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Available inventory of homes for sale is on the rise in late September, which is very unusual for this time of year. In fact, inventory is growing faster than this time a year ago.

This is a demand-driven slowdown, because new listings supply is still running 9% to 10% fewer homes for sale each week than this time last year. We’re seeing fewer new sellers each week, but inventory is building as homebuyers wait to see if mortgage rates will come down to make purchases more affordable. 

What’s happening with inventory?

Fewer new sellers also means that inventory can’t grow too much; the real trouble develops when demand drops and supply surges. There’s no supply surge, but there is a notable demand drop. Consumers are very sensitive to changes in mortgage rates, and rates are still rising. 

We can see these slowing changes build up each week. It’s a pretty sharp change from what was a surprisingly strong first half of the year. There are now 528,000 single-family homes on the market. That’s an increase of 1.8% from last week. 

Normally by this point in September, available inventory is declining slightly each week. It’s late in the summer, so normally new listing volume drops as the last few sales of the peak summer months are concluding.

The fact that inventory grew by nearly 2% this week and last week is telling of how homebuyers are reacting to the highest mortgage rates in over two decades. 

In this chart of each year’s inventory curves, you can see that the number of homes on the market is climbing faster now than this time last year. This year is the dark red curve, and last year the light red. Mortgage rates continue to climb, so there is no immediate relief for homebuyers on the horizon either.

At this point, it looks like we may see inventory grow to the end of October like we did last year. Look at the divergence in the curves from this year and the tan line from two years ago when we were still in the middle of the pandemic housing boom and record-low mortgage rates.

Pending-home sales continue to lag

New pending sales each week continue to run 10% to 15% below last year’s pace. If you follow the National Association of Realtors when they publish their existing-home sales report each month, you know that the latest report for August showed a sales pace of only 4 million seasonally adjusted annual home sales.

We can already see in the NAR data that there are no signs of improvement for the sales count through September and October. The home sales that are in contract now will close mostly in October. It’s not hard to imagine that next month’s seasonally adjusted home sales data from NAR will come in under 4 million. 

In this chart, each bar is the total number of home sales pending on any given week. The shorter the bar, the fewer sales that are in progress. The light portion of the bar is the count of new pendings each week.

There are now 344,000 single-family homes in contract to close in the next couple months. That’s 14% fewer than last year and almost 30% fewer than in September of 2021.

Home sales are limited by the decreased demand, of course, and they’re also limited by the very low supply of new listings. You can’t buy what’s not for sale.

We’ve been talking all year about the market being supply constrained. Right now, sales are limited by declining demand from still-climbing mortgage rates.

Price reductions climb again

We can see the impact of weaker demand starting to creep into the pricing indicators. In the chart below, we look at the leading indicator of this trend: price reductions. This is the percent of homes on the market that have taken a price cut from their original list price. 

For a while earlier this year, demand was exceeding supply in residential real estate, and you could measure that demand with the price-reductions curve improving each week. As mortgage rates lurched over 7% to their new highs, suddenly there are fewer offers.

And home-price reductions are climbing again, with 37% of the market taking a price cut. That’s more than any recent year except last year at this time. Price reductions are accelerating now, which bodes negatively for future sales prices.

A normal, balanced market will have 30% to 35% of the homes for sale that have reduced their asking price in recent months. As this dark red line approaches 40%, that’s a clear indicator that buyers are making fewer offers. Remember, the slope of this line captures how many properties are taking new price cuts each week. And this slope is increasing now.

These are transactions that will happen in the future, so it implies sales price weakness in the fourth quarter, which you’ll hear about in the headlines after the new year. But you can see it in the data now.

The median sales price of single-family homes in the U.S. right now is $440,000. That’s down 1% from last week and it’s just a tiny fraction higher than this time last year.

We can see the pressure on home prices in recent weeks. Home prices step downward in September for the seasonal change every year, and you can detect strength or weakness relative to changes in other years.

What we see now is that year-over-year price gains are just barely positive. And the comparison is getting weaker, not stronger, as our current mortgage markets deteriorate. There are fewer offers, and those that do happen are doing so at slight discounts each week. 

Last year at this time, there were big price discounts being applied. So, our October comparisons may get slightly easier, but I sure haven’t seen any signals of price strength now.

Looking ahead to the end of 2023

So the question is will Q4 this year be a little better than Q4 2022? The median price of the new listings is fractionally higher than last year at $398,500. It will be fascinating to watch the light colored line here over the next couple weeks.

The new listings are where you see price weakness first. And last year, they were already headed lower.

The price of the new contracts this week came in at $370,000. These are the pending-home sales that went into contract in the last week. Prices of the homes going into contract are lower than last year by a fraction.

The next few weeks will be interesting to track this stat, too. Last year in mid-September is when mortgage rates jumped from 6% to 6.5% to 7.5%. By early October, any offers that were made for purchases came in at notably lower price points.

By September 2022, new pending-home sales prices fell by 3% per week. Will that happen again? Mortgage rates are even higher now than they were last year.

In this chart, you’ll notice the light-colored line started a big decline during this week in 2022. That’s when buyers reacted to newly increased mortgage rates. So, we’re watching to see where the new contracts come in over the next few weeks.

The macro trends impacting mortgage interest rates and the Fed have not given us any reprieve yet. The signals are that mortgage rates are still headed higher.

Consumer expectations for future mortgage rates have moved higher, too, so potential homebuyers are less optimistic than they were at the start of the year. And that’s what we’re seeing in the data each week now.

However, it’s important to point out that while buyer demand has backed off this fall, there is still no sign of any surge in new supply coming to the market. It can be very easy to focus on the negative momentum.

People on the fence should also know that while their competition is lessening, there’s no sign of an inventory flood. That may be an important factor in their home-buying decisions.

Mike Simonsen is president and founder of Altos Research.

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

The Federal Reserve ended its long streak of interest rate hikes last week, but the pause may offer little reprieve to Americans squeezed by higher borrowing costs.

The decision left interest rates unchanged at a range of 5% to 5.25%, the highest level since 2001. However, policymakers also opened the door to additional rate increases this year, meaning there could be more pain for would-be homebuyers in the form of steeper mortgage rates.

“Higher rates are a positive for savers, but it also means mortgage rates may not fall all the way back to where they were in 2020 and 2021,” said Sonu Varghese, global macro strategist at Carson Group.

Mortgage rates spiked over the past year as the Fed waged an aggressive campaign to crush high inflation. In the span of just 16 months, the central bank approved 11 rate increases – the fastest pace of tightening since the 1980s.

A pedestrian passes the Federal Reserve building in Washington, D.C., on June 3, 2023.

MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU

While the federal funds rate is not what consumers pay directly, it affects borrowing costs for home equity lines of credit, auto loans and credit cards.

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Rates on the popular 30-year fixed mortgage are currently hovering around 7.19%, according to Freddie Mac, well above the 6.29% rate recorded one year ago and the pre-pandemic average of 3.9%. It is near the highest level in two decades.

MORTGAGE DEMAND DROPS AGAIN AS INTEREST RATES EASE SLIGHTLY

Below, you can calculate how volatile increases and decreases in rates could affect the typical cost of a monthly mortgage.

Even just a minor change in rates can affect how much would-be homebuyers pay each month.

A recent study from LendingTree compared the average monthly payments on 30-year fixed-rate mortgages in April 2022 – when the rate hovered around 3.79% – and one year later, when rates jumped to 5.25%.

It found that higher rates cost borrowers hundreds more each month and potentially add as much as $75,000 over the lifetime of the 30-year loan.

The monthly mortgage payment for a median-priced home, calculated using the current 30-year mortgage rates and a 6% down payment, is about $2,590. That is dramatically higher than just three years ago, when that same mortgage payment would cost about $1,779.

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The spike in mortgage rates comes as the Federal Reserve wages an aggressive campaign to crush high inflation, raising interest rates at the fastest pace in decades in a bid to cool the economy and tame runaway prices.

While the federal funds rate is not what consumers pay directly, it affects borrowing costs, including everything such as home equity lines of credit, auto loans and credit cards.

Even just a minor change in mortgage rates can affect how much potential homebuyers pay each month.

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“Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022 to the roughly 4 million unit pace in recent months,” said Danielle Hale, chief economist at Realtor.com. “Perhaps more importantly, higher mortgage rates continue to keep existing homeowners sidelined because they don’t want to borrow at today’s much higher rates.”

Original article source: See how much higher mortgage rates are actually costing you

Source: finance.yahoo.com

Apache is functioning normally

Apache is functioning normally

Frost Bank, long absent from the mortgage industry, is back in the biz and rolling out a zero down home loan for its customers.

The Texas-based depository, which also just became the new sponsor of the San Antonio Spurs arena, calls their new offering the “Progress Mortgage.”

It is intended to help both low- and moderate-income borrowers realize the dream of homeownership.

Aside from not needing a down payment, private mortgage insurance also isn’t required, and you can receive up to $4,000 in closing costs.

Read on to learn more about this product and their companion home equity loan.

Progress Mortgage Offers 100% Financing on a Home Purchase

After sitting out of the mortgage industry for more than 20 years, Frost Bank has relaunched its home loan business in the state of Texas.

While the bank is 155 years old, they exited the mortgage space in the early 2000s before getting back into the biz earlier this year.

Some may think that’s unusual, given the tough housing market conditions (and high mortgage rates), but that hasn’t stopped them.

And they’re coming to market with some pretty aggressive options to help home buyers land a property despite mounting affordability woes.

Their so-called “Progress Mortgage” offers 100% financing, meaning home buyers don’t need a down payment to qualify.

On top of that, private mortgage insurance (PMI) also isn’t required, despite the lack of a down payment.

Typically it’s compulsory if you have a loan-to-value ratio (LTV) above 80%. Not the case here.

To make the deal even sweeter, they’re also throwing in lender credits valued at up to $4,000 to offset any borrower closing costs.

This means a home buyer in the state of Texas may need little to nothing out of pocket to close their loan.

The one caveat is that the borrower must make no more than 80% of area median income (AMI), as defined by the Federal Financial Institution Examination Council.

You can look up AMIs by metropolitan statistical area here. As an example, the estimated AMI in Austin, Texas for 2023 is $122,300.

So the most you could earn would be $97,840 to qualify under the 80% AMI rule.

Another perk is that the program has no minimum or maximum loan amount as long as you qualify otherwise.

In terms of loan choice, at the moment it appears to be limited to a 30-year fixed-rate mortgage.

However, Frost Bank also offers a variety of other loan programs, including jumbo loans, 15-year fixed mortgages, and adjustable-rate mortgages such as the 10/6 and 7/6 ARM.

Frost Bank Also Just Launched a Home Equity Loan

To complement their Progress first mortgage, Frost Bank has also launched the “Progress Home Equity Loan.”

This second mortgage is also reserved for borrowers making 80% or less area median income.

And it doesn’t come with any application fees, annual fees, or prepayment penalties.

The Progress Home Equity Loan is available in terms of 7, 10, 15, 20, 25 and 30 years, and the company says in most cases there will not be closing costs.

Additionally, there is no maximum loan amount, though the max LTV ratio is 80%.

But given how much home equity many existing homeowners are sitting on, this could still provide for a sizable loan amount at a low LTV.

What really stood out to me were the advertised rates, which are apparently intended for families on a budget.

On their website, they’re displaying APRs as low as 3.99%, which compares to APRs closer to the 7-8% range for their standard home equity loan offering.

So assuming these numbers are accurate, there might be substantial savings for those with limited incomes in the state of Texas who want to tap their equity.

Frost Bank is a subsidiary of Cullen/Frost Bankers, Inc., a publicly traded company under the symbol (NYSE: CFR).

They are one of the largest banks in Texas and one of the 50 largest U.S. banks by asset size. At last glance, there are about 190 branch locations in the Lone Star State.

My understanding is these loan programs are only available to customers in the state of Texas.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.

The amount of money you need for a down payment depends on the overall cost of the house as well as the type of loan you’re approved for. VA and USDA loans can be as low as 0% while conventional and FHA loans range between 3%and 10%. Jumbo loans typically require a 10%down payment or more.

Buying a home is a goal for many Americans. The consumer and market data experts at Statista expect over 6 million homes will sell in 2023, which is a great sign for the housing market. If you’re one of the millions of Americans planning on buying a home, the first question you may have is, “How much do I need to put down on a house?”

Today, you’ll learn about how much you’ll need to put down before buying a home, and it may not be as much as you think. We’ll also go over how your down payment affects your offer as well as the pros and cons of making a larger down payment to help you make the right decisions before purchasing your dream home.

What Is a Down Payment?

A down payment is a certain percentage of the purchase price that you pay up front to secure a property, and the rest is paid in installments as part of a loan. Buying a home is a major purchase that can be hundreds of thousands or even millions of dollars, and if you’re like most people, you don’t have that much cash lying around. A down payment is much more realistic amount to pay up front, and it also lessens the risk of the lender by showing you’re more likely to have the ability to make your mortgage payments on time.

Do You Need to Put a 20% Down Payment on a House?

It’s a myth that you have to put down 20% when buying a home. A 2022 National Association of Realtors study found that 35% of people believe you need a 16-20% down payment to buy a home, but that’s not the case at all.

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The data collected was from 1989 to 2021, and it shows that the typical down payment was 7% for first-time homebuyers and 3.5% for those getting an FHA loan.

The study also showed that repeat buyers put down an average of 17%, and this is because, based on their experience, they know the benefits of a larger down payment.  

Although buyers don’t have to put down 20%, there are a few pros and cons to doing so:

Pros:

  • Better interest rates: A larger down payment means less risk for the lender and a smaller loan amount, so they charge less interest.
  • Lower monthly mortgage payments: The overall loan amount is lower, which also lowers the individual monthly payments.
  • The offer may be more competitive than other potential buyers: A larger down payment makes sellers feel more confident in the sale because it shows you can access more money and make the payments.

Cons:

  • It’s a lot of money you’ll no longer have access to: It’s always good to have a financial cushion in an emergency, so depleting your savings for a larger down payment may be a risk.
  • It may take longer to save for a home: The difference between a 5% and 10% down payment on a house can be tens of thousands of dollars, which can take additional years of saving.
  • You have less money for maintenance, repairs, furnishing, and appliances: Houses have many additional costs aside from the actual home.
  • You will have to take out Private Mortgage Insurance (PMI) insurance.

Minimum Down Payment Requirements Based on Type of Loan

The minimum down payment for a house can vary depending on which type of loan you’re approved for.

  • VA and USDA loans: If you’re a veteran or currently active in the military or qualify for a USDA loan, your down payment may be as low as 0%. The USDA loans are for suburban and rural home buyers and have an application process where you must meet certain requirements for the program.
  • Conventional loans: These loans include loans like HomeReady and Home Possible and can be as low as 3%. These aren’t backed by the government, but they have similar guidelines and sometimes require a minimum credit score of 620.
  • FHA loans: Federal Housing Administration loans are as low as 3.5%, but for those with bad credit, it may be 10%. To qualify for the lower down payment amount, you’ll need a credit score of 580 or higher.
  • Jumbo loans: For these larger loans that exceed FHA limits, the down payment may be as low as 10%, but lenders often require more to lessen their risk.

Five Benefits of Making a Larger Down Payment

If you know how much house you can afford and are in a good financial situation, a larger down payment is typically a better option. While 20% may not be achievable, there are still benefits to making a down payment that’s higher than the minimum.

The following are some of the benefits to a larger down payment:

  • Lower monthly payments: Your monthly payments are divided by what you owe on a home, so a larger down payment will reduce how much you spend each month.
  • Better interest rates: Interest rates are often higher when a lender is taking on more risk, so they’re lower when the lender is lending less money due to the larger down payment.
  • Lower closing costs: Lenders charge closing costs as a percentage of the total loan amount, which is less based on the big down payment.
  • Better equity: Your home’s equity comes from how much of the home you own, and you own more of a percentage of the home with a larger down payment.
  • Better chance of closing the deal: Sellers feel more confident selling to someone who can put down more cash up front.

How Much Should You Put Down on a House?

How much you put down on a home is going to be different for everybody. Not only will it depend on your personal situation and financial goals, but it will also depend on how competitive you want to be with your offer. When buying a home, there may be multiple offers, and a larger down payment can signal to sellers that you’re able to follow through with closing the deal.

A larger down payment also means less money for other financial goals. In that same study from the National Association of Realtors, they found the second most common source of down payments comes from loans. If you’re already in debt when looking to buy a house, you may want to put down a lower down payment.

Here are some other considerations that may help you decide how much to put down on a house:

  • How much you should keep in savings: Life is unpredictable, which is why it’s always good to have an emergency savings fund. When deciding on a down payment, it’s helpful to ensure you still have some savings to fall back on in case of emergencies.
  • Other costs as a homeowner: Some first-time home buyers forget that they’ll have more expenses when owning a home than renting. You’ll be responsible for all of the maintenance and repairs.
  • Closing costs: The closing costs of a home are a percentage of the loan, so when planning out the down payment, keep this fee in mind.
  • Down payment assistance options: There are various programs and incentives for home buyers, so you may be able to find down payment assistance options. Also, remember that different lenders may have different rates, so shopping around may help you find a better deal.

FAQ

There are additional nuances to down payments on a home, so we’ve answered some common questions below.

Is It Worth Putting 20% Down on a House?

If you’re in a good financial position and can afford a 20% down payment, there are many benefits to putting that amount down. It can help lower your interest rates and monthly payments and may even help you close the deal with the seller.

Is $10,000 Enough to Put Down on a House?

A $10,000 down payment might be enough for a home. According to the National Association of Realtors, down payments are based on a percentage of a home with an average down payment of 7-17%.

What Is the Normal Amount to Put Down on a House?

The normal down payment amount for a house varies depending on the house’s price and loan type.

How Much Do You Need to Put Down on a 400K House?

The most common type of loan is a conventional loan, and you may put 5% down for a 30-year fixed-rate mortgage. For a $400,000 home, the down payment would be $20,000.

Can You Buy a House Without a Down Payment?

Yes. There are government-backed loans like VA loans or USDA loans that don’t require a down payment if you qualify.

How Your Credit Affects Your Ability to Buy a House

In addition to the down payment for a home, your credit score plays a big role in the overall cost of a home as well as the type of loan you can qualify for. For example, the FHA has credit requirements, and you need a score of 580 to qualify for a 3.5% down payment.

If you’re unsure where you stand with your credit, you can sign up and get your free credit report card right at Credit.com. We also provide additional services through our ExtraCredit® program that can help you monitor your credit score in addition to other features as you get ready to buy a home.

Source: credit.com

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Apache is functioning normally

Editor’s Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Student loan debt is at an all-time high, with more students graduating with debt than ever before. Consider this: Almost 44 million borrowers have federal student loan debt and they owe, on average, $37,338. As recent graduates begin their careers, it can be overwhelming to figure out how to make monthly student loan payments.

Ignoring your payments may seem like an easy way out, but student loan default can have extreme consequences. If you’re struggling with student loan payments or are already in default, there are ways to recover. For instance, you could consolidate defaulted student loans. Or you could refinance them. This guide will help you figure out your best option.

What Is Student Loan Default?

If your student loan is in default, it means you have failed to make payments on your student loans for several months in a row. However, there are a few steps that occur before defaulting on student loans.

Federal student loans are considered delinquent once you miss a student loan payment. After 90 days of delinquency, your loan servicer can report the missed payments to the three major credit bureaus. Generally, after 270 days of nonpayment, your loan will go into default.

If you have private student loans, they can go into default even sooner. Typically, after you miss three payments or 120 days, your private student loans go into default. Different lenders have different terms when it comes to default, however, so be sure to check with yours to get the specifics.

How Common Is Defaulting on Student Loans?

Defaulting on student loans is fairly common. The latest data from EducationData.org finds that one in 10 student loan borrowers has defaulted on a loan. In fact, roughly 4 million student loans go into default every year, and about 7% of loans are in default at any given time. As of 2021, the median loan balance among delinquent and defaulted borrowers was $15,307.

What Are the Consequences of Student Loan Default?

Defaulting on your student loans can have some steep consequences. For starters, the entire balance of your student loans could become due in full.

If you default on your student loans, your lender may eventually turn your debt over to a collection agency who will usually start calling, emailing, and even texting you to try and collect on your debt. You may even have to pay collection fees on top of everything else.

If you default, you may lose eligibility for programs that could help you manage your debt, such as deferment, forbearance, or Public Service Loan Forgiveness.

Once your student loans are in default, your loan servicer or collection agency will report your default to the three major credit bureaus, which will negatively impact your credit score.

And if your servicer can’t collect the money you owe on your federal student loans, they can ask the federal government to garnish a portion of your wages or your tax refund.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Can You Recover From Student Loan Default?

If you failed to make payments on your student loans and they’ve gone into default, you don’t have to let it ruin your financial future. Here are some steps you can take to get back on track.

Loan Rehabilitation

One option for getting out of student loan default is student loan rehabilitation. To rehabilitate your loan, you work with your loan servicer and agree in writing to make nine reasonable and affordable monthly payments over a period of 10 months.

In order to rehabilitate a Direct Loan or FFEL program loan, your monthly payments must be no more than 20 days late. Your loan servicer will determine the new monthly payment, which is 15% of your discretionary income.

When you have successfully rehabilitated your loan, the default may be wiped from your credit history. Note that any late payments reported to the credit bureaus before the loan went into default will remain on your credit reports.

Private student loans are not eligible for rehabilitation.

Repaying Your Loan in Full

Another option to get out from under the shadow of student loan default is to repay your loans in full. Of course, if you had the funds to do so, you probably wouldn’t have defaulted in the first place. That said, you could look into ways to cover the balance due, such as borrowing from a family member or close friend.

Options for Private Student Loans

If you have private student loans that are in default, you can contact your lender and see what possibilities are available. Some lenders may have hardship options similar to the federal programs. As mentioned, the time it will take for your unpaid private loan to go into default depends on the lender — but the timeframe could be relatively short, even just 120 days.

However, if you’ve only recently missed a payment, you can start making payments again (and repay the missed payment) to try to prevent your loan from going into default.

Is Refinancing an Option for Defaulted Student Loans?

If your student loans are currently in default, refinancing your loans can be difficult. When you refinance your student loans, you take out a new loan with a private lender to pay off the existing loans. When you apply for a refinancing loan, lenders will use your credit score and financial history, among a few other factors, to determine if you qualify.

If your loan is already in default, your credit score has likely decreased significantly and will likely impact your ability to get approved for a new loan. If you have a family member or friend who is willing to cosign the loan, however, you may be able to refinance your student loans that way.

Another possibility for refinancing your student loans would be to rehabilitate your loans first. A lot of lenders might turn you down for having a defaulted loan on your credit history, but others might be willing to look past that and onto your education and income potential to approve you for a loan.

Can you Consolidate Defaulted Student Loans?

Another way to recover from student loan default is to consolidate your student loans in default. If you have federal loans, you can pursue defaulted student loan consolidation with the Direct Consolidation Loan program. This program allows you to combine one or more federal loans into a new consolidation loan.

To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan.

Private student loans aren’t eligible for Direct Consolidation Loans. However, you can consolidate these loans with a private lender by refinancing.

Tips for Consolidating Defaulted Student Loans

Wondering how to consolidate defaulted student loans? To consolidate federal student loans, first gather all the documents you need. This includes your personal information such as your name, address, email, Social Security number, and FSA ID; financial information such as your income; and details about your loans, including amounts, account numbers, and loan servicers.

Next, go to studentaid.gov to fill out the Direct Consolidation Loan application. You’ll need your FSA ID to log in. Specify the loans you want to consolidate.

Then, choose one of the income-driven repayment plans if that’s the option you prefer. Review the plans in advance to determine which one is the best option for you.

Filling out the application typically takes less than 30 minutes.

Pros and Cons of Student Loan Consolidation

Choosing to consolidate defaulted student loans has advantages and disadvantages you’ll want to weigh before you move forward.

Advantages include:

•   One loan and one monthly bill. This means there will be less for you to keep track of.

•   Lower payments. When you consolidate, you can choose an income-driven repayment plan or to lengthen the term of your loan, which could lower your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

•   Fixed interest rate. You’ll get a fixed interest rate for the life of your loans with Direct Loan Consolidation. The new rate is a weighted average of all your federal loan rates, rounded to the nearest eighth of a percent.

•   Access to forgiveness programs. With a Direct Consolidation Loan, you might be able to get access to programs you weren’t eligible for previously, such as Public Service Loan Forgiveness.

Disadvantages include:

•   Longer repayment period. You could end up repaying your loans for an extra year or two, which will cost you more overall.

•   Pay more in interest over the life of the loan. With consolidation, the outstanding interest on your loans is added to the principal balance, and interest may accrue on that higher balance.

•   Possible loss of benefits. Consolidating loans other than Direct loans could mean giving up perks you have with those loans, such as rebates or interest rate discounts.

This comparison chart of the pros and cons of student loan consolidation can be helpful as you consider the question of should you refinance or consolidate your loans.

Pros of Student Loan Consolidation Cons of Student Loan Consolidation
Simplified payments with just one bill to pay each month. Longer repayment period means paying more overall.
Monthly payments may be lower. Pay more in interest over the term of the loan.
Fixed interest rate. Could lose benefits associated with current student loans.
Possible access to certain forgiveness programs.

How to Manage Student Loans Without Going Into Default

If you’re struggling to make student loan payments but haven’t yet defaulted on your loan, taking action now could help prevent financial issues in the future. Here are some options that could help you take control of your student loan debt and avoid going into default.

Take Advantage of the Temporary Grace Period

Federal student loan payments and interest accrual has been paused since March 2022 in order to alleviate some of the financial challenges created by the coronavirus pandemic. However, the latest debt ceiling bill officially ended the payment pause, requiring interest to begin accruing again on Sept. 1. and payments to resume on October 1.

The Department of Education understands that restarting student loan payments after such a long pause will put many borrowers in a difficult financial position. So to prevent struggling borrowers from facing the harsh penalties of defaulting on their loans, there will be a 12-month ramp-up period to help borrowers adjust to repayment.

During this period, which takes place from Oct. 1, 2023 to Sept. 30, 2024, federal student loan borrowers who don’t make their payments on time and in full will not be reported to the credit bureaus, have their loans placed in default, or be referred to debt collectors.

Forbearance or Deferment

If you’re unable to make payments on your student loans due to a sudden and temporary economic change, you might consider applying for student loan deferment or forbearance. Both allow you to temporarily pause your loan payments.

If your loans are in forbearance, which is granted for 12 months at a time, you will be responsible for paying accrued interest during the forbearance period. If your loans are placed in deferment, which can last up to three years, you may not be responsible for accrued interest during the deferment period, depending on the type of loan you hold.

While your loans are in deferment or forbearance, you do have the option to make interest-only payments on the loan. If you choose not to, the accrued interest on most loans will be capitalized, or added to the principal balance. You’ll then be charged interest based on the larger loan amount.

Applying for Income-Driven Repayment (IDR)

Another option to help manage your student loans is income-driven repayment. There are four income-driven repayment plans available to federal student loan borrowers. Depending on the type of plan you qualify for, your monthly payments will be anywhere from 10% to 20% of your discretionary income. (Beginning in July 2024, the new SAVE plan will adjust payments to 5% of discretionary income.)

Income-driven repayment plans also stretch out the repayment term of the loan to either 20 or 25 years, depending on the specific plan. This means that while you could pay less per month, income-driven repayment could cost you more in interest over the life of the loan. The good news is that if you have any remaining debt at the end of the term, it will be forgiven (but you may need to pay income taxes on the canceled amount).

Consolidating Your Loans

Even if you’re not in default, you can consolidate your federal loans through the Direct Loan Consolidation program. As mentioned, the new interest rate will be the weighted average of the existing loans, rounded to the nearest eighth of a percent. So you won’t lower your effective interest rate, but you’ll only have to keep track of one monthly payment.

Refinancing Your Loans

If your monthly student loan payments are difficult for you to manage, you could consider refinancing with a private lender. If you have a combination of private and federal student loans, you could refinance both types into a single, private loan.

Refinancing can give you an opportunity to qualify for a lower interest rate or lower monthly payments, and you’ll only have to worry about tracking one payment each month. You may also be able to customize your repayment term — either lengthening or shortening the term.

By lengthening the term, you could reduce your monthly payments, but you may end up spending more money in interest over the life of the loan. To see how refinancing could impact your student loans, plug your numbers into this student loan refinance calculator.

It’s important to note that if you’re thinking of taking advantage of any federal programs such as income-driven repayment or Public Service Loan Forgiveness, refinancing may not be a good idea, as you’ll lose your eligibility for these programs.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Does consolidating student loans remove default?

No. When you consolidate your student loans, the record of the default will stay on your credit history. Another option is loan rehabilitation, which removes the default from your credit history.

Can you consolidate defaulted student loans?

Yes, you can consolidate defaulted student loans. If you have federal loans, you can consolidate them with Direct Loan Consolidation. To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan. You can fill out an application at studentaid.gov. You can consolidate private student loans with a private lender.

Can you refinance student loans that are in default?

You can refinance student loans that are in default, but it may be difficult. That’s because your credit score has likely decreased, which may impact your ability to get approved for refinancing. If you have a family member or friend who is willing to cosign the loan, you may be able to refinance your student loans that way. Or, you could rehabilitate your loans first, which could help improve your odds of being approved for refinancing.

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.

Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Source: sofi.com

Apache is functioning normally

Apache is functioning normally

Your credit score communicates with lenders your level of credit trustworthiness. As a result, those with higher credit scores qualify for higher credit limits and better interest rates. Your credit score will play a major role if you plan to purchase a house or apply for a loan in the future.

Understanding credit scores and what they mean can improve your financial literacy. We gathered the following credit score statistics to help you get a better sense of where your credit score stands compared to other Americans.

Key findings:

  • The national average FICO® Score is 716 as of April 2022 (FICO)
  • About 10% of the U.S. population doesn’t have a credit record and are “credit invisible.” (Consumer Financial Protection Bureau)
  • Ages 76 and up have the highest average credit score at 760. (American Express)
  • Women’s and men’s average FICO Scores are virtually the same. (Experian)

Average U.S. credit score

The national average FICO Score is 716 as of April 2022. This is the same as when FICO last reported on it a year ago.

Average credit score by state

While your location doesn’t affect your credit score, some states have a higher average credit score than others as seen in the statistics listed below.

  • While 31 states (and the District of Columbia) have average FICO scores that are higher than the national average of 716, the upper Midwest and New England continue to have the best average FICO Scores. (FICO)
  • Minnesota, Vermont, New Hampshire and Wisconsin all have scores that are 23 points higher than the national average, with scores of 742, 739 and 737, respectively. (FICO)
  • Mississippi, Louisiana, Alabama and Arkansas have the lowest credit scores at 662, 668, 672 and 673, respectively. (WalletHub)

Average credit score by age

Since credit history length is a factor that influences your credit score, it makes sense that the average credit score increases with age as seen below.

  • Approximately 58% of consumers with the highest credit score are between the ages of 56 and 74. (Money Geek)
  • The average score for adults aged 18 to 29 increased by 24 points between April 2017 and April 2022; 19 points for those aged 30 to 39; 19 points for those aged 40 to 49; 13 points for individuals in their 50s; and 10 points for those aged 60 and older. (Nerd Wallet)
  • As of 2021, ages 18-24 have the lowest average credit score at 679. (American Express)
  • Ages 76 and up have the highest average credit score at 760. (American Express)

Average credit score by race

Average credit scores can differ across demographics like race. However, keep in mind that race doesn’t directly influence your credit score.

Average credit score by gender

Although women couldn’t legally apply for credit until 1974, women’s and men’s average FICO Scores are still very close in range at 705 for men and 704 for women as of 2019, according to Experian.

Average credit score by income

A common credit score myth is that your income contributes to your credit score. Although this is untrue, the statistics below show a correlation between income and credit score.

  • Approximately 25% of low-income consumers don’t have enough knowledge to raise their credit scores. (Consumer Federation of America)
  • The median credit score of 658 for lower income individuals suggests that many borrowers are unlikely to have access to affordable credit as those with scores above 720. (Federal Reserve Bank of New York)
  • Those considered high income have the highest average credit score at 774. (American Express)

Average FICO Score in the U.S.

FICO is an analytics firm that developed the credit scoring models used today. The national average FICO Score is 716 as of April 2022, the same as when FICO last reported on it a year ago. Here are some FICO statistics.

Average FICO Score by generation

  • The Silent Generation (ages 77 and up) has the highest average credit score at 760. (Experian)
  • The average credit score of baby boomers (ages 58-76) is 742 in 2022, up two points from 2021. (Experian)
  • Generation X (ages 42-57) has an average credit score of 706. (Experian)
  • The average credit score of Millennials (ages 26-41) is 687. (Experian)
  • Generation Z (ages 18-25) has an average credit score of 679 in 2022, the same as 2021.  (Experian)

Generation

Average credit score (2022)

Silent Generation

760

Baby Boomers

742

Generation X

706

Millenials

687

Generation Z

679

Average VantageScore in the U.S.

VantageScore is the second most popular credit scoring model in the U.S. As of September 2022, the average VantageScore was 697.

Credit card utilization statistics

Credit utilization refers to the amount of your available credit you’re currently using. Your credit utilization ratio is calculated by adding up your balances and then dividing by the total of your credit limits. Keeping your credit utilization ratio low can help raise your score.

  • Individuals with credit scores 800 to 850 have an average credit utilization ratio of 5.7%. (Experian)
  • Consumers with credit scores considered “very good” (740-799) have an average utilization ratio of 12.4%. (Experian)
  • Those with credit scores in the “good” range (670-739) have an average credit utilization ratio of 32.6 %. (Experian)
  • 47.6% of the population opened at least one new credit account in the last year. (FICO)
  • Approximately 26 million U.S. adults, or 10%, don’t have a credit record and are “credit invisible.” (Consumer Financial Protection Bureau)
  • 19 million Americans have a credit history but lack a credit score because their report is insufficient or out of date. (Consumer Financial Protection Bureau)
  • The 15% growth in credit card balances from 2021 to 2022 is the highest in more than 20 years. (Federal Reserve Bank of New York)
  • Currently, 83% of American people own at least one credit card. (Zippia)
  • There are currently 26.5% more credit card holders in 2022 than there were in 2017—just five years ago. (Zippia)

FAQ

Whether you’re new to credit or just need a refresher, we’ve answered some common questions about credit scores below.

What is a good credit score?

According to FICO, a good credit score is 670-739 or above, while a very good credit score is 740-799. A credit score that is 800 or above is considered exceptional.

How to check your credit score

To check your credit score, order a free copy of your credit report from each of the three credit bureaus. You can also check your credit score for free by visiting Credit.com.

What contributes to your credit score?

The factors that contribute to your credit score are payment history, amounts owed, credit history length, credit mix, and new credit.

What is the highest credit score?

The highest credit score is 850 for most FICO and VantageScore models.

How to work on your credit score

You can see from the above credit score statistics that everyone’s credit varies. If you checked your credit score and it’s currently low, we have resources available to help educate you about your credit so that you can qualify for the best rates available.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

For months, I’ve been banging on about the lack of a refinance program for private-label mortgages, those not backed by Fannie Mae and Freddie Mac.

Sure, HARP is great for underwater homeowners whose loans are owned by the pair, but what about those who aren’t so fortunate?

I’ve brought up proposals such as HARP 3 on several occasions, along with Oregon Senator Jeff Merkley’s refinance program that targets those who hold mortgages that aren’t government-backed.

The Obama administration has also been open to an expanded HARP for these types of borrowers, but without Congressional approval, any stirrings of such relief continue to fall on deaf ears.

But apparently these borrowers are actually receiving some assistance outside of HARP.

45% of Borrowers Have Received a Loan Modification

A new commentary released today by Fitch Ratings revealed that about 45% of all underwater borrowers with private-label mortgages have received a loan modification.

The company noted that loan modifications, distressed loan liquidations, and home price gains have reduced the number of underwater loans in private-label residential mortgage-backed securities (RMBS) by a sizable 25%.

There are still roughly 1.5 million underwater loans in these at-risk securities, though that number has fallen from 2.04 million.

Perhaps the biggest driver has been home price increases, with double-digit growth seen in some of the hardest-hit areas, including Arizona, California, and Nevada.

Assuming home prices continue to tick higher, which they’re expected to, the number of waterlogged loans will continue to drop at a steady clip.

While this is all good and well, the carnage is far from over. Fitch said about one-third of all outstanding borrowers in private-label RMBS pools (no pun intended) remain underwater.

It’s unclear how deeply underwater they are, but underwater nonetheless.

Additionally, the company projects some regions of the United States, notably the Northeast, to experience further home price declines before bottoming.

Why This Is Good and Bad

At first glance, it appears to be good news. Underwater borrowers with all types of loans are generally getting the help they need to continue making mortgage payments and hold on to their homes.

This benefits everyone involved because it makes for a stronger housing market. But the numbers can be deceiving.

Sure, 45% of these non-Fannie/Freddie underwater borrowers received loan mods, but what type of loan mod?

Did they get a $100 off their loan each month? Did they get a .125% interest rate reduction? Was principal forgiveness involved?

We don’t know what level of assistance they received, and if history tells us anything, a lot of these private loan mods weren’t all that attractive, at least not compared to HARP.

Through HARP, borrowers have been able to refinance their mortgages to interest rates a few percentage points lower than their previous rate.

That’s serious assistance, enough to stick around and see this crisis out. The private mods are another question.

This improvement also doesn’t bode well for an expanded HARP for non-Fannie/Freddie borrowers. The more improvement we see and hear about, the less likely Congress will be to act.

So the prospects of a new assistance program are dwindling each day.

The Multnomah Pilot Program

There is a small glimmer of hope though. Last month, the Treasury Department approved a new pilot program to assist underwater borrowers without Fannie and Freddie loans.

The so-called “Rebuilding American Homeownership Assistance” (RAHA) Pilot was launched in Multnomah County, which includes the city of Portland.

It’s limited to borrowers with “significant negative equity” who intend to stay in the prpoerty for 5+ years. They must not own any other residential property and be current on the mortgage.

The RAHA Pilot features two refinancing options:

– 30-year fixed mortgage @5%
– 15-year fixed mortgage @4%

The program relies upon the Treasury’s “Hardest Hit Fund” to operate. If successful, it’s possible other states will take part as well.

But again, with all the good housing news streaming in, the odds grow less likely every day.

Source: thetruthaboutmortgage.com