Interest-only mortgages let you pay just the accruing interest on your loan for an introductory period — but they come with high payments once that period ends.
These loans mainly benefit those planning to move or anticipating a big income increase within a decade.
Since the Great Recession, interest-only mortgages have been hard to find due to their high risk.
An interest-only mortgage allows you to pay only the interest on your loan for a set period. This type of mortgage can help you more easily afford the payments in the short term — but not without some drawbacks. Here’s what to know.
What is an interest-only mortgage?
An interest-only mortgage is a home loan that allows borrowers to make interest-only payments for a set amount of time, typically between seven and 10 years, at the start of a 30-year term. After this introductory period ends, the borrower pays principal and interest for the remainder of the loan at a variable interest rate.
In the early 2000s, homebuyers gave in to the instant gratification of mortgages that allowed them to make interest-only payments at the start of the loan, so long as they took on supersized payments over the long term. This was one of the risky practices that contributed to the housing crisis in 2007, leading to the Great Recession. In the end, many people lost their homes.
Some lenders still offer interest-only mortgages today — often as an adjustable-rate loan — but with much stricter eligibility requirements. They are now considered non-qualified mortgages (non-QM loans) because they don’t meet the backing criteria for Fannie Mae, Freddie Mac or the other government entities that insure and repurchase mortgages. Simply put: an interest-only mortgage is a riskier product.
How do interest-only mortgages work?
With an interest-only loan, you’ll pay interest at a fixed or adjustable rate during the interest-only period. The interest rates are comparable with what you might find with a conventional loan, but because you’re not paying any principal, the initial payments are much lower. However, they may still include property taxes, homeowners insurance and possibly private mortgage insurance (PMI).
Even though you’re only required to pay the interest at first, you still have the option of paying down the principal during the loan’s introductory period.
At the end of the initial period, borrowers must repay the principal either in one balloon payment at a set date, which can be very large, or in monthly payments (that also include interest) for the remainder of the term. These payments of principal and interest are going to be larger than the interest-only ones. And, because your principal payments are being amortized over only 20 years instead of 30, those payments will be higher than those of someone with a traditional 30-year loan.
You can refinance after the interest-only period is over, although fees will likely apply.
Example of an interest-only mortgage
Say you obtain a 30-year interest-only loan for $330,000, with an initial rate of 5.1 percent and an interest-only term of seven years. During the interest-only period, you’d pay roughly $1,403 per month.
After this initial phase, with our interest-only loan example, the payment would rise to $2,033 per month — assuming your rate doesn’t change. Many interest-only loans convert to an adjustable rate, so if rates rise in the future, yours will, too (and vice versa).
With a 30-year fixed-rate mortgage for the same amount, you’d pay $1,882 per month. This includes principal and interest, and also accounts for the higher rate on this type of loan — in this case, 5.54 percent.
With both the traditional fixed-rate option and our interest-only loan example, you’d pay a total of about $677,000, with around $347,000 of those payments going toward interest. As you can see, however, you’d ultimately have a higher monthly payment with an interest-only loan. If your interest-only loan requires a balloon payment instead, you’d be on the hook for several hundred thousand dollars.
How to qualify for an interest-only mortgage
Interest-only loans have been harder to come by since the housing crisis of the mid-2000s. Fewer lenders offer them, and banks have set stricter requirements to qualify.
Banks generally only offer an interest-only mortgage to a well-qualified borrower. You’ll likely need:
A credit score of 700 or more
A debt-to-income (DTI) ratio of 43 percent of less
A down payment of 20 percent or more
Solid proof of future earning potential
Ample assets
Should you consider an interest-only mortgage?
The best candidates for an interest-only mortgage are borrowers who have full confidence they’ll be able to cover the higher monthly payments when they arise. This kind of home loan might be right for you if:
You’re in graduate school and want to keep repayments low for now — but anticipate having a high-paying job in future
You have a trust that will start releasing assets at a future date
You flip houses and need to keep expenses down during the remodel
You expect to move before the end of the introductory period
Interest-only loans can be a prudent personal finance strategy under certain circumstances, but they’re not a good idea for everyone. Here are some pros and cons:
Pros of interest-only mortgages
You get more house for your money. You can enjoy a larger home for less money while you save up for a larger mortgage. That’s assuming you have a sound plan in place for when those larger payments eventually kick in. Bankrate’s affordability calculator can help you estimate how much house you can afford.
Interest-only payments are smaller than conventional mortgage payments. The initial monthly payments on interest-only loans tend to be significantly lower than payments on conventional loans, and the interest rate may be fixed during the first part of the loan. Bankrate’s interest-only mortgage calculator can help you determine what your monthly payment would be.
You kick higher payments down the road. You can delay making large mortgage payments or avoid them entirely if you plan to move out of your home before the introductory period ends.
If interest rates are high now, you can avoid them. If rates are anticipated to be lower in the future, you can keep your monthly payments relatively affordable and then reap the benefits of lower rates by the time the interest-only period ends.
Cons of interest-only mortgages
You won’t build home equity. As long as you’re only paying interest, you’re not building equity in your home. And if your home’s value depreciates, you could end up upside-down on your mortgage or risk negative amortization.
You might get an unaffordable payment after the interest-only period. You could encounter serious sticker shock when the interest-only period ends, and your monthly payments suddenly double or triple, or if you have to make a sizable balloon payment at the end of the initial period.
You’ll be at the mercy of market interest rates. If rates have risen since the loan originated, when the intro period ends, you may have a payment much higher than you want.
If your income changes, the home may be unaffordable down the road. Your anticipated future income might not match your expectations, saddling you with more house than you can afford.
Alternatives to an interest-only mortgage
Before you take on this kind of loan, ask yourself: what is an interest-only mortgage going to do for you? Make sure you think long-term.
If you want to avoid this higher-risk form of home financing, you can explore other types of mortgages. Many adjustable-rate mortgages also have a long, low-interest introductory rate period — and, since the payments include some principal, you’ll be building equity during it.
If you’re drawn to interest-only loans because of the low monthly payment, explore government-backed loans like one from the Federal Housing Administration (FHA). These can give you more affordable payments without the future jump that comes with an interest-only mortgage.
Can I change to an interest-only mortgage?
It is possible to refinance a traditional mortgage to an interest-only loan, and borrowers might consider this option as a way to free up money to put toward short-term investments or an unexpected expense. So, how do interest-only loans work as a refi? You would meet the same scrutiny and requirements as you would if applying for a first-time interest-only loan.
The same eligibility criteria for refinancing also apply, and some lenders may raise the bar since it is a higher-risk loan.
In any refinance, you will need to receive a home appraisal and pay closing costs and fees. Refinancing can cost 3 percent to 6 percent of the home’s total amount. In addition, if you have less than 20 percent equity in your home, you will be required to pay PMI.
Inside: Proofreading is more than just catching errors; it’s an essential final touch in the writing process. If you want to turn your attention to detail into a career, allow this guide to enlighten your path to becoming a professional proofreader.
In a rapidly advancing digital age characterized by burgeoning AI capabilities, the art of proofreading remains not only relevant but fundamentally essential.
Today, proofreaders are the unsung guardians of clarity, maintaining and enhancing the rich tapestry of the written word. They are the bridge between AI’s raw computational power and the intricate subtleties of human expression. To embark on In today’s AI-driven era, the role of a proofreader is evolving yet remains an indispensable asset in the echelons of written communication.
While spellchecker tools and grammar correction algorithms, such as those embedded in Google Docs and implemented by Grammarly, streamline basic editing tasks with a click, the nuanced understanding of language intricacies still falls within the human domain. It is the human eye that captures the essence of context, tone, and the writer’s singular style—factors that AI, in its current state, is yet to fully comprehend.
Becoming a proofreader offers the flexibility to be your own boss and set your own schedule, allowing you to work around other life commitments.
With the consistently high demand for proofreading and the ability to work from anywhere, it provides both a stable career path and the opportunity to experience new and interesting careers.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Understanding What a Proofreader Does
A proofreader is a guardian of grammar, a sentinel of syntax—a final reviewer ensuring that texts are free from errors before they reach the public.
This vital role involves meticulous examination for any slips that might diminish the quality and clarity of the final product.
How do I become a proofreader with no experience?
Breaking into proofreading without prior experience may seem daunting, but it’s entirely attainable.
Initiate your journey by seeking comprehensive training, such as a proofreading course, which often includes substantial practice material to simulate real-world experience.
This is one of the best ways to make money online for beginners.
What qualifications do I need to be a proofreader?
While there’s no fixed rulebook for proofreading qualifications, a command of language and a fine-tuned eye for detail are essential.
A formal certification is beneficial, but it’s your demonstrated skills and experience that will truly make you a sought-after proofreader.
How to Become A Proofreader
Breaking into the world of proofreading can transform your passion for words into a lucrative career or a flexible side job.
This section will explore the meticulous path to becoming a professional proofreader, offering practical tips to help you refine your skills, equip yourself with the necessary tools, and navigate the job market effectively. From cultivating a deep love for reading to marketing your expertise, we’ll guide you through each step to ensure your journey toward proofreading proficiency is clear and achievable.
This is how you can make 10k a month.
Step #1 – Acquiring Essential Proofreading Skills
Attention to detail is the cornerstone of proofreading, as it enables you to catch mistakes that others may overlook. Equally crucial is a strong command of the language, allowing you to navigate through intricate grammar and punctuation with precision, ensuring the text reads flawlessly.
Understanding varied writing styles and mastering style guides like Chicago, APA, and AP is pivotal in proofreading.
This knowledge ensures accuracy in diverse documents, adapts to client preferences, and maintains the document’s integrity according to recognized standards.
Make sure you are great at meeting deadlines!
Step # 2- Certification and Training for Proofreaders
Deciding on a proofreading certificate depends on your career strategy. While not mandatory, a certification can bolster your credibility, demonstrate your commitment to the craft, and may provide a competitive edge when approaching potential clients or employers in the industry.
Selecting the right proofreading course is crucial for gaining a strong foothold in the industry.
Search for programs with a balanced mix of theory and applied learning, mentorship from seasoned professionals, and ideally, one that aligns with your specific area of interest within the broad field.
Also, look for courses that help you to land your first proofreading gig. You want to see any typo fast!
Transcript Proofreading
Get the step-by-step guide Caitlin Pyle used to build a thriving at-home business making a full-time income!
A booming legal industry means that transcript proofreaders are in higher demand than ever…
Step #3 – Building Your Proofreading Toolkit
Every proofreader needs a reliable set of tools. Essential software includes Microsoft Word for detailed editing, Google Docs for easy collaboration, Grammarly for grammar checks, the Hemingway App for readability improvements, and McGraw Hill’s Proofreading Guidebook as a comprehensive reference.
Crafting an efficient proofreading process is key to maintaining high standards of work.
This involves systematic reading for different types of punctuation errors or grammar mistakes, employing tools strategically, and setting up checklists that align with specific document requirements to ensure a thorough review every time.
Step #4 – Gaining Practical Experience
Practical experience in proofreading is invaluable as it not only sharpens your eye for detail but also builds a robust portfolio that demonstrates your ability to handle diverse materials. Many people start with a blog.
It provides tangible proof of your skills to prospective clients, showcasing your efficiency in enhancing various texts, which is often more convincing than theoretical knowledge alone.
Formal Education vs. On-the-Job Experience: Formal education in English or communication can provide foundational knowledge, but isn’t always required for proofreading roles. On-the-job experience develops the practical skills needed to succeed in the field.
Volunteering and Internship Opportunities: Volunteering and internships offer valuable experience and are a practical approach to entering the publishing industry. Seek opportunities for content editing for student publications, small businesses, or nonprofit organizations to hone your skills and grow your professional network.
Practice with Real-world Editing Exercises: This prepares you for client work. Utilize resources like Purdue Writing Center’s exercises or the Chartered Institute of Editing and Proofreading’s quizzes to test and refine your abilities in a practical, hands-on manner.
Step #5 – Marketing Yourself as a Proofreader
Marketing yourself as a proofreader is pivotal in attracting clients and establishing a steady work stream in a competitive industry. It is the key to building brand awareness and showcasing your expertise, differentiating your services in the crowded marketplace.
Creating a Professional Resume and Portfolio: To present yourself as a credible proofreader, craft a resume highlighting relevant skills and experiences. Include a portfolio showcasing a range of proofreading projects. If you’re starting, include testimonials and detail any related training or certificates to demonstrate your commitment and competence.
Networking and Leveraging Online Platforms: Utilize platforms like LinkedIn to connect with industry peers and potential clients. Participate in forums and proofreading groups to stay informed and visible in the community. Engaging actively online can lead to valuable opportunities and collaborations.
Delve deeper into your craft with advanced courses and stay updated on language trends. Embracing niche specialization, such as legal or technical documents, can heighten your expertise and attract a more specific clientele.
Step #6 – Finding Freelance Proofreading Jobs
For entry-level proofreaders, platforms like Fiverr can kickstart your gig journey despite its low-cost market reputation. Check out Upwork or AngelList for a broader scope of opportunities.
Specialized job boards or proofreading service companies can also offer targeted job prospects to grow your experience.
Professional courses, such as those offered by Proofread Anywhere, can significantly enhance your skills, thereby increasing your likelihood of securing clients.
Step # 7 – Setting Competitive Rates and Billing Clients
Determining competitive rates for your proofreading services involves accounting for your skill level, the complexity of the work, and industry standards.
According to Proofread Anywhere, those who are starting can expect to earn around $0.03 per word, while proofreaders with a few years of experience often earn around $0.10 to $0.15 per word.
Remember to underscore value over price to clients, and utilize professional invoicing software for billing.
For many, this provides a great life-work balance for those wanting to make money as a stay at home mom.
Learn the Skill to Proofread Anywhere
Are you passionate about words and reading?
If so, proofreading could be a perfect fit for you, just like it’s been for countless of my readers!
Learn how you can create a freelance business as a proofreader.
Step #8 – Scaling Your Proofreading Career
Scaling your proofreading business involves more than just honing your skills; it requires a strategic approach to marketing to attract a broader client base. By concentrating on active marketing techniques like networking and reaching out to potential clients, you can accelerate the growth and scalability of your proofreading services.
Transitioning from freelancing to business ownership requires deliberate planning and goal-setting. You must establish a realistic timeline and create a comprehensive business plan outlining services, target clients, and marketing strategies.
Don’t forget to consider also the administrative and financial duties that come with business management.
Also, continuous skill improvement is critical to staying competitive as a proofreader.
FAQs
No, a degree is not a prerequisite for becoming a proofreader. Various paths lead to a career in proofreading, and while some positions may require a degree, many others prioritize skill, precision, and practical experience over formal education.
According to Proofread Anywhere, a proofreader can earn an annual salary of around $53,733 per year. However, the salary depends on experience, skill, niche, and who you work for.
But with the right strategies, the potential to earn more is significant, especially for skilled freelancers.
Without experience, focus on platforms offering entry-level proofreading jobs such as Fiverr, Upwork, or FlexJobs. Networking can also be a powerful tool; let your personal and professional contacts know you’re offering proofreading services. Finally, consider volunteering to build your portfolio and gain references.
Now, How to get Proofreading Work?
Embarking on a journey to become a sought-after proofreader can be significantly streamlined by enrolling in the Proofread Anywhere course.
By choosing this comprehensive program, individuals gain access to expert knowledge and practical tips from someone with proven success in the industry.
Not only will the course equip you with the essential skills needed to identify errors and enhance text quality, but it also serves as a springboard for securing gigs and establishing a thriving freelance business.
Additionally, Proofread Anywhere connects you with a network of like-minded professionals, which can be invaluable as you navigate the competitive field of proofreading. Set yourself apart from the competition by starting with a course that offers a direct route to proficiency and professional recognition in the proofreading world.
If you are looking to make 5000 dollars fast, this is a great method.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates remain above 7%, according to data from Curinos analyzed by MarketWatch Guides. The 30-year fixed-rate mortgage is 7.17% today, down-0.21 percentage points from last week.
With mortgage rates above 7% and home prices showing no signs of dropping, home affordability has continued to decline, according to the Mortgage Bankers Association (MBA). An MBA report published last week showed that the median monthly payment for new home purchases in the U.S. increased to $2,134 in January – up 4% from the month before.
Prospective home buyers may see rates drop more substantially this year, however. The Federal Reserve board previously indicated that it expects three rate cuts throughout 2024 and their next meeting is scheduled for March 19-20.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.17%
15-year fixed mortgage rate: 6.53%
5/6 ARM mortgage rate: 6.93%
Jumbo mortgage rate: 7.02%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.17%
7.38%
-0.21
15-Year Fixed Rate
6.53%
6.72%
-0.19
5/6 ARM
6.93%
7.02%
-0.09
7/6 ARM
7.09%
7.23%
-0.14
10/6 ARM
7.24%
7.35%
-0.11
30-Year Fixed Rate Jumbo
7.02%
7.17%
-0.15
30-Year Fixed Rate FHA
6.96%
7.17%
-0.21
30-Year Fixed Rate VA
6.98%
7.16%
-0.18
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Friday, March 08, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.21
The average 30-year fixed-mortgage rate is 7.17%. Since the same time last week, the rate is down, changing -0.21 percentage points.
At the current average rate, you’ll pay $676.76 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.38%.
15-year fixed-rate mortgages are down, -0.19
The average rate you’ll pay for a 15-year fixed-mortgage is 6.53%, a decrease of-0.19 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.53% will cost approximately $872.76 per $100,000 borrowed. With the rate of 6.72% last week, you would’ve paid $883.25 per month.
5/6 adjustable-rate mortgages are down, -0.09
The average rate on a 5/6 adjustable rate mortgage is 6.93%, a decrease of-0.09 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.93% will cost approximately $660.61 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.15
The average jumbo mortgage rate today is 7.02%, a decrease of-0.15 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$676.76
$691.02
-$14.26
15-Year Fixed Rate
$872.76
$883.25
-$10.49
5/6 ARM
$660.61
$666.65
-$6.04
7/6 ARM
$671.36
$680.82
-$9.46
10/6 ARM
$681.50
$688.97
-$7.47
30-Year Fixed Rate Jumbo
$666.65
$676.76
-$10.11
30-Year Fixed Rate FHA
$662.62
$676.76
-$14.14
30-Year Fixed Rate VA
$663.96
$676.08
-$12.12
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The 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.
The United States Department of Veterans Affairs doesn’t have a minimum credit requirement for loans. However, private lenders are usually more favorable to applicants with a credit score of at least 500.
The United States Department of Veterans Affairs (or VA for short) doesn’t have set credit requirements for loans. Yet, “What is the minimum credit score for a VA loan?” remains a common question. This is because there are private lenders who also offer VA loans—and who typically have specific credit requirements for borrowers.
Most private lenders are willing to work with applicants who have at least a 500 credit score. The higher your score, the more likely you are to obtain a loan. Here, we’ll discuss the nuances of credit scores and the military‘s requirements for VA loans. We’ll also share how Lexington Law Firm can assist you on your credit-building journey.
Key takeaways:
The VA has a special debt relief program for veterans.
Veterans can qualify for unique loans.
The Servicemembers Civil Relief Act only applies to active-duty members.
The minimum credit score for a VA loan
The VA doesn’t require a minimum credit score for loans. Private lenders, however, will use your credit score to gauge your eligibility and set your interest rate. Applicants with higher credit scores tend to receive better rates, and private lenders tend to look favorably on applicants with good credit scores (670 – 739, according to the FICO® model).
That said, it’s still possible to get a loan with bad credit. Applicants with low credit scores can make a higher down payment if they have the capital to do so. Applying with a cosigner is also another valid alternative; lenders will look at the creditworthiness of both signees when deciding whether or not to approve you.
What are the VA loan eligibility requirements?
VA loans have unique qualifiers besides credit scores that applicants will need to keep in mind. Since the Department of Veterans Affairs primarily works with service members who’ve already retired, many active-duty service members may not be eligible for VA loans.
Below, we’ll break down the eligibility criteria for VA loans by category.
Credit and income Information
We know the VA doesn’t have strict limits on credit, but they do require proof of income. Applicants will also have much better odds if their debt-to-income ratio is below the 44 percent threshold.
Discharge status
So long as an applicant wasn’t dishonorably discharged from service, they are eligible for a loan. Unless a service member was deemed insane when they were charged, title 38 of the United States Code (38 U.S.C. § 5303) states that individuals are susceptible to a statutory bar to benefits if they were released or discharged for any of the following reasons:
Was sentenced to a general court-martial
Was a conscientious objector and refused to comply with lawful orders of competent military command
Deserted their post
Resignation by an officer for the good of the service
Being absent without official leave (AWOL) for a consistent period of 180 days or more
Requested release from service as an alien during a period of hostilities
Certificate of eligibility
You’ll need a certificate of eligibility (COE) to apply for a VA home loan. Once you gain a copy of your discharge/separation papers, you can request your COE by mail, phone, through a lender or via the VA’s online portal.
Military service status
The requirements for this category will vary depending on your relationship with the military.
Active-duty service members: Must have 90 consecutive days of service.
Veterans: Must have 90 days of service during wartime or 181 days of service during peacetime.
National Guard or Reservists: Are required to have 90 days of active duty service or six completed years of service.
Spouses: Spouses of deceased or disabled service members.
Occupancy requirements
The VA has specific occupancy requirements to deter people from misusing their loans. VA loans are intended for primary residences, not investment properties or vacation homes. To that end, applicants can only secure VA for their primary residence and will need to submit proof of homeownership in most instances.
Applicants will also have 60 days after closing on a property to move in and occupy it as their primary residence. In certain circumstances (such as if an applicant is on active duty), this 60-day window will be extended.
What are the benefits of using a VA loan?
VA loans provide a host of advantages to anyone who can secure them. Several examples include:
No down payment: If you can secure a VA loan for your home, you won’t be required to offer a down payment. Applicants who want to lower their interest rate will still have the option to place a down payment.
Low-interest rates: Because VA loans are backed by the government, they traditionally come with some of the lowest interest rates available.
PMI isn’t required: Once again, thanks to government backing, VA loans let applicants save money by forgoing private mortgage insurance (PMI).
3 simple ways to improve your credit
We’ve established that private lenders prefer applicants with good credit. FICO, one of the most respected credit reporting companies in the world, defines good credit scores as any that fall between 670 and 739.
If your score isn’t already in that range, here are a few strategies to help you along the way.
Regularly make your payments on time
FICO considers payment history to be the most important factor when determining what affects your credit score. VantageScore®, a credit reporting company founded by Equifax®, Experian® and TransUnion®, also holds payment history in high regard.
Missing a payment can drastically hurt your credit. On the other hand, consistently making payments on time, even if it’s just the minimum payment, will steadily yield positive results.
Maintain a low credit utilization rate
Credit utilization looks at your credit borrowing trends—your current balances compared with your total credit limit determines your credit utilization rate for a given period. FICO and VantageScore urge borrowers to keep their utilization rates below 10 percent, though 30 percent and below is the next best option.
Dispute errors on your credit report
Errors can appear on your credit report that can dramatically lower your credit. It’s possible to challenge these errors and potentially have them removed, though many people may need help handling credit disputes.
Lexington Law Firm works to help people address these errors on their reports. Plus, we can also contact the major credit reporting bureaus on your behalf.
Monitor your credit with Lexington Law Firm
Low credit scores may make it harder to secure a VA loan. However, it’s never too late to improve your credit and bolster your eligibility. Lexington Law Firm offers unique credit repair services for veterans and service members whose credit may have altered during their time in the military.
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.
Reviewed By
Alexis Peacock
Supervising Attorney
Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona.
In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.
There are many types of scholarships, from academic to athletic and need-based to identity-specific scholarship programs. Recipients typically don’t need to repay the funds they receive in the form of scholarships, which makes this type of funding particularly appealing.
In a 2023 Sallie Mae survey, How America Pays for College, it found that 61% of U.S. families used scholarship funds to partly pay for college. The average scholarship award amount across school, state, and company or nonprofit sources was $8,005.
Despite this available aid, 29% of students who didn’t use scholarship funding said they didn’t apply because winning didn’t seem plausible. However, with so many different types of scholarships available, you might find one that can help you pay for school.
1. Academic Scholarships
Academic scholarships, also referred to as merit scholarships, are awarded to students who’ve demonstrated academic excellence or exceptional skill in an area. For example, a merit-based scholarship might be based on an applicant’s cumulative GPA.
This kind of scholarship is provided by numerous sources, including:
Schools
Some high schools provide academic scholarships to their top graduating seniors. Additionally, the college you’re attending might have scholarships available.
Federal
Nationally recognized organizations offer federal academic scholarships based on different criteria and specifications.
Local
Students might also find scholarships sponsored by their state, county, city, or local associations. 💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.
2. Athletic Scholarships
Athletic scholarships are offered to student-athletes by their college. These full- and partial-scholarship programs are offered to a select few students who have shown exceptional skill in their sport.
Typically, when participating in an athletic scholarship you’re expected to maintain satisfactory academic performance to continue receiving funding. Note that fewer than 2% of high school athletes are awarded athletics scholarships to compete in college.
Recommended: Balancing Being a Student Athlete & Academics in College
3. Scholarships for Extracurriculars
Students who participate in extracurricular activities might be able to find scholarship opportunities for their unique interests. For example, scholarships for students who dance, act, draw, or participate in Boy Scouts, Key Club, and more exist.
4. Student Specific Scholarships
There are many types of scholarships that are based on the student’s personal situation or affiliation. Some of these kinds of scholarships include:
Religious Scholarships
For example, your specific religious denomination. These scholarships are generally available to students who are actively involved in a faith-based community, or who are pursuing religion-based college courses.
First-Generation Scholarships
Students who are the first in their family to attend college may qualify for specific scholarships.
Legacy Scholarships
These scholarships are exclusively for students whose parents or close family members are alumni of the same institution.
Identity-Based Scholarships
In addition to the student-specific scholarships discussed above, scholarship programs are also available based on a student’s personal identity. Some identity-based categories include BIPOC, Women, and LGBTQIA+.
Hispanic Heritage
Scholarships are available based on heritage. Students of Hispanic or Latinx heritage may be able to qualify for specific heritage-based scholarships like those offered by the Hispanic Scholarship Fund.
African American
Specific scholarships are available for African American students as well.
Women
Scholarships for women are another subset of options.
LGBTQIA+
LGBTQIA+ identifying students may be eligible for scholarships as well.
Learning Disabilities
These scholarships are available to select students who have diagnosed learning and attention issues. For example, the National Center for Learning Disabilities offers scholarships.
5. Need-Based Scholarships
One of the most popular types of scholarships for college are need-based. These scholarships are accessible to applicants who have a demonstrated financial need, and a program might ask for proof, such as income documentation or FAFSA® information.
You can find need-based scholarships from national organizations, as well as within your state, local community, and even through your own school.
Recommended: What is Need-Based Financial Aid?
6. Employer Scholarships
Employer scholarships are offered to employees of a company or an employee’s college bound student. Aside from having an affiliation with the employer, students might need to meet other eligibility criteria to be selected for an award.
7. Military Scholarships
Private and public entities sponsor military scholarships for students who currently serve or have served in the U.S. armed forces. If you’re a first-time freshman and participated in Reserve Officer Training Corps, consider reaching out to your school’s ROTC officer to learn about your options.
8. STEM Scholarships
STEM scholarships are accessible to students who are pursuing a college education in a science, technology, engineering, or math discipline. Some scholarships programs are offered specifically to students who identify with a particular group; for example, STEM scholarships for minority students.
9. Scholarships Based on Major
Regardless of what you’ve chosen as your college major, there’s likely a scholarship suited for you. These scholarships are provided by some college departments, the school itself, or private organizations who want to encourage students to pursue a particular area of study.
10. No Essay Scholarships
This kind of scholarship explicitly doesn’t include a written essay or personal statement component. You might prefer this type of scholarship if writing isn’t your forte, but there might be another required component in its place, such as a video or other creative submission.
Applying for Scholarships
There are various types of scholarships for college, which means there are just as many different requirements and deadlines to stay on top of. When applying to a scholarship, double check that you meet the basic eligibility criteria as a student.
Depending on the type of scholarship, it might require a minimum GPA, or it might ask for proof that you have financial needs, for example. After confirming that you meet the applicant requirements, review the steps needed to apply.
Some scholarship programs might ask for a personal statement or other academic or creative submissions. Similarly, some might request additional paperwork as part of your application, like a copy of your school transcripts.
Finally, make sure you note each scholarship’s deadline and submit your application on time. The last thing you want is to have done all of the work only to be denied because of a missed deadline.
Alternatives to Scholarships
If you’d like to diversify your financial aid sources, there are alternative aid options, like loans for undergraduates and graduate students, as well as grants. To apply for federal financial aid, fill out the Free Application for Federal Student Aid (FAFSA) each year. Schools may also use the information provided on the FAFSA to award school-specific scholarships. Here are a few other options for paying for college.
Grants
Grants are provided by federal, state, school, and private sources. Like scholarships, they typically don’t need to be repaid.
Federal Student Loans
Federal student loans are available to undergraduate and graduate students, as well as parents of dependent undergrads. They’re funded by the U.S. government, and most federal loans don’t require a credit check. In addition to offering fixed rates, they provide access to income-driven repayment plans and loan forgiveness programs.
Private Student Loans
When scholarships, grants, and federal student loans aren’t enough to cover the total cost of college, a private student loan could help. These loans are funded by private lenders, and offer fixed- or variable-rate loans at different terms. These loans typically require a credit check or the addition of a creditworthy cosigner. Keep in mind that private student loans aren’t required to offer the same benefits, like income-driven repayment plans, as federal student loans.
The Takeaway
If you’re short on aid for your upcoming academic year, consider searching for unclaimed scholarships. There are a variety of scholarship types to consider, so you’ll likely come across at least a handful that you’re eligible for.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.
FAQ
What are the three most common types of scholarships?
Common types of scholarships for college are merit-based scholarships, need-based scholarships, and athletic scholarships. However, within these categories are sub-categories of scholarships based on specific eligibility factors.
How many different scholarships are there?
There are millions of scholarships being offered each year. According to Educationdata.org, more than 1.7 million scholarships are awarded annually.
What are competitive scholarships?
Competitive scholarships are prestigious national scholarship programs. They are often merit-based and are awarded to exceptional students who’ve demonstrated academic excellence, leadership, and who are considered the nation’s top students.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
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Comparing mortgage rates is key to keeping your mortgage costs lower. It’s also why you should shop around if you’re looking for a new mortgage deal. Whether you’re ready to compare mortgages right now or want to keep tabs on the latest mortgage rates in the UK, everything you need is here.
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How to get the best mortgage rates and deals
Mortgage rates vary depending on the type of mortgage you’re looking for, your financial situation and your credit score. But when we talk about getting the best mortgage rate, it’s important to find the best rate among the mortgage deals that suit you and your circumstances.
Mortgage fees and the features you want in a mortgage should always be considered alongside the mortgage rate when making mortgage comparisons and shopping around for any mortgage deal.
If you’re in any way unsure or want help finding the best mortgage deal for you we recommend you seek mortgage advice.
Are mortgage rates going down?
Mortgage rates have mainly been rising in the past week, continuing the upward trend seen during much of February. The average rate on two-year fixed-rate mortgages increased to 5.15% in the week to 28 February, rising from 5.08% a week earlier, according to Rightmove. At the same time, the average rate on five-year fixed-rate mortgages increased to 4.80%, up from 4.72%.
Many of the big UK lenders have increased the cost of their fixed-rate mortgages in recent weeks. However, average rates remain lower than at the beginning of the year, due to the significant rate cuts seen during the mortgage rate price war in January.
Some experts are predicting that more mortgage rate rises may be on the way. This is mainly because of expectations that the Bank of England base rate may need to stay higher for longer, to get inflation down.
What are current UK mortgage rates?
The average two-year fixed-rate mortgage rate, if you have a 25% deposit or equity, increased to 4.99% over the past week, up from 4.90%, while the average rate on a similar five-year fixed-rate mortgage rose to 4.70%, from 4.61%. If you have a smaller deposit or equity of 5%, the average two-year fixed rate remained unchanged at 5.79%, while the average five-year rate increased to 5.38%, from 5.35%. All rates are according to Rightmove as at 28 February 2024.
Latest average two-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.50%
4.62%
+0.12%
⇧
75% LTV
4.90%
4.99%
+0.09%
⇧
85% LTV
5.08%
5.14%
+0.06%
⇧
90% LTV
5.31%
5.38%
+0.07%
⇧
95% LTV
5.79%
5.79%
No change
⇔
Latest average five-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.19%
4.30%
+0.11%
⇧
75% LTV
4.61%
4.70%
+0.09%
⇧
85% LTV
4.67%
4.73%
+0.06%
⇧
90% LTV
4.86%
4.93%
+0.07%
⇧
95% LTV
5.35%
5.38%
+0.03%
⇧
Data sourced from Rightmove/Podium. Correct as at 28 February 2024.
Average rates are based on 95% of the mortgage market and products with a fee of around £999.
What mortgage do I need?
If you’re looking for a mortgage, you’ll usually fall into one of the following categories of mortgage borrower.
If you’ve never owned a home before, you’ll usually need a first-time buyer mortgage. Knowing that you’re just starting out, the deposit requirements on most first-time buyer mortgages are generally small. You should also be able to find mortgage deals where upfront fees are kept to a minimum. However, mortgage rates for first-time buyers tend to be higher than if you’re already on the property ladder. This is because you’re likely to require a larger loan relative to the value of your property – so borrow at a higher loan-to-value (LTV) – making you a riskier proposition in the eyes of lenders. As it’s your first mortgage, lenders also have less to go on when trying to assess your reliability as a mortgage borrower.
If you already have a mortgage but want to switch to a new one, you are looking to remortgage. You may want to remortgage because your current fixed-rate or discounted term is at an end and you don’t want to move on to your lender’s standard variable rate (SVR), which may be higher. Other reasons you may remortgage include to raise funds to pay for home improvements, or because falling interest rates or a rise in the value of your home means remortgaging could save you money. If you’ve built equity in your property since taking out your current mortgage, it may be possible to borrow at a lower LTV for your new mortgage – and the lower your LTV, the lower mortgage rates tend to be.
If you already have a mortgage but are moving home, you may be able to take your current mortgage with you – this is called porting. Alternatively, you may want to arrange a new mortgage altogether, either with your current lender or a different one. Whichever option you’re considering, it’s important to weigh up the costs of either porting or exiting your existing deal, along with any potential fees you may need to pay on a new mortgage deal.
If you’re buying a property to rent out to tenants, you’ll be looking for a buy-to-let mortgage. You’ll normally need a larger deposit for a buy-to-let mortgage than you would for a residential mortgage, and buy-to-let mortgage rates tend to be higher too. Lenders will also want to see that the rental income you expect to receive will more than cover your monthly repayments.
How mortgage rates work
Mortgage rates are the interest rate you pay to a lender on the mortgage balance you have outstanding. The lower your mortgage rate, the lower your monthly mortgage repayments tend to be, and vice versa.
Different types of mortgage
The type of mortgage you take out can affect the mortgage rate you pay, and whether it may change going forward.
Fixed-rate mortgage
A fixed-rate mortgage guarantees that your mortgage rate, and therefore your monthly repayments, won’t change during the set fixed-rate period that you choose.
This can help with budgeting and means you are protected against a rise in mortgage costs if interest rates begin to increase. However, you’ll miss out if interest rates start to fall while you are locked into a fixed-rate mortgage.
Variable rate mortgages
With a variable rate mortgage, your mortgage rate has the potential to rise and fall and take your monthly repayments with it. This may work to your advantage if interest rates decrease, but means you’ll pay more if rates increase. Variable rate mortgages can take the form of:
a tracker mortgage, where the mortgage rate you pay is typically set at a specific margin above the Bank of England base rate, and will automatically change in line with movements in the base rate.
a standard variable rate, or SVR, which is a rate set by your lender that you’ll automatically move on to once an initial rate period, such as that on a fixed-rate mortgage, comes to an end. SVRs tend to be higher than the mortgage rates on other mortgages, which is why many people look to remortgage to a new deal when a fixed-rate mortgage ends.
a discount mortgage, where the rate you pay tracks a lender’s SVR at a discounted rate for a fixed period.
Offset mortgages
With an offset mortgage, your savings are ‘offset’ against your mortgage amount to reduce the interest you pay. You can still access your savings, but won’t receive interest on them. Offset mortgages are available on either a fixed or variable rate basis.
Interest-only mortgages
An interest-only mortgage allows you to make repayments that cover the interest you’re charged each month but won’t pay off any of your original mortgage loan amount. This helps to keep monthly repayments low but also requires that you have a repayment strategy in place to pay off the full loan amount when your mortgage term ends. Interest-only mortgages can be arranged on either a fixed or variable rate.
» MORE: Should I get an interest-only or repayment mortgage?
How rate changes could affect your mortgage payments
Depending on the type of mortgage you have, changes in mortgage rates have the potential to affect monthly mortgage repayments in different ways.
Fixed-rate mortgage
If you’re within your fixed-rate period, your monthly repayments will remain the same until that ends, regardless of what is happening to interest rates generally. It is only once the fixed term expires that your repayments could change, either because you’ve moved on to your lender’s SVR, which is usually higher, or because you’ve remortgaged to a new deal, potentially at a different rate.
Tracker mortgage
With a tracker mortgage, your monthly repayments usually fall if the base rate falls, but get more expensive if it rises. The change will usually reflect the full change in the base rate and happen automatically, but may not if you have a collar or a cap on your rate. A collar rate is one below which the rate you pay cannot fall, while a capped rate is one that your mortgage rate cannot go above.
Standard variable rate mortgage
With a standard variable rate mortgage, your mortgage payments could change each month, rising or falling depending on the rate. SVRs aren’t tied to the base rate in the same way as a tracker mortgage, as lenders decide whether to change their SVR and by how much. However, it is usually a strong influence that SVRs tend to follow, either partially or in full.
» MORE: How are fixed and variable rate mortgages different?
Mortgage Calculators
Playing around with mortgage calculators is always time well-spent. Get an estimate of how much your monthly mortgage repayments may be at different loan amounts, mortgage rates and terms using our mortgage repayment calculator. Or use our mortgage interest calculator to get an idea of how your monthly repayments might change if mortgage rates rise or fall.
Can I get a mortgage?
Mortgage lenders have rules about who they’ll lend to and must be certain you can afford the mortgage you want. Your finances and circumstances are taken into account when working this out.
The minimum age to apply for a mortgage is usually 18 years old (or 21 for a buy-to-let mortgage), while there may also be a maximum age you can be when your mortgage term is due to end – this varies from lender to lender. You’ll usually need to have been a UK resident for at least three years and have the right to live and work in the UK to get a mortgage.
Checks will be made on your finances to give lenders reassurance you can afford the mortgage repayments. You’ll need to provide proof of your earnings and bank statements so lenders can see how much you spend. Any debts you have will be considered too. If your outgoings each month are considered too high relative to your monthly pay, you may find it more difficult to get approved for a mortgage.
Lenders will also run a credit check to try and work out if you’re someone they can trust to repay what you owe. If you have a good track record when it comes to managing your finances, and a good credit score as a result, it may improve your chances of being offered a mortgage.
If you work for yourself, it’s possible to get a mortgage if you are self-employed. If you receive benefits, it can be possible to get a mortgage on benefits.
Mortgages for bad credit
It may be possible to get a mortgage if you have bad credit, but you’ll likely need to pay a higher mortgage interest rate to do so. Having a bad credit score suggests to lenders that you’ve experienced problems meeting your debt obligations in the past. To counter the risk of problems occurring again, lenders will charge you higher interest rates accordingly. You’re likely to need to source a specialist lender if you have a poor credit score or a broker that can source you an appropriate lender.
What mortgage can I afford?
Getting an agreement or decision in principle from a mortgage lender will give you an idea of how much you may be allowed to borrow before you properly apply. This can usually be done without affecting your credit score, although it’s not a definite promise from the lender that you will be offered a mortgage.
You’ll also get a good idea of how much mortgage you can afford to pay each month, and how much you would be comfortable spending on the property, by looking at your bank statements. What is your income – and your partner’s if it’s a joint mortgage – and what are your regular outgoings? What can you cut back on and what are non-negotiable expenses? And consider how much you would be able to put down as a house deposit. It may be possible to get a mortgage on a low income but much will depend on your wider circumstances.
» MORE: How much can I borrow for a mortgage?
Joint mortgages
Joint mortgages come with the same rates as those you’ll find on a single person mortgage. However, if you get a mortgage jointly with someone else, you may be able to access lower mortgage rates than if you applied on your own. This is because a combined deposit may mean you can borrow at a lower LTV where rates tend to be lower. Some lenders may also consider having two borrowers liable for repaying a mortgage as less risky than only one.
The importance of loan to value
Your loan-to-value (LTV) ratio is how much you want to borrow through a mortgage shown as a percentage of the value of your property. So if you’re buying a home worth £100,000 and have a £10,000 deposit, the mortgage amount you need is £90,000. This means you need a 90% LTV mortgage.
The LTV you’re borrowing at can affect the interest rate you’re charged. Mortgage rates are usually lower at the lowest LTVs when you have a larger deposit.
What other mortgage costs, fees and charges should you be aware of?
It’s important to take into account the other costs you’re likely to face when buying a home, and not just focus on the mortgage rate alone. These may include:
Stamp duty
Stamp duty is a tax you may have to pay to the government when buying property or land. At the time of publication, if you’re buying a residential home in England or Northern Ireland, stamp duty only becomes payable on properties worth over £250,000. Different thresholds and rates apply in Scotland and Wales, and if you’re buying a second home. You may qualify for first-time buyer stamp duty relief if you’re buying your first home.
» MORE: Stamp duty calculator
Mortgage deposit
Your mortgage deposit is the amount of money you have available to put down upfront when buying a property – the rest of the purchase price is then covered using a mortgage. Even a small deposit may need to be several thousands of pounds, though if you have a larger deposit this can potentially help you to access lower mortgage rate deals.
Mortgage fees
Among the charges and fees which are directly related to mortgages, and the process of taking one out, you may need to pay:
Sometimes also referred to as the completion or product fee, this is a charge paid to the lender for setting up the mortgage. It may be possible to add this on to your mortgage loan although increasing your debt will mean you will be charged interest on this extra amount, which will increase your mortgage costs overall.
This is essentially a charge made to reserve a mortgage while your application is being considered, though it may also be included in the arrangement fee. It’s usually non-refundable, meaning you won’t get it back if your application is turned down.
This pays for the checks that lenders need to make on the property you want to buy so that they can assess whether its value is in line with the mortgage amount you want to borrow. Some lenders offer free house valuations as part of their mortgage deals.
You may want to arrange a house survey so that you can check on the condition of the property and the extent of any repairs that may be needed. A survey should be conducted for your own reassurance, whereas a valuation is for the benefit of the lender and may not go into much detail, depending on the type requested by the lender.
Conveyancing fees cover the legal fees that are incurred when buying or selling a home, including the cost of search fees for your solicitor to check whether there are any potential problems you should be aware of, and land registry fees to register the property in your name.
Some lenders apply this charge if you have a small deposit and are borrowing at a higher LTV. Lenders use the funds to buy insurance that protects them against the risk your property is worth less than your mortgage balance should you fail to meet your repayments and they need to take possession of your home.
If you get advice or go through a broker when arranging your mortgage, you may need to pay a fee for their help and time. If there isn’t a fee, it’s likely they’ll receive commission from the lender you take the mortgage out with instead, which is not added to your costs.
These are fees you may have to pay if you want to pay some or all of your mortgage off within a deal period. Early repayment charges are usually a percentage of the amount you’re paying off early and tend to be higher the earlier you are into a mortgage deal.
Government schemes to help you buy a home
There are several government initiatives and schemes designed to help you buy a home or get a mortgage.
95% Mortgage Guarantee Scheme
The mortgage guarantee scheme aims to persuade mortgage lenders to make 95% LTV mortgages available to first-time buyers with a 5% deposit. It is currently due to finish at the end of June 2025.
Shared Ownership
The Shared Ownership scheme in England allows you to buy a share in a property rather than all of it and pay rent on the rest. Similar schemes are available in Scotland, Wales and Northern Ireland.
Help to Buy
The Help to Buy equity loan scheme, designed to help buyers with a smaller deposit, is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
The Forces Help to Buy Scheme offers eligible members of the Armed Forces an interest-free loan to help buy a home. The loan is repayable over 10 years.
First Homes Scheme
Eligible first-time buyers in England may be able to get a 30% to 50% discount on the market value of certain properties through the First Homes scheme.
Right to Buy
Under this scheme, eligible council tenants in England have the right to buy the property they live in at a discount of up to 70% of its market value. The exact discount depends on the length of time you’ve been a tenant and is subject to certain limits. Similar schemes are available in Wales, Scotland and Northern Ireland, while there is also a Right to Acquire scheme for housing association tenants.
Lifetime ISAs
To help you save for a deposit, a Lifetime ISA will see the government add a 25% bonus of up to £1,000 per year to the amount you put aside in the ISA.
How to apply for a mortgage
You may be able to apply for a mortgage directly with a bank, building society or lender, or you may need or prefer to apply through a mortgage broker. You’ll need to provide identification documents and proof of address, such as your passport, driving license or utility bills.
Lenders will also want to see proof of income and evidence of where your deposit is coming from, including recent bank statements and payslips. It will save time if you have these documents ready before you apply.
» MORE: Best mortgage lenders
Would you like mortgage advice?
Taking out a mortgage is one of the biggest financial decisions you’ll ever make so it’s important to get it right. Getting mortgage advice can help you find a mortgage that is suitable to you and your circumstances. It also has the potential to save you money.
If you think you need mortgage advice, we’ve partnered with online mortgage broker London & Country Mortgages Ltd (L&C) who can offer you fee-free advice.
Key mortgage terms explained
Loan to value (LTV)
Your loan-to-value ratio is the amount you wish to borrow through a mortgage expressed as a percentage of the value of the property you’re buying.
Initial interest rate
This is the interest rate you’ll pay when you’re still within the initial fixed-rate period of a mortgage deal.
Initial interest rate period
This is the period of time your initial interest rate will last, before your lender switches you over to its SVR.
Annual Percentage Rate of Charge (APRC)
The APRC is a single percentage figure designed to help you compare the annual cost of different mortgage deals.
Annual overpayment allowance (AOA)
This is the amount a lender will let you overpay on your mortgage each year without being charged a fee.
Early Repayment Charge (ERC)
This is a charge you may need to pay if you want to pay off some or all of your mortgage earlier than you agreed with your lender.
Mortgage term
A mortgage term is the full period of time over which the mortgage contract is taken out for – it should not be confused with the deal term. At the end of the term you will have paid off the full debt or all of the interest depending on what type of mortgage you took.
The current average rate on a five-year fixed-rate mortgage for a 10% deposit or equity is 4.93%, up from 4.86% a week earlier. For an equivalent two-year fixed-rate mortgage, the average rate of 5.38% has increased from 5.31%. If you have a 40% deposit/equity, the average five-year fixed rate is 4.30%, up from 4.19% a week earlier, while the average two-year fixed rate is 4.62%, rising from 4.50%. All rates are according to Rightmove as at 28 February 2024.
A mortgage rate is the interest rate a lender charges on the mortgage amount that you borrow. Mortgage interest rates may be fixed, guaranteeing that they will remain the same for a certain length of time, or variable, meaning it may fluctuate.
Mortgage providers regularly review the mortgage rates that they offer to take into account the costs involved with funding its lending activities, their latest priorities in terms of target borrowers, and wider conditions in the market. As a result, when searching for a new mortgage, it’s always a good idea to consider various lenders and take the time to compare different mortgages. Crucially, you need to bear in mind that a deal offering the best mortgage rate may not necessarily be the one that is most suitable for you. The mortgage rate is important, but at the same time, you need to consider other factors, such as the charges and fees attached to a mortgage, the type of mortgage that you need, and the mortgage term that you want.
While mortgage rates have been rising in recent weeks, many commentators still expect to see mortgage rates fall across 2024 as a whole.
The next move in the Bank of England base rate, which currently sits at 5.25%, is widely forecast to be down. But with inflation remaining unchanged in January, and wage growth easing by less than expected, some experts predict the first rate cut may not be made until September. Towards the end of 2023, some believed the rate could begin falling in March.
The uncertainty makes it even more difficult than usual to predict what may happen to mortgage rates next.
The interest rate is the percentage of a loan amount that a lender charges for borrowing money, whereas the APRC, or annual percentage rate of charge, is a calculation expressed as a percentage that takes into account both the interest rate and associated costs of a mortgage across its lifetime. The aim of the APRC is to help borrowers make meaningful comparisons between mortgage deals.
Taking the time to compare mortgage rates and deals, making sure your credit score is in good shape, saving for a larger deposit and paying off existing debts can all help improve your chances of getting a good mortgage deal.
When looking for a mortgage it is vital that you compare mortgage lenders and the rates and deals on offer. Taking the time to carry out a mortgage comparison can improve your chances of finding the best mortgage for your circumstances.
A mortgage is a loan you take out to help you buy a property you don’t have the money to pay for up front. You may be a first-time buyer, remortgaging, securing a buy to let, or moving to your next home. The amount you need to borrow will depend on the purchase price of the property, and how much you can put down as a deposit or already hold in equity in your current property. The mortgage is secured against the property, which means your home is at risk if you don’t meet the repayments.
With a capital repayment mortgage, your monthly repayments pay off your interest and some of your original loan amount each month, so that everything should be paid off by the time you reach the end of your mortgage term. The alternative to a repayment mortgage is an interest-only mortgage, where you will repay only the interest each month before needing to pay off your original loan amount in its entirety at the end of the mortgage term.
A mortgage term is the period of time you agree with a lender over which you intend to entirely pay off your mortgage and interest. A typical mortgage term in the UK is usually considered to be 25 years, but you may opt for a shorter period or a longer one, if allowed. Some lenders offer mortgage terms of up to 40 years. If you have a longer term, your monthly repayments will be lower, but you’ll pay more interest overall.
The cost of your mortgage will depend on many factors, including how much you borrow, the size of your deposit, the length of your mortgage term, the mortgage rate you’re paying, and whether you can afford to make overpayments. Your mortgage lender must provide you with the full cost of the mortgage before you apply.
» MORE: How much could your mortgage cost you?
Besides making sure your monthly repayments are affordable, there are many other costs associated with arranging a mortgage. These may include arrangement, survey, valuation and mortgage broker fees.
If you’ve previously owned a home and the property you’re buying is worth more than £250,000, stamp duty will be payable as well; if you’re a first-time buyer, stamp duty only becomes payable on properties worth over £425,000.
To get a mortgage as a first-time buyer you’ll usually need at least a 5% deposit and a regular income. Most lenders offer first-time buyer mortgages aimed primarily at those with smaller deposits. First-time buyers may also be able to secure a mortgage with the help of close relatives through a guarantor mortgage.
Some lenders offer buy-to-let mortgages that can be arranged on a property you want to rent out to a tenant, rather than live in yourself. You’ll usually need a larger deposit for a buy-to-let mortgage than for a residential mortgage, and interest rates are often higher. You may also need to already own your own home or have a residential mortgage on another property.
It may be possible to get a mortgage with bad credit but you’ll probably have fewer mortgage deals to choose from and need to pay higher mortgage rates.
You may want to consider remortgaging if your initial fixed-rate period is close to ending and you want to avoid moving on to your lender’s SVR. Choosing to remortgage has the potential to save you money if you find the right mortgage deal.
» MORE: How remortgaging works
It’s always important to think about your plans, particularly when it comes to choosing the type of mortgage that will suit you best. For instance, if you plan to move in perhaps two years, choosing a five-year fixed-rate mortgage may mean you have to pay early repayment charges if you need to get a new mortgage.
Getting an agreement in principle, or AIP, from a lender will give you an idea of how much you may be able to borrow for your mortgage without needing to formally apply. Getting an AIP usually involves a soft credit check, which shouldn’t affect your credit score. However, having an AIP does not guarantee that a lender will offer you a mortgage. An agreement in principle is also sometimes referred to as a decision in principle or a mortgage promise.
Yes, some providers offer halal or Islamic mortgages in the UK. These are compliant with Sharia law and allow people to borrow but not pay interest.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
Information on this page is a guide. It does not constitute advice, recommendation or suitability to your needs or financial circumstances. Seek qualified mortgage advice before proceeding with a mortgage product.
NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products and services are presented without warranty. When evaluating products, please review the financial institution’s Terms and Conditions.
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates remain above 7%, according to data from Curinos analyzed by MarketWatch Guides. The 30-year fixed-rate mortgage is 7.35% today, down-0.12 percentage points from last week.
With mortgage rates above 7% and home prices showing no signs of dropping, home affordability has continued to decline, according to the Mortgage Bankers Association (MBA). An MBA report published last week showed that the median monthly payment for new home purchases in the U.S. increased to $2,134 in January – up 4% from the month before.
Prospective home buyers may see rates drop more substantially this year, however. The Federal Reserve board previously indicated that it expects three rate cuts throughout 2024 and their next meeting is scheduled for March 19-20.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.35%
15-year fixed mortgage rate: 6.70%
5/6 ARM mortgage rate: 6.99%
Jumbo mortgage rate: 7.17%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.35%
7.47%
-0.12
15-Year Fixed Rate
6.70%
6.72%
-0.02
5/6 ARM
6.99%
7.02%
-0.03
7/6 ARM
7.22%
7.24%
-0.02
10/6 ARM
7.32%
7.32%
0.00
30-Year Fixed Rate Jumbo
7.17%
7.23%
-0.06
30-Year Fixed Rate FHA
7.17%
7.21%
-0.04
30-Year Fixed Rate VA
7.15%
7.23%
-0.08
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Tuesday, March 05, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.12
The average 30-year fixed-mortgage rate is 7.35%. Since the same time last week, the rate is down, changing -0.12 percentage points.
At the current average rate, you’ll pay $688.97 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.47%.
15-year fixed-rate mortgages are down, -0.02
The average rate you’ll pay for a 15-year fixed-mortgage is 6.70%, a decrease of-0.02 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.70% will cost approximately $882.14 per $100,000 borrowed. With the rate of 6.72% last week, you would’ve paid $883.25 per month.
5/6 adjustable-rate mortgages are down, -0.03
The average rate on a 5/6 adjustable rate mortgage is 6.99%, a decrease of-0.03 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.99% will cost approximately $664.63 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.06
The average jumbo mortgage rate today is 7.17%, a decrease of-0.06 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$688.97
$697.16
-$8.19
15-Year Fixed Rate
$882.14
$883.25
-$1.11
5/6 ARM
$664.63
$666.65
-$2.02
7/6 ARM
$680.14
$681.50
-$1.36
10/6 ARM
$686.93
$686.93
$0.00
30-Year Fixed Rate Jumbo
$676.76
$680.82
-$4.06
30-Year Fixed Rate FHA
$676.76
$679.47
-$2.71
30-Year Fixed Rate VA
$675.41
$680.82
-$5.41
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
Owning a home is an integral part of the American Dream, but it can often feel more like a mirage to those wrestling with bad credit. The idea of being shackled by a poor credit score might have you convinced that the dream of homeownership is unattainable.
But here’s a plot twist — a poor credit score does not necessarily slam the door to your dream house. Yes, it might add a few challenges to the journey, but the path to homeownership is far from being erased.
In this article, we’re going to simplify the process and illuminate the steps you can take to make your dream of homeownership a reality, even with bad credit. So buckle up and prepare for a deep dive into the world of credit scores, mortgages, and the surprising possibilities that await you.
10 Steps to Buy a House With Bad Credit
Bad credit doesn’t mean a ‘no’ to homeownership—it just implies a more strategic approach is required. From understanding your credit situation and improving your score, to exploring different mortgage options and considering a larger down payment, there are several actionable steps you can take.
Let’s embark on this journey together, helping you turn the dream of owning your own home into a reachable reality, irrespective of your credit score.
1. Know Your Credit Scores
How low are your credit scores? Do you know what’s causing you to have poor credit? Or are you assuming it’s bad because of past financial missteps?
What is a ‘bad’ credit score?
What constitutes a bad credit score? Generally, the ranges are as follows:
Excellent: 781 and above
Good: 661-780
Fair: 601-660
Poor: 501-600
Bad: 500 and below
So, if your credit score is 600 or lower, you’d fall into the subprime consumer category.
Check Out Our Top Picks for 2024:
Best Mortgage Loans for Bad Credit
How Your Credit Scores are Calculated
You should also have an understanding of how your credit score is calculated so you’ll know how much to improve it before applying. The five components are as follows:
Payment history (35%): Do you make timely payments to your creditors each month? If you’ve missed several payments in the past, your credit scores could be suffering. And other past-due bills that became collection accounts also negatively impact your payment history.
Amounts owed (30%): How much do you still owe creditors? If your debt-to-available credit or credit utilization ratio on revolving accounts is high, it could affect your credit scores.
Length of credit history (15%): How long have you had credit? A more established credit profile could equate to a higher FICO score.
Credit mix (10%): Do you have a healthy mix of revolving and installment credit? Lenders like to see a combination of both, and having several of one and not the other could lower your credit scores.
New credit (10%): Have you recently opened several new credit accounts? If so, prospective lenders may see you as more of a risk.
How to Check Your Credit Score
There are several free options to choose from. However, you can start by contacting your bank to see if it’s a service provided to account holders, free of charge. Or if you have credit cards, check the statement or online dashboard as it may appear there.
Did you recently apply for a mortgage and were denied? Lenders must explain their decisions in a letter and disclose that you can request a copy of the credit report used to make the decision.
In some instances, the denial letter will explain the denial and the credit score the lender used during the evaluation process. Lenders use different algorithms and credit scoring models. However, you can use this number as a starting point.
Lastly, you can use credit monitoring tools, like Identity IQ and Identity Guard, to view variations of your credit score. They also offer great identity theft protection.
2. Rectify Errors in Your Credit Report
According to the results of a study conducted by the Federal Trade Commission (FTC), 20% of credit reports contain errors. But why does this matter? Well, what’s in your report determines your credit score. And there’s a possibility that an error could result in a low credit score and prevent you from obtaining a mortgage.
So, you’ll want to get a free copy of your report and review it from top to bottom. If you spot errors, take the following steps to have them rectified:
Step 1: Print out a hard copy of your credit report and circle the items in question.
Step 2: Draft up a letter of dispute to submit to the credit bureaus. For a template, click here.
Step 3: Send the letter, the highlighted copy of your credit report, and any supporting documentation to the credit bureaus.
Step 4: Follow-up in writing with the credit bureaus after 30 days if you still haven’t received a response.
If you need additional help with credit report errors, review this comprehensive guide from the FTC.
It can take a while for credit reports to reflect updates made by disputing errors. So, prepare to fix your credit at least a few months before applying for a mortgage. That way, you can ensure any positive changes have time to improve your credit.
What if everything is accurate?
There’s a possibility that a series of financial missteps or a rough patch has left your credit in shambles and the effects are lingering. If that’s the case, reach out to the creditors and request that they remove the negative mark from your credit report in exchange for a settlement of the account in question.
This is called a pay-for-delete agreement and can do wonders for your credit if the creditor is on board. But be sure to get the agreement in writing.
If the account is showing as a paid collection item, this approach won’t work since the account has already been paid off.
However, you can write a letter to the creditor explaining your circumstances and ask that they honor a goodwill adjustment so you can get approved for a mortgage. You may not have luck with either approach right away, but consistency could pay off.
3. Run the Numbers
Mortgage loans designed for consumers with subpar credit sometimes come at a higher cost. Why so? It’s all a matter of risk.
The mortgage lender wants to be protected if you default on the loan and the home goes into foreclosure. So, if you’re adamant about getting a mortgage with bad credit, be prepared for the financial implications.
To illustrate, assume you’re seeking a 30-year fixed-rate mortgage for $250,000. Below is an example of how the figures could play out, based on your creditworthiness:
CREDIT SCORE
MONTHLY PAYMENT
INTEREST PAID OVER LIFE OF LOAN
TOTAL COST OF LOAN
Excellent Credit
4%
$179,674
$429,674
Good Credit
5%
$233,139
$483,139
Fair Credit
6%
$289,595
$539,595
Poor Credit
7%
$348,772
$598,772
And these figures don’t even factor in property taxes, homeowner’s insurance, and private mortgage insurance (if you make a down payment that’s less than 20%).
The good news is you can always refinance the loan at a later date when your credit score and financial situation improve.
4. Consider an FHA Loan
An FHA Loan is a great option for anyone who wants to buy a house with bad credit. These loans are issued by private lenders, but the loan is guaranteed by the Federal Housing Administration. This guarantee protects the mortgage lender from borrowers that eventually default on their mortgage.
FHA loans come with less stringent requirements so they are easier to apply for than a conventional mortgage. However, FHA loans tend to have higher interest rates and closing costs than conventional mortgages.
FHA Loan Requirements
That being said, there are a few requirements you’ll need to meet:
You need a minimum credit score of 580.
You must have proof of a stable monthly income.
If your credit score is 580 or higher, you’ll need a minimum down payment of at least 3.5%.
If your credit score is 500 or higher you’ll need a minimum down payment of at least 10%.
The home you’re purchasing must be your primary residence.
There are other requirements you’ll need to meet to qualify for an FHA loan. These loans are capped at a certain amount, though this will vary depending on where you live.
You’ll also have to work with an FHA approved lender and pay private mortgage insurance (PMI), which will increase your monthly payment.
See also: FHA Loan Requirements for 2024
5. Consider a VA Loan
If you’re a veteran who has bad credit, then you may be eligible to take out a VA loan. VA loans are issued through private lenders, but the mortgage is backed by the U.S. Department of Veterans Affairs.
The program is designed to help veterans get back on their feet and has served as a lifeline for many struggling veterans. And VA loans have many advantages.
There is no down payment required, and you don’t have to purchase PMI. Additionally, there is no minimum credit score requirement. The interest rates are very competitive, and it’s fairly easy to apply for a VA loan.
VA Loan Requirements
However, there are a few requirements you’ll need to meet first:
Active duty military or a veteran who was honorably discharged.
You’ve served for at least 90 consecutive days during active wartime.
You’ve served for at least 180 consecutive days during active peacetime.
More than six years in the National Guard.
If your spouse died in the line of duty you may qualify for the VA loan program as well.
See also: VA Home Loans: Everything You Need to Know
6. Consider a USDA Loan
The USDA typically offers these no-down-payment mortgage loans in rural areas and lower-density suburbs. To qualify for a USDA loan, borrowers must meet income limits based on their household size and the median income of their county. You must also have a minimum credit score of 580.
See also: Guide for First-Time Homebuyers with Bad Credit
7. Explore Other Lending Options
If you aren’t a candidate for FHA or VA loans, you might consider alternative lenders. Loan aggregators like Lending Tree are a good way to determine if you qualify for conventional loan products.
Lending Tree won’t give you a loan but will match you with mortgage lenders that are willing to work with you. It only takes a few minutes to sign up on the company’s website, and you can receive mortgage offers from multiple lenders.
If you’ve been banking with the same financial institution for an extended period of time, you might also consider applying for a mortgage there.
Banks tend to have stricter lending requirements, but they may be willing to consider you for a mortgage based on your long-standing history with the bank. At the very least, it can’t hurt to try.
8. Save Up for a Down Payment
Lenders may be reluctant to approve you for a house with bad credit. And the higher the loan amount, the more risk they’ll have to assume.
It is more likely that you’ll be approved if you put down a large down payment, since the loan amount will be lower. Plus, you’ll save a bundle on interest.
So, how much should you save for a down payment? The standard 20% required for most conventional loans is a good starting point, but the higher, the better. (Plus, you may be able to avoid mortgage insurance).
It’s also a good idea to have as much cash in your savings account as possible. This demonstrates to lenders that despite having poor credit, you can handle financial emergencies or cover unexpected financial occurrences as they arise. It’s not necessary to stow away an entire year of income in the bank, but three to six months will suffice.
Worried about your credit taking a hit if you apply with several lenders? Don’t be. According to myFICO, “inquiries for mortgage loans generated in a 30-day window count as a single inquiry.”
So, if you shop around and apply with ten separate lenders in a 30-day window, your credit will only be impacted by one inquiry since FICO scoring models recognize that you’re conducting a home loan search.
10. Sign on the Dotted Line
Congratulations! You’ve done your homework, saved up for a down payment, and shopped around to find the lowest interest rate. Despite your credit troubles, you’ve done the legwork to buy the home of your dreams.
But if you weren’t as fortunate and found that it wasn’t the right time to buy, don’t fret. Be patient while working diligently to boost your credit score and get your finances in order.
Furthermore, be sure to make all your rent payments on time to show potential lenders that you are responsible and can handle your housing obligations. That way, you’ll have more luck next time around.