeowner’s primary mortgage. This lets you borrow against your home’s equity without needing to exchange your primary mortgage’s rate for today’s higher rates.
Home equity loans have fixed interest rates, which is a positive if you’re looking for predictable monthly payments. The rate you lock in when you take out your loan will be constant for the entire term, even if market interest rates rise.
Reasons to get a home equity loan
A home equity loan is a good choice if you need a large sum of cash all at once. You can use that cash for anything you’d like — it doesn’t have to be home-related.However, some uses make more sense than others.
- Home renovations and improvements: If you want to upgrade your kitchen, install solar panels or add on a second bathroom, you can use the money from a home equity loan to pay for the cost of these renovations. Then, at tax time, you can deduct the interest you pay on the loan — as long as the renovations increase the value of your home and you meet certain IRS criteria.
- Consolidating high-interest debt: Debt consolidation is a strategy where you take out one large loan to pay off the balances on multiple smaller loans, typically done to streamline your finances or get a lower interest rate. Because home equity loan interest rates are typically lower than those of credit cards, they can be a great option to consolidate your high-interest credit card debt, letting you pay off debt faster and save money on interest in the long run. The only downside? Credit card and personal loan lenders can’t take your home from you if you stop making your payments, but home equity lenders can.
- College tuition: Instead of using student loans to cover the cost of college for yourself or a loved one, you can use the cash from a home equity loan. If you qualify for federal student loans, though, they’re almost always a better option than a home equity loan. Federal loans have better borrower protections and offer more flexible repayment options in the event of financial hardship. But if you’ve maxed out your financial aid and federal student loans, a home equity loan can be a viable option to cover the difference.
- Medical expenses: You can avoid putting unexpected medical expenses on a credit card by tapping into your home equity before a major medical procedure. Or, if you have outstanding medical bills, you can pay them off with the funds from a home equity loan. Before you do this, it’s worth asking if you can negotiate a payment plan directly with your medical provider.
- Business expenses: If you want to start a small business or side hustle but lack money to get it going, a home equity loan can provide the funding without many hoops to jump through. However, you may find that dedicated small business loans are a better, less risky option.
- Down payment on a second home: Homeowners can leverage their home’s equity to fund a down payment on a second home or investment property. But you should only use a home equity loan to buy a second home if you can comfortably afford multiple mortgage payments over the long term.
Experts don’t recommend using a home equity loan for discretionary expenses like a vacation or wedding. Instead, try saving up money in advance for these expenses so you can pay for them without taking on unnecessary debt.
Pros
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One lump sum payment of total loan up front.
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Fixed interest rate, meaning you won’t have to worry about your rate rising over the repayment period.
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Typically lower interest rate than credit cards or personal loans.
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Little to no restrictions on what you can use the money for.
Cons
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Your home is used as collateral, meaning it can be taken from you if you default on the loan.
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If you’re still paying off your mortgage, this loan payment will be on top of that.
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Home equity loans can come with closing costs and other fees.
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May be hard to qualify for if you don’t have enough equity.
Home equity loan vs. HELOC
Home equity loans and HELOCs are similar but have a few key distinctions. Both let you draw on your home’s equity and require you to use your home as collateral to secure your loan. The two major differences are the way you receive the money and how you pay it back.
A home equity loan gives you the money all at once as a lump sum, whereas a HELOC lets you take money out in installments over a long period of time, typically 10 years. Home equity loans have fixed-rate payments that will never go up, but most HELOCs have variable interest rates that rise and fall with the prime rate.
A home equity loan is better if:
- You want a fixed-rate payment: Your monthly payment will never change even if interest rates rise.
- You want one lump sum of money: You receive the entire loan upfront with a home equity loan.
- You know the exact amount of money you need: If you know the amount you need and don’t expect it to change, a home equity loan likely makes more sense than a HELOC.
A HELOC is better if:
- You need money over a long period of time: You can take the money as you need it and only pay interest on the amounts you withdraw, not the full loan amount, as is the case with a home equity loan.
- You want a low introductory interest rate: Although HELOC rates may increase over time, they also typically offer lower introductory interest rates than home equity loans. So you could save money on interest charges.
Home equity loans vs. cash-out refinances
A cash-out refinance is when you replace your existing mortgage with a new mortgage, typically to secure a lower interest rate and more favorable terms. Unlike a traditional refinance, though, you take out a new mortgage for the home’s entire value — not just the amount you owe on your mortgage. You then receive the equity you’ve already paid off in your home as a cash payout.
For example, if your home is worth $450,000, and you owe $250,000 on your loan, you would refinance for the entire $450,000, rather than the amount you owe on your mortgage. Your new cash-out refinance home loan would replace your existing mortgage and then offer you a portion of the equity you built (in this case $200,000) as a cash payout.
Both a cash-out refi and a home equity loan will provide you with a lump sum of cash that you’ll repay in fixed amounts over a specific time period, but they have some important differences. A cash-out refinance replaces your current mortgage payment. When you receive a lump sum of cash from a cash-out refi, it’s added back onto the balance of your new mortgage, usually causing your monthly payment to increase. A home equity loan is different — it doesn’t replace your existing mortgage and instead adds an additional monthly payment to your expenses.
Who qualifies for a home equity loan?
Although it varies by lender, to qualify for a home equity loan, you’re typically required to meet the following criteria:
- At least 15% to 20% equity built up in your home: Home equity is the amount of home you own, based on how much you’ve paid toward your mortgage. Subtract what you owe on your mortgage and other loans from the current appraised value of your house to figure out your home equity number.
- Adequate, verifiable income and stable employment: Proof of income is a standard requirement to qualify for a HELOC. Check your lender’s website to see what forms and paperwork you will need to submit along with your application.
- A minimum credit score of 620: Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Having a strong credit score — at least 700 — will help you qualify for a lower interest rate and more amenable loan terms.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. Some lenders prefer a DTI of 36% or less.
A home equity loan is better if:
- You don’t want to pay private mortgage insurance: Some cash-out refinances require PMI, which can add hundreds of dollars to your payments, but home equity loans don’t.
- You can’t complete a refinance: With rates rising, it’s possible that your mortgage rate is lower than current refinance rates. If that’s the case, it likely won’t make financial sense for you to refinance. Instead, you can use a home equity loan to take out only the money you need, rather than replacing your entire mortgage with a higher interest rate loan.
A cash-out refinance is better if:
- Refinance rates are lower than your current mortgage rate: If you can secure a lower interest rate by refinancing, this could save you money in interest, while providing access to a lump sum of cash.
- You want only one monthly payment: The amount you borrow gets added back to the balance of your mortgage so you make only one payment to your lender every month.
- Less stringent eligibility requirements: If you don’t have great credit or you have a high debt-to-income ratio, or DTI, you may have an easier time qualifying for a cash-out refi compared with a home equity loan.
- Lower interest rates: Cash-out refinances sometimes offer more favorable interest rates than home equity loans.
Tips for choosing a lender
You’ll want to consider what type of financial institution best suits your needs. In addition to mortgage lenders, financial institutions that offer home equity loans include banks, credit unions and online-only lenders.
“Select a lender that makes you feel comfortable and informed with the home equity loan process,” said Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans. “Look at what tools a lender makes available to borrowers to help inform their decision. For many borrowers, being able to apply and manage their application online is important.”
One option is to work with the lender that originated your first mortgage as you already have a relationship and a history of on-time payments. Many banks and credit unions also offer discounted rates and other benefits when you become a customer.
Some lenders offer lower interest rates but charge higher fees (and vice versa). What matters most is your annual percentage rate because it reflects both interest rate and fees.
Ensure the specific terms of the loan your lender is offering make sense for your budget. For example, be sure the minimum loan amount isn’t too high — be wary of withdrawing more funds than you need. You also want to make sure that your repayment term is long enough for you to comfortably afford the monthly payments. The shorter your loan term, the higher your monthly payments will be.
“Costs and fees are an important consideration for anyone who is looking for a loan,” Cook said. “Homeowners should understand any upfront or ongoing fees applicable to their loan options. Also look for prepayment penalties that might be associated with paying off your loan early.”
No matter what, it’s important to talk to numerous lenders and find the best rate available.
How to apply for a home equity loan
Applying for a home equity loan is similar to applying for any mortgage loan. You’ll need both a solid credit score and proof of enough income to repay your loan.
1. Interview multiple lenders to determine which lender can offer you the lowest rates and fees. The more companies you speak with, the better your chances of finding the most favorable terms.
2. Have at least 15% to 20% equity in your home. If you do, lenders will then take into account your credit score, income and current DTI to determine whether you qualify as well as your interest rate.
3. Be prepared to have financial documents at the ready, such as pay stubs and Form W-2s. Proof of ownership and the appraised value of your home will also be necessary.
4. Close on your loan. Once you submit your application, the final step is closing on your loan. In some states, you’ll have to do this in person at a physical branch.
FAQs
As of March 27, average home equity loan rates are 8.73% for a $30,000 10-year home equity loan and 8.70% for a $30,000 15-year home equity loan — higher than the average rate for a 30-year fixed rate mortgage, which is currently 7.01%. Both home equity rates and mortgage rates started off at historic lows at around 3% at the beginning of 2022 and have been consistently climbing in response to the Federal Reserve aggressively raising the benchmark interest rate.
Most lenders will allow you to borrow anywhere from 15% to 20% of your home’s available equity. To calculate your home equity, subtract your remaining mortgage balance from the current appraised value of your home. How much equity a bank or lender will let you take out depends on a number of additional factors such as your credit score, income and DTI ratio. For most homeowners, it can take five to 10 years of mortgage payments to build up enough tappable equity to borrow against.
A home equity loan can affect your score positively or negatively depending on how responsibly you use it. As with any loan, if you miss or make late payments, your credit score will drop. The amount by which it will drop depends on such factors as whether you’ve made late payments before. However, HELOCs are secured loans that are backed by your property, so they tend to affect your credit score less because they’re treated more like a car loan or mortgage by credit-scoring algorithms.
Lenders are currently offering rates that start as low as 5% to 6% for borrowers with good credit, but rates can vary depending on your personal financial situation. A lender will base your interest rate on how much equity you have in your home, your credit score, income level and other aspects of your financial life such as your DTI ratio, which is calculated by dividing your monthly debts by your gross monthly income.
Home equity loans can be used for anything you choose to spend the money on. Typical life expenses that people usually take out home equity loans for are to cover expenditures such as home renovations, higher education costs like tuition or to pay off high-interest charges like credit card debt. There’s a bonus for using your loan for home improvements and renovations: the interest is tax deductible.
You can also use a home equity loan in the event of an emergency like unplanned medical expenses. Whatever you chose to use your loan for, keep in mind that taking out a large sum of money that accrues interest is an expensive choice to carefully consider, especially because you’re using your home as collateral to secure the loan. If you can’t pay back the loan, the lender can seize your home to repay your debt.
Methodology
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.
Source: cnet.com
Apache is functioning normally
The Consumer Financial Protection Bureau (CFPB) this week released its 2023 Consumer Response Annual Report, offering an overview of consumer complaints in a variety of industries overseen by the bureau.
While much of the report suggests “a continued increase in credit or consumer reporting complaints, with more than one million of these complaints being sent to the three nationwide consumer reporting companies,” the mortgage industry demonstrates general reactivity to the feedback, according to the report.
The CFPB received about 27,900 mortgage-related complaints in 2023 and sent 23,300 (84%) of them to companies for review and response. It referred another 10% to other regulatory agencies and found 6% to not require action. As of March 1, 2024, less than 0.1% of these complaints were pending with the consumer and less than 0.1% were pending with the bureau.
The response rate by mortgage companies to consumer complaints stands at 99%, according to the bureau, and relevant companies “closed 92% of complaints with an explanation, 2% with monetary relief, and 3% with non-monetary relief,” the report stated. Mortgage companies provided an administrative response for 2% of complaints.
The majority of consumer complaints in the mortgage arena (13,100, or 58%) were focused on conventional home loans, followed by Federal Housing Administration (FHA) loans (19%), U.S. Department of Veterans Affairs (VA) loans (9%) and home equity lines of credit, or HELOCs (6%).
Further down on the list were “other types of mortgages” (5%), reverse mortgages (2%), and negligible numbers of U.S. Department of Agriculture (USDA) loans and manufactured home loans (less than 1%).
More than 11,400 complaints dealt with “trouble during the payment process,” while more than 6,000 had to with consumers struggling to make mortgage payments.
Other common complaints included applying for a new mortgage or refinancing an existing one, closing on a mortgage, or a problem with a credit report or credit score. The company response rates in these instances was at or above 90%.
Mortgage complaints that were resolved with an explanation, however, decreased from the level observed in last year’s report, the bureau reported. HELOC-related complaints also increased by 21% compared to the monthly average observed over the prior two years.
Other product types also recorded increases in consumer complaints.
“The monthly average for [VA] mortgage complaints increased 11% compared to the monthly average for the prior two years,” the report explained. “The visible spikes in complaint volume in early 2023 appear to be related to an enforcement action announced by the CFPB against Wells Fargo.”
That enforcement action was announced in December 2022, compelling Wells Fargo to pay $3.7 billion in total to settle multiple consent orders related to auto lending, consumer deposit accounts and mortgage lending. The penalties totaled $1.7 billion and an additional $2 billion was ordered for redress to consumers.
Related
Source: housingwire.com
Apache is functioning normally
The average monthly mortgage payment for a home purchase rose in recent weeks, even as the tight housing market shows signs of loosening.
Payments increased 10% year-over-year to an all-time high of $2,721 for the four weeks ended March 24, Redfin said on Thursday morning.
The Mortgage Bankers Association also released its February Purchase Applications Payment Index the same day, and found the median disbursement increased by $50 from January, to $2,184. That figure is a $123 increase from February 2023.
The PAPI value increased 2.4% to 170.7 in February from 166.8 in January. For the same month last year, the index was 169.7, a 1.1% increase, with the year-over-year change attributed to a 4.8% rise in median income besides the 6% rise in payments.
Rates sticking around the 7% range is a contributing factor, the MBA said.
“Challenging affordability conditions and low housing supply are keeping some prospective homebuyers on the sidelines this spring,” said Edward Seiler, associate vice president, housing economics, and executive director of the Research Institute for Housing America, in a press release. “The eventual, expected decline in rates in the coming months will hopefully spur new activity in the housing market.”
However, Redfin pointed out that during the period, new listings were up 15% from the four weeks ended March 24, 2023, the most in nearly three years. The total number of homes is 6% higher, the biggest increase in approximately one year.
“High mortgage rates aren’t deterring buyers as much as they were last year; a lot of people want to get in now before prices go up more,” said Redfin agent Rachel Riva based in Miami, in a press release. “All of my recent listings have gone under contract in under 10 days, and most of them have received multiple offers.”
Buyers are dealing with elevated mortgage rates in a number of ways, Riva pointed out. “Some are making high down payments to lower their monthly payments, and some are willing to take on a high rate now in hopes of refinancing when and if rates come down.”
Median-priced single-family homes and condos remain less affordable in the first quarter compared with historical averages in more than 95% of U.S. counties that Attom Data Solutions had enough data to analyze.
Meanwhile, major expenses on those homes were 32.3% of the average national wage in the first quarter, several points above common lending guidelines.
As bad as that data sounds, it is actually a quarter-to-quarter improvement for both, although worse than one-year prior, Attom said.
The portion of average wages nationwide required for typical mortgage payments including property taxes and insurance remains up almost 3 percentage points from one year ago and 11 points higher from early in 2021.
“The picture for home buyers is brightening a little again as affordability measures have improved for the second quarter in a row,” said Rob Barber, Attom’s CEO, in a press release.
Even though the prospect of owning a home remains a financial stretch or even a pipe dream, for many households, with mortgage rates coming down from high points near 8% and home prices growing only by modest amounts, “it’s gotten a bit easier for average wage earners to afford a home so far this year,” Barber said. “The upcoming Spring buying season will say a lot about whether home prices remain stable enough for this trend to continue.”
In only 13 counties nationwide were home prices more affordable than the historical average, but even that needed to be taken with a grain of salt because two of those locales were New York County, also known as Manhattan, and San Francisco County, whose entirety is the city limits. Those are traditionally among the highest priced markets in the U.S.
Source: nationalmortgagenews.com