Home improvement loans

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Improving your home might be a goal for many reasons. It can increase the value of the property for more profit when you’re selling or renting it out. Improvements can also make life more enjoyable for you and your family. But they can be expensive—the average cost of a small kitchen renovation is between about $13,000 and $37,500 according to HomeAdvisor, for example.

Homeowners who want to update their homes often turn to financing as a way to pay for improvements. Find out about home improvement loans and whether they might be an option for you below.

How Do Home Improvement Loans Work?

The specific terms of home improvement loans depend on which type you apply for, but the general concept is that a lender agrees to give you a certain amount of money and you agree to pay it back with interest. In some cases, the lender might require that you use the money for a specific purpose that you stated beforehand. In other cases, the funds are provided as a personal loan for you to use as you see fit.

You can get money for home improvement from a variety of lenders, including banks, personal loan companies, mortgage companies and government agencies. You could also tap your credit lines or credit cards.

How much you can borrow and the rates you’ll pay on the debt depend on a variety of factors. Those include your credit history and whether or not you’re putting up collateral such as home equity.

Types of Loans You Can Use for Home Improvements

Personal Loans

Personal loans are unsecured signature loans. That means you don’t typically put up collateral, and with some exceptions, you can generally do what you want with the loan funds. You make monthly payments as agreed upon, usually for a period of a few years.

Pros: You may be able to get a personal loan that doesn’t require collateral such as home equity. That means you don’t put your homeownership on the line with the loan.

Cons: The lack of collateral makes the loan riskier for the lender, which usually means a higher interest rate and overall loan cost for you.

Credit score requirements: You may be able to find personal loan lenders willing to work with someone with little credit history or only fair credit. However, to get decent rates on a large loan, you may need a good or excellent credit score.

Government Loans

You might be eligible for government loans and assistance programs to modify or repair your home. For example, HUD offers information about home equity conversion mortgages for seniors as well as the Title I Property Improvement Loan Program. Some homeowners may be able to borrow up to $35,000 via the 203(k) Rehabilitation Mortgage Insurance Program, and the VA offers some home refinance options for eligible veterans.

Pros: The credit requirements for government programs and government-backed loans tend to be a bit laxer than when you’re dealing with banks.

Cons: These programs might have very specific eligibility requirements and terms that you have to follow closely. For example, you may be required to use the funds for specific purposes.

Credit score requirements: This varies according to program, but you may be able to access some options with less-than-stellar credit.

Home Equity Loans

A home equity loan (“HEL”) draws on the amount of equity in your home. For example, if your home is worth $100,000 and you only owe $70,000, you may be able to get a loan for close to $30,000 based on the equity.

Pros: Home equity loans are secured by the value in your home, which makes them a less risky investment for lenders than personal loans and credit cards. That helps you get a lower interest rate, making HELs typically less expensive than other home improvement loans.

Cons: The loan is tied to your home ownership. If you default on the loan, the lender can force the sale of your home to recoup its losses.

Credit score requirements: You don’t need a stellar score to refinance your mortgage, so you might not need a great score to take out a home equity loan.

Home Equity Lines of Credit (“HELOC”)

A home equity line of credit is a revolving line of credit based on the equity in your home. The terms work a bit more like a credit card than the terms of a home equity loan do. That means you draw on the credit line as needed to cover repairs and pay it back over time. You can draw again on the funds as you pay them back.

Pros: HELOCs can be a flexible source of income, making it easy to manage costs for renovations without running up excess debt. And because they’re secured by the value in your home, they may come with more favorable terms than credit card debt.

Cons: Again, the debt is tied to your home. If you default on the line of credit, the lender can force the sale of your home to get its money back.

Credit score requirements: Credit score requirements for HELOCs are similar to those for home equity loans.

Other Ways to Pay for Home Improvements

Credit Cards

If you have a credit card with a high enough balance, you can put goods and services on it. The downside is that you might pay high interest on that debt. Alternatively, if you have a strong credit score, you might be able to get approved for a new card with a zero percent introductory APR offer. That might let you pay off your home improvement expenses over a year or two without added interest expense.

Cash-Out Refinancing

If your home has equity, you can also consider a cash-out refinance. If you owe $70,000 and your home is worth $100,000, you may be able to refinance and borrow $95,000. (The other $5,000 If your credit is better than when you bought the home or conditions are more favorable, you might even get better rates.

The $70,000 you owe is paid to the bank holding the original mortgage. You cash out the roughly $25,000 left and can use it as you see fit, including repairing your home.

Tips for Getting a Home Improvement Loan

If you’ve decided to pursue a home improvement loan, use these tips to increase your odds of getting the deal that you want.

Have Specific Terms in Mind

Plan ahead rather than reaching for the loan and then deciding what you’ll do. Define your home improvement plan and budget, and consider whether you can get funding for that much money.

Get a Cosigner If Necessary

Consider whether you might need a cosigner. Depending on what type of loan you want to apply for, a cosigner might help if you don’t have great credit or if your income doesn’t meet the requirements of the lender. Keep in mind that the cosigner will also be taking on all the obligations of the debt.

Know Your Credit Score

Finally, check your credit score and credit reports before you apply. Understanding where you stand helps you choose the financial products you’re more likely to qualify for and avoid unpleasant surprises during the application process. Getting a good look at your credit reports also helps you understand whether there are inaccurate negative items bringing your score down. If that’s the case, consider working with Lexington Law to repair your credit and potentially open more home improvement loan doors in the future.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

What is Revolving Debt?

Although you have to pay back any money you owe, not all debt is created equal. There’s installment debt, like an auto loan, mortgage, or student loan, which is paid off in installments. Then there’s revolving debt, which applies to things like credit cards and home equity lines of credit.

Non-revolving and revolving debt affect your credit score differently and can affect your life differently—especially if you get in a hole of revolving debt that’s hard to get out of.

Americans averaged more than $1 trillion in outstanding revolving debt in the past few years, according to the Federal Reserve. The key to managing revolving debt? Understanding how it works and why it’s easy to take on too much.

A Closer Look at Revolving Debt

People often use the term “revolving debt” to mean a credit card balance that is carried over from month to month—and while a lot of revolving debt is carried over and not paid off in full, that isn’t technically the definition of revolving debt.

Revolving debt encompasses all debt that isn’t a set loan amount for a set period. Instead, the amount you owe, and minimum payment required, on, say, a credit card or home equity line of credit changes as you pay some off and take on more debt—like a revolving door.

You can choose to make the minimum payments required by the credit issuer, pay off the entire balance, or pay some amount between the minimum and the total balance. If you don’t pay off the full balance when it’s due, then you will ultimately end up paying more because your balance will accrue interest and finance charges.

For example, if you have a $3,000 balance on your credit card at a 16% interest rate and you make a $100 payment monthly, you’ll take 39 months to pay off the balance and ultimately pay $857 in interest.

Of course, if you continue to charge more to that credit card at the same time you pay only minimum monthly payments toward the existing debt, then it’ll take even longer to pay off.

That’s one of the quiet dangers of revolving debt: If you haven’t reached your limit, you can continue to borrow from your credit line while you still owe money, which adds to your debt and to the amount of interest you’ll have to pay.

And if you don’t pay off the balance in full when it’s due, the interest you owe will be added to your balance and accrue more interest.

What Is Installment Debt?

Installment debt is a loan for a set amount with set payments. Also called non-revolving credit, it can’t be used again when it’s paid off.

Once you pay off a home loan or car loan, for example, it’s closed, and you’d have to reapply for a new loan to borrow more.

When you take on installment debt, you agree to a set payment schedule and a fixed interest rate (or in some cases a variable interest rate that is established in your initial contract). You then make monthly payments until the loan is paid off.

Typically, secured installment debt is considered lower risk to the lender than revolving debt and therefore has lower interest rates. You’re also usually able to borrow larger amounts, depending on your credit history and income, because secured installment debt is often tied to the collateral that backs the loan, such as the car or house the loan is financing.

Installment debt may also affect your credit score differently.

How Each Kind of Debt Affects Your Credit Score

Both installment debt and revolving debt are factored into your credit score. In fact, your credit mix—meaning the different types of debt you carry—determines 10% of your FICO® score .

If you miss a payment on either installment or revolving debt, it could affect your credit score. (A late payment can’t be reported to the credit reporting bureaus until it is at least 30 days past due.)

Then there’s your credit utilization ratio —which means the amount of debt you owe in relation to the amount of credit available to you. If you’ve maxed out all your credit cards, for example, that could be a problem. However, using credit cards to take on small amounts of debt and then pay it all off can help build up your credit score.

Lenders consider revolving credit as much more reflective of how you manage money than installment loans. While having large existing loans can certainly affect the amount banks are willing to lend you, installment debt doesn’t affect your credit utilization ratio as much as revolving credit because there isn’t a larger line of credit tied to the loan.

That means that in order to maintain a healthy credit score, a borrower may choose to focus on paying off revolving debt and not taking on more in the meantime. If you’ve gotten into a revolving debt trap, with your existing credit cards accruing interest and adding to what you owe, then there are a few options to get out of revolving debt.

Getting Out of Revolving Debt

Revolving debt can be hard to get out of because the interest and finance charges keep adding to your balance.

There are a few ways to ease revolving debt, however. The simplest, though in some ways the hardest, is to make a payoff plan. That requires you to plot out how much you can afford to pay each month and calculate how long it’ll take to pay off what you owe.

One strategy is to pay off the debt with the highest interest rate first and then perhaps consolidate remaining debt to a lower interest rate.

In order to consolidate credit card debt, or really any kind of revolving debt, at a lower interest rate, there are at least two options: balance transfer credit cards and personal loans. (Personal loans are unsecured, meaning they’re not tied to collateral like a house or car. Secured debt is, well, secured by an asset.)

Balance transfer credit cards, though, are simply another form of revolving debt and can reopen that cycle, whereas personal loans are a form of installment debt.

The Takeaway

Credit cards are one of the most common forms of revolving debt: You charge some, pay some or all off, and so on. But lots of people get caught in a revolving debt trap if they don’t pay balances off in full each month. A lower-interest personal loan is one possible escape route.

Seeking a SoFi credit card consolidation loan is straightforward. You can apply for an amount from $5,000 to $100,000 and use it for a variety of expenses—in this case, to pay down existing high-interest debt.

And a SoFi fixed-rate personal loan comes with no application fee, origination fee, or prepayment penalty.

It’s easy to find your rate.



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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .

SEO18121

Source: sofi.com

What to know about FICO’s new credit scoring system

A woman looks at her credit card.

Disclosure regarding Lexington Law’s editorial content.

The Fair Isaac Corporation (FICO) has announced it will be updating its credit scoring system this summer when they roll out the FICO Score 10 and 10T, which together represent the biggest change to the FICO system since 2014. 

The new system is designed to help identify high-risk borrowers by incorporating people’s history of credit behavior, paying special attention to those who use personal loans to consolidate debt but do not pay that debt down. FICO has estimated that about 110 million users will see a change in their credit score under the new FICO 10 and FICO 10T systems.

Here we’ve broken down how the new system works, what effect you can expect it to have on your score and what to do differently under the new system.

What’s Different About the New Credit Scoring System?

The new FICO scoring system allows lenders to incorporate “trended data” that shows how responsibly a borrower behaves with regard to credit. It also adjusts how important certain information is when calculating your score.

Factors weighed more heavily in the new FICO scoring model include:

  • Personal loans, especially those used to consolidate credit card debt
  • Delinquencies, especially those in the past two years
  • Credit utilization ratio
What's different about the FICO 10/10T? They weigh personal loans, history of delinquencies, and credit utilization ratio more heavily.

Will My Credit Score Change?

Though millions are likely to see their scores change as a result of the switch to the FICO 10, not all of these changes will be significant, and some users could even see their scores receive a boost. FICO representatives estimate that about 40 million—with already high credit scores—could see their credit scores increase by a small amount, with another 40 million seeing a decrease in their scores.

Consider these factors and try to predict how your score may change in the switch to the FICO 10.

You’re likely to see a drop if:

  • You’ve had recent delinquencies.
  • You consistently carry a balance on your credit cards.
  • You took out a personal loan to consolidate credit card debt.
  • You’ve maintained a high credit utilization ratio in the past two years.

You’re less likely to see a drop (and your score might even increase) if:

  • You’ve stayed current on your payments in the past two years.
  • You’ve maintained a healthy credit utilization ratio in the past two years.
  • You only put high balances on your credit cards occasionally and pay those balances down quickly.

Note: The FICO 10 will become available in the summer, but that doesn’t mean lenders will start using it right away. Many lenders still use FICO 8 or FICO 9.

What Can a 20-Point Difference Make?

According to FICO, most users whose credit scores change with the new system will see a difference of around 20 points. While that may not seem like much, a 20-point difference can be significant.

Here are three ways a 20-point drop in credit score can impact you:

1. Higher Loan Interest

Depending on where your score started, a 20-point drop can cost you significantly when it comes to taking out a home mortgage or auto loan. For example: On a 30-year fixed rate mortgage of $200,000, someone with a 660 credit score will pay about $18,000 less in interest than someone with a 640.

2. Higher Premiums on Insurance

Credit is also one of the factors that determines the amount you must pay in insurance premiums, and a 20-point difference can be significant there as well. According to insurance comparison site The Zebra, the average difference in annual premiums from “very good” (740 – 799) to “great” (800 – 850) credit is $116.

3. Weaker Loan Applications

If your credit was already on the low side, a 20-point drop may do more than increase your interest and premiums—it can actually disqualify you for a number of applications. For instance, most low-interest mortgage programs (like FHA, VA and USDA) have strict minimum credit score requirements.

Minimum credit scores for various loan programs: 500–579 for an FHA loan at 10% down, 580 for an FHA loan at 3.5% down, 620 for a VA loan, 640 for a USDA loan, and 680–720 for a jumbo loan.

How Can I Keep My New Credit Score Up?

Best practices for keeping your credit score healthy will remain unchanged even after FICO rolls out its new system. However, certain tactics will be more powerful than others using the new FICO calculations.

Here are three key tactics for maximizing your new FICO score:

1. Keep Detailed Financial Records

The new credit scoring system weighs the last two years of debt balances, so it’s important to have accurate records on all of your lines of credit going back at least that far. Keeping pristine records of your debts is the first step to identifying and solving any problems or discrepancies. 

2. Pay Credit Balances Early in the Month

Even though it amounts to the same as paying your bill once a month, paying your credit balance twice a month or even once a week can improve your credit score. By preventing your credit balance from ever getting too high throughout the month, you lower your credit utilization score, which is weighed heavily under the new system.

3. Sign Up for Boosted Credit Services

Alternative credit models like UltraFICO and Experian Boost raise users’ credit scores by incorporating “extra” data, like utility bills and rent payments. If you’re not enrolled in one of these services and you’re concerned about your score taking a plunge following the FICO 10 rollout, signing up could offset any negative impact caused by the new model.

Bottom Line: Good Financial Habits Are Always a Good Idea

When it comes down to it, good credit habits are essential, and none of the changes being made as part of the FICO scoring update are revolutionary. The same positive financial behavior that resulted in a great score with the old system will prove successful using the FICO 10 as well. 

However, those who stand to be most impacted by a 20-point change in their score—like anyone whose score is currently on the cusp of two different credit categories—may want to use this information to strategize how best to protect their score from changes. There are a number of ways to work on improving your credit health that range from simple tweaks to long-term changes to your financial habits. It’s always a good time to start prioritizing your financial well-being!


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Living Room Remodel: Should You Do It?

Living room makeovers can happen in various stages—they don’t have to be all or nothing. Simple, affordable updates like new lighting, paint or flooring can have a big effect on the room’s welcoming vibe.

Whether you have the budget for a total overhaul or you’re just looking for an easy update, there are some ways to get the living room remodel that works for you.

Recommended: Home Improvement Cost Calculator

Living Room Remodel Ideas: Top Elements To Change

Layout

Effective use of space makes a room feel comfortable and inviting. If your living room seems underused, perhaps changing the layout will make family and friends want to hang out in it more often.

For someone moving into a new home and starting with a blank space, looking first to the layout of the room is a good starting point. Where do you enter the room? Where does your focus go first? Are the windows situated for convenient placement of furnishings?

If you’re currently living in the home, but the living room just isn’t functional, look at the layout in terms of what can be easily changed.

What in the room do you regularly use, e.g., couch or closets? Where do piles tend to accumulate? Do the windows cause a glare on the television? Is your furniture arranged to allow for good traffic flow? The more effortlessly the room setup can support your daily movements, the better.

Recommended: Home Equity Loans vs Personal Loans for Home Improvement

Windows

Windows not only let light in, they affect our perception of how large, open, and welcoming a space is. Replacing them can be pricey, but might increase a home’s value and can generate energy savings: On average, 25% to 30% of a home’s energy use is due to heat gained or lost through the windows .

If the window itself is fine but the aesthetic is not, new window trim or window treatments can make a world of difference. Painting dark-stained trim can make a space feel lighter, brighter, and more modern.

Updating window treatments with floor-length curtains adds drama and interest, while Roman shades that fit inside the window casing keep things unobtrusive while still adding texture.

Lighting

Lighting is functional, of course, but it can also be an aesthetic choice. Think about taking a picture indoors with or without a flash: Room lighting has that same sort of visual resonance, affecting how the other elements of the room appear and how you feel in the space.

In choosing lighting for your living room remodel, consider if you want the fixture to recede out of sight or be a visual focal point. How bright or dim, warm or cool do you want your light levels? Where in the room will you need the most light? And adding dimmer switches to any lighting setup gives you loads of control.

Ceiling

Like the sky outside, what’s hanging above our heads indoors dramatically affects how we feel in a space. If you have a textured or popcorn ceiling, refinishing it to be smooth can instantly brighten and update your living room. It’s a messy DIY project, but one experienced painters or contractors can do while keeping the mess to a minimum.

If the ceiling would benefit from a new coat of paint, veering from the standard white might give the room a stylish quality. Light hues can create the illusion of a taller space, while something a little darker can evoke coziness.

Flooring

Along with layout and paint, flooring has perhaps the biggest impact on a room. It’s a large, dominant, visual element that affects how sound echoes in the room or carries beyond it, how much light reflects into the room, and how much dirt shows up.

When buying a new home, checking what’s under the carpet might reveal lovely hardwood floors in pristine condition—or it might reveal a mess of a subfloor. Knowing what you will have before signing the mortgage agreement will allow you to make a plan for any needed renovations. For a quick change, don’t underestimate a simple area rug.

Recommended: Top 10 Home Projects With the Highest ROI

Molding

Molding hits the sweet spot of a decorative finish that feels structural. The trim around windows and doors, crown molding and baseboards, picture and knee rails—all inform the character of a space and add visual interest and structure. In particular, if things feel blank or sterile, adding decorative trim can make a space a little more impressive.

Paint

Fresh paint works wonders. Even if you don’t have time or budget for anything else, reimagine the wall color. Samples painted on the wall will show how the room’s light will affect the paint. Many paint brands now also offer virtual ways to “paint” your room.

Just as a room’s lighting can affect your mood, paint color has an effect on one’s psyche, too. For instance, the color blue has been shown to have a calming effect, while red has a stimulating effect and can create feelings of excitement or even stress in some people.

Furniture and Decoration

You can replace it, move it, or just pull it from another room. Alone or in conjunction with other major changes, furniture and decor have a major effect on the finished space—and keeping layout top-of-mind when selecting furniture will help make sure it’s the right stuff for the space.

Using online room planners or going old school with graph paper to map out, to scale, what will go where is a good way to experiment without the heavy lifting.

The Takeaway

Deciding how much you can—or want—to invest in a living room remodel is likely the place to start after deciding changes need to be made. Some changes, like moving furniture from one room to another or changing a paint color, can probably be done inexpensively. But if the living room makeover is a total one, additional funding might be necessary. That’s where a home improvement loan from SoFi might help.

With lower interest rates than credit cards and no fees, using a SoFi unsecured personal loan to pay for home improvements can get your home into loveable condition in no time.

Check your rate on a home improvement loan from SoFi.



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

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOHL21007

Source: sofi.com

What to know about FICO’s new credit scoring system – Lexington Law

A woman looks at her credit card.

Disclosure regarding Lexington Law’s editorial content.

The Fair Isaac Corporation (FICO) has announced it will be updating its credit scoring system this summer when they roll out the FICO Score 10 and 10T, which together represent the biggest change to the FICO system since 2014. 

The new system is designed to help identify high-risk borrowers by incorporating people’s history of credit behavior, paying special attention to those who use personal loans to consolidate debt but do not pay that debt down. FICO has estimated that about 110 million users will see a change in their credit score under the new FICO 10 and FICO 10T systems.

Here we’ve broken down how the new system works, what effect you can expect it to have on your score and what to do differently under the new system.

What’s Different About the New Credit Scoring System?

The new FICO scoring system allows lenders to incorporate “trended data” that shows how responsibly a borrower behaves with regard to credit. It also adjusts how important certain information is when calculating your score.

Factors weighed more heavily in the new FICO scoring model include:

  • Personal loans, especially those used to consolidate credit card debt
  • Delinquencies, especially those in the past two years
  • Credit utilization ratio
What's different about the FICO 10/10T? They weigh personal loans, history of delinquencies, and credit utilization ratio more heavily.

Will My Credit Score Change?

Though millions are likely to see their scores change as a result of the switch to the FICO 10, not all of these changes will be significant, and some users could even see their scores receive a boost. FICO representatives estimate that about 40 million—with already high credit scores—could see their credit scores increase by a small amount, with another 40 million seeing a decrease in their scores.

Consider these factors and try to predict how your score may change in the switch to the FICO 10.

You’re likely to see a drop if:

  • You’ve had recent delinquencies.
  • You consistently carry a balance on your credit cards.
  • You took out a personal loan to consolidate credit card debt.
  • You’ve maintained a high credit utilization ratio in the past two years.

You’re less likely to see a drop (and your score might even increase) if:

  • You’ve stayed current on your payments in the past two years.
  • You’ve maintained a healthy credit utilization ratio in the past two years.
  • You only put high balances on your credit cards occasionally and pay those balances down quickly.

Note: The FICO 10 will become available in the summer, but that doesn’t mean lenders will start using it right away. Many lenders still use FICO 8 or FICO 9.

What Can a 20-Point Difference Make?

According to FICO, most users whose credit scores change with the new system will see a difference of around 20 points. While that may not seem like much, a 20-point difference can be significant.

Here are three ways a 20-point drop in credit score can impact you:

1. Higher Loan Interest

Depending on where your score started, a 20-point drop can cost you significantly when it comes to taking out a home mortgage or auto loan. For example: On a 30-year fixed rate mortgage of $200,000, someone with a 660 credit score will pay about $18,000 less in interest than someone with a 640.

2. Higher Premiums on Insurance

Credit is also one of the factors that determines the amount you must pay in insurance premiums, and a 20-point difference can be significant there as well. According to insurance comparison site The Zebra, the average difference in annual premiums from “very good” (740 – 799) to “great” (800 – 850) credit is $116.

3. Weaker Loan Applications

If your credit was already on the low side, a 20-point drop may do more than increase your interest and premiums—it can actually disqualify you for a number of applications. For instance, most low-interest mortgage programs (like FHA, VA and USDA) have strict minimum credit score requirements.

Minimum credit scores for various loan programs: 500–579 for an FHA loan at 10% down, 580 for an FHA loan at 3.5% down, 620 for a VA loan, 640 for a USDA loan, and 680–720 for a jumbo loan.

How Can I Keep My New Credit Score Up?

Best practices for keeping your credit score healthy will remain unchanged even after FICO rolls out its new system. However, certain tactics will be more powerful than others using the new FICO calculations.

Here are three key tactics for maximizing your new FICO score:

1. Keep Detailed Financial Records

The new credit scoring system weighs the last two years of debt balances, so it’s important to have accurate records on all of your lines of credit going back at least that far. Keeping pristine records of your debts is the first step to identifying and solving any problems or discrepancies. 

2. Pay Credit Balances Early in the Month

Even though it amounts to the same as paying your bill once a month, paying your credit balance twice a month or even once a week can improve your credit score. By preventing your credit balance from ever getting too high throughout the month, you lower your credit utilization score, which is weighed heavily under the new system.

3. Sign Up for Boosted Credit Services

Alternative credit models like UltraFICO and Experian Boost raise users’ credit scores by incorporating “extra” data, like utility bills and rent payments. If you’re not enrolled in one of these services and you’re concerned about your score taking a plunge following the FICO 10 rollout, signing up could offset any negative impact caused by the new model.

Bottom Line: Good Financial Habits Are Always a Good Idea

When it comes down to it, good credit habits are essential, and none of the changes being made as part of the FICO scoring update are revolutionary. The same positive financial behavior that resulted in a great score with the old system will prove successful using the FICO 10 as well. 

However, those who stand to be most impacted by a 20-point change in their score—like anyone whose score is currently on the cusp of two different credit categories—may want to use this information to strategize how best to protect their score from changes. There are a number of ways to work on improving your credit health that range from simple tweaks to long-term changes to your financial habits. It’s always a good time to start prioritizing your financial well-being!


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Does refinancing a mortgage hurt your credit?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Adding anything new to your credit profile can alter your score a bit, though many of these changes are temporary in nature. Refinancing your mortgage can temporarily lower your score, but how much and for how long depends on a variety of factors. Find out more below about whether refinancing your mortgage will hurt your credit and what you can do to protect your score.

What Is Refinancing?

Refinancing means taking out a new loan to pay off your old one. For example, if you owe $200,000 on a $300,000 home and your credit is good enough, you can get a different mortgage to pay off that $200,000. You then start paying the new mortgage.

Why would someone refinance a mortgage? Reasons can include:

  • To get a better interest rate if their credit or the market is more favorable
  • To get different loan terms that better match their financial goals—for example, they might refinance a 15-year mortgage to a 30-year mortgage to reduce the amount they owe each month
  • To benefit from cash-out equity—if you owe $200,000 on a home valued at $300,000, you could get a loan for more than the $200,000 you owe and get the difference back in cash to help cover a large expense

While refinancing can be beneficial, it’s not something to do lightly. It comes with expenses, such as closing costs, and does have an impact on your credit. Avoid being a serial refinancer, which is someone who is constantly turning over their mortgage into a new one.

How a Mortgage Refinance Can Damage Your Credit

The impact of a mortgage refinance (“refi”) on your credit depends on your situation and where you stand financially. Here are two specific ways refinancing your mortgage can hurt your credit.

Credit Checks

Hard inquiries can occur when someone pulls your credit report for the purpose of evaluating you for a loan. These can drop your score by a bit. The more hard inquiries on your credit report, the more your score drops, especially if the inquiries are spaced out over the course of many weeks.

Plus, a lot of inquiries on your report can make you look like a desperate borrower, which doesn’t endear you to future potential lenders.

Hard inquiries usually stay on your credit report for two years. However, they only impact your credit score for the first 12 months.

Closing a Loan Account

When you pay off your existing mortgage with a refinance, that account is closed. Eventually, it will age off of your credit report.

One of the factors that’s used to determine your credit score is the overall age of your credit. That means the total amount of time you’ve personally had any credit history, as well as the average age of your open accounts. If you refinance a mortgage, you could be losing an account with a good amount of age on it, and that can temporarily drop your score a bit.

Handle Your Refinance Like a Pro

If refinancing is the right choice for you financially, you can’t avoid the impact of closing an account and opening a new one. But there are some things you can do to help reduce the impact on your credit score.

Be Smart About the Timing

Limit how many hard inquiries are reported by timing your mortgage applications appropriately. The credit scoring models understand that consumers need to shop around for rates and terms, so they group certain types of inquiries as one event as long as they take place within a certain amount of time.

For example, mortgage applications within the same two-week time frame typically count as one inquiry for any scoring model.

You might also want to try a refinance when you haven’t recently applied for other types of credit, such as a personal loan or credit card. Disparate types of applications are listed as different hard inquiries even if you apply for them all around the same time.

Weigh the Pros and Cons

In many cases, a refinance is a negligible and temporary hit to your credit score, so if you’re going to get a good benefit from the action, you might choose to go forward. Just do your research. Use a mortgage calculator to ensure you’ll save money with a refinance before you commit to a new loan.

Don’t Forget About Refinancing Fees

You may need to pay closing costs or other fees when you refinance, so don’t forget to account for those when you’re weighing the benefits. If a refinance saves you $5,000 over the course of the loan and you’re paying $7,000 in closing costs, it’s likely not a good move.

Continue to Make Payments

Remember that your intent to refinance or even an application for a new mortgage doesn’t mean you’re off the hook for payments on your old mortgage. Don’t stop making timely payments until you’re sure the old loan has been paid off and closed.

Sometimes people don’t make a payment they owe this month because a refi is pending on the current total amount owned. But if you pay late, that can mean your payment is reported late to the credit bureaus, which can be a nasty hit to your credit score.

Don’t worry about overpaying and wasting any money on your old mortgage—if there’s a difference between your payments and the refi amount you overpay, the old mortgage company must refund that difference to you.

Once you’re set up with the new mortgage, ensure you make timely payments on that loan. Payment history is the largest factor in your credit score, so paying your bills on time and consistently is the best way to erase any temporary damage a refinance might have done to your credit score.

Check Your Credit Before and After

Being in the know about your credit score is one of the best ways to protect it, regardless of what financial actions you’re taking. Check your score before you refinance a mortgage to ensure everything’s in order and help you understand what types of mortgage might be right for you.

Check it afterward to keep an eye on things as your credit recovers from any temporary blip that might occur. If you find anything on your credit report that’s wrong or you’re surprised by a lower-than-expected credit score, you might need to do some credit repair work.

Find out more about how Lexington Law can help you address inaccurate negative items on your credit report and work toward a generally more positive credit future.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Are Kit Homes Worth the Investment?

You can order anything on the internet these days—even a house. But as with other online purchases, it’s a good idea to do some research first.

Kit houses are often considerably more affordable than a new home custom built from the ground up. And just like other homes, they have the capacity to appreciate in value (though it’s not guaranteed).

Read on to learn whether or not a kit home might be the right investment for you.

What Is a Kit Home?

Kit homes, or modular homes, are sent to buyers in pieces so they can construct the building themselves (albeit usually with professional help). Think of it like an IKEA purchase, except you’re buying the whole house, not just a set of drawers… and you might need a crane to get the pieces together.

Remember the Sears mail-order kit homes? The catalog, debuting in 1908, offered all the materials and blueprints to build a house. Sears is estimated to have sold around 75,000 kit houses by the time the catalog was discontinued, in 1940. Many of the homes are still standing.

These days, kit houses come in a huge variety of designs and styles, from one-room log cabins to three-bedroom homes with sleek, contemporary designs. Many companies offer a menu of layout options, or buyers may be able to customize the features of a kit home before it’s sent to the construction location.

(Note: Kit homes are different from mobile homes. They’re built on a standard foundation, just like any other “brick-and-mortar” house, and cannot be moved to a new location once they’ve been installed.)

How Much Do Kit Houses Cost?

Case in point: According to HomeAdvisor, the average modular home costs $40 to $80 per square foot in and of itself. But with all of those other factors considered, the organization estimates that modular homes end up costing $100 to $200 per square foot, which works out to a range of $180,000 to $360,000 for a 1,800-square-foot home—or $270,000 on average.

That doesn’t count any land purchase, property taxes, or furnishings. So make no mistake about it: Even with a kit, building your own home is an expensive venture.

As with any other kind of house, a kit home’s cost depends in part on its size, design, and quality of materials. And while you can find kit home shells online for shockingly low prices, it’s important to understand that the cost of the kit home is just the start of the total building project cost.

A buyer must also consider any shipping cost and taxes, the cost of the foundation, the cost of preparing the property to be built on (including clearing the land, connecting to the grid, digging wells, and installing septic, if necessary), and, usually, the labor costs of actually putting the home together.

That said, HomeAdvisor estimates that the cost of building the same size custom home from scratch using contractors ranges from $350,000 to more than $1 million. So if you have an undeniable urge to DIY your homeownership venture, a kit house might well be the more affordable option. Just remember, either way, it won’t be cheap!

Furthermore, whether or not a kit home ends up being a more cost-effective choice often depends on location. While kit houses are almost always cheaper than homes designed by contractors when you’re living in an urban area, for those in rural zones, it may be cheaper to do it the old-fashioned way.

Recommended: Home Affordability Calculator

Do Kit Homes Hold Their Value?

One of the main reasons many people choose to become homeowners is to put money into an asset that has the capacity to appreciate in value over time. That way they can feel assured that the money they’re spending to keep a roof over their heads isn’t disappearing into the ether and that they can sell the home later and make a profit.

The good news: Many real estate professionals agree that kit or modular homes can appreciate in value over time and are often appraised similarly to stick-built homes (as opposed to mobile homes, which often depreciate in the same way that vehicles do).

But as with all things in life, and particularly in money, nothing is guaranteed. A kit home’s existing and ongoing value will depend on its location, quality, and level of maintenance, and just like other houses, might benefit from home improvement projects before selling.

Recommended: Renovation and Remodeling Cost Calculator

Can You Finance a Kit Home?

Even with their relatively low costs, kit homes are often expensive enough that most buyers will be unable to pay in cash and will need to finance the project. However, because a kit home is not an existing structure, the most common route for financing is a construction loan rather than a traditional mortgage.

Construction loans work differently than mortgages do: They’re much shorter-term loans, generally needing to be paid off in a year or less—although construction-to-permanent loans, which roll over into a traditional 15- or 30-year mortgage once the home has been constructed, do exist.

Construction loans can also be used for significant home renovations, such as building a home addition. For smaller home improvement projects, a personal loan will often suffice.

Keep in mind that because construction loans don’t come with collateral (i.e., an already-standing home structure) for the lender to repossess should the loan agreement fall through, they can be harder to qualify for than traditional mortgages.

Recommended: How Do Construction Loans Work?

The Takeaway

Kit homes allow buyers to avoid the costs of a custom stick-built home by delivering blueprints and materials to put a house together. But the base price of a modular home is just one part of the total expense.

Whether your homeownership journey involves a kit home or contractors, or you opt to purchase an existing home, SoFi offers financial products that could help make your dreams a reality.

SoFi offers a range of mortgages with competitive rates and a down payment as low as 5%, and also offers no-fee, low-interest personal home improvement loans of up to $100,000.

Either way, you’ll open the door to a host of exclusive member benefits.

Find your rate on a SoFi fixed-rate mortgage in two minutes.



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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

SOHL21016

Source: sofi.com