7 Things to Do After College Besides Work

Numerous college students have a trajectory in mind for navigating life after college. For some, getting a job is their top goal. But, are there other things to do after college besides work?

Beyond looking for a traditional entry-level job, there are alternative choices for new grads—including internships, volunteering, grad school, spending time abroad, or serving in Americorps.

Naturally, the options available will differ depending on each person’s situation, as not all alternatives to work come with a paycheck attached.

Here’s a look at these seven things to do after college besides work.

1. Pursuing Internships

One popular alternative to working right after college is finding an internship. Generally, internships are temporary work opportunities, which are sometimes, but not always, paid.

Internships may give recent grads a chance to build up hands-on experience in a field or industry they believe they’re interested in working in full time. For some people, it could help determine whether the reality of working in a given sector meets their expectations.

Whatever grads learn during an internship, having on-the-job experience (even for those who opt to pursue a different career path) could make a job seeker stand out afterwards. Internships can help beef up a resume, especially for recent grads who don’t have much formal job experience.

A potential perk of internships is the chance to further grow your professional network—building relationships with more experienced workers in a particular department or job. Some interns may even be able to turn their short-term internship roles into a full-time position at the same company.

Starting out in an internship can be a great way for graduates to enter the workforce, “road testing” a specific job role or company.

2. Serving with AmeriCorps

Some graduates want to spend their time after college contributing to the greater good of American society. One possible option here is the Americorps program—supported by the US Federal Government.

So, what exactly is Americorps? Americorps is a national service program dedicated to improving lives and fostering civic engagement. There are three main programs that graduates can join in AmeriCorps: AmeriCorps NCCC, AmeriCorps State and National, and AmeriCorps Vista.

There’s a wide variety of options in AmeriCorps, when it comes to how you can serve. Graduates can work in emergency management, help fight poverty, or work in a classroom.

However graduates decide to serve through AmeriCorps, it may provide them with a rewarding professional experience and insights into a potential career.

Practically, Americorps members may also qualify for benefits such as student loan deferment, a living allowance, education awards (upon finishing their service), and skills training.

It may sound a bit dramatic, but AmeriCorps’ slogan is “Be the greater good.” Giving back to society could be a powerful way to spend some time after graduating—supporting organizations in need, while also establishing new professional connections.

3. Attending Grad School

When entering the workforce, graduates may encounter job postings with detailed employment requirements.

Some jobs require just a Bachelor’s degree, while others require a Master’s–think, for instance, of being a lawyer or medical doctor. Depending on their field of study and career goals, some students may opt to go right to graduate school after receiving their undergraduate degrees.

The number of jobs that expect graduate degrees is increasing in the US. Graduates might want to research their desired career fields and see if it’s common for people in these roles to need a master’s or terminal degree.

Some students may wish to take a break in between undergrad and grad school, while others find it easier to go straight through. This choice will vary from student to student, depending on the energy they have to continue school as well as their financial ability to attend graduate school.

Graduate school will be a commitment of time, energy and money. So, it’s advisable that students feel confident that a graduate degree is necessary for the line of work they’d like to end up in before they apply or enroll.

4. Volunteering for a Cause

Volunteering could be a great way for graduates to gain some extra skills before applying for a full-time job. Doing volunteer work may help graduates polish some essential soft skills, like interpersonal communication, interacting with clients or service recipients, and time management.

Another potential benefit to volunteering is the ability to network and forge new connections outside of college. The people-to-people connections made while volunteering could lead to mentorship and job offers.

Volunteering is something graduates can do after college besides work, while still fleshing out their resume or skills.

New grads may want to volunteer at an institution or organization that syncs with their values or, perhaps, pursue opportunities in sectors of the economy where they’d like to work later on (i.e., at a hospital).

On top of all these potential plus sides, volunteering just feels good. It makes people feel happier. And, after all of the stress that accompanies finishing up college, volunteering afterward could be the perfect way to recharge.

5. Serving Abroad

Similar to the last option, volunteering abroad can be attractive to some graduates. It may help grads gain similar skills they’d learn volunteering here at home, while also giving them the opportunity to learn how to interact with people from different cultures, try to learn a new language, and see new perspectives on solving problems.

Though it can be beneficial to the volunteers, volunteering abroad isn’t always as ethical as it seems. And, not all volunteering opportunities always benefit the local community.

It could take research to find organizations that are doing ethically responsible work abroad. One key thing to look for is organizations that put the locals first and have them directly involved in the work.

6. Taking a Gap Year

According to the Gap Year Association , a gap year is “a semester or year of experiential learning, typically taken after high school and prior to career or post-secondary education, in order to deepen one’s practical, professional, and personal awareness.”

While a gap year is generally taken after high school or after college, one common purpose of the gap year is to take the time to learn more about oneself and the world at large—which can be beneficial after graduating from college and trying to figure out what to do next.

Not only might a gap year help grads build insights into what they’d like to do with their later careers, it may also help them home in on a greater purpose in life or build connections that could lead to future job opportunities.

Graduates might want to spend a gap year doing a variety of activities—including:

•   trying out seasonal jobs
•   volunteering
•   interning
•   teaching or tutoring
•   traveling

A gap year can be whatever the graduate thinks will be most beneficial for them.

7. Traveling Before Working

Going on a trip after graduation is a popular choice for graduates that can afford to travel after college. Traveling can be expensive, so graduates may want to budget in advance (if they want to have this experience post-graduation.

On top of just being really fun, travel can have beneficial impacts for an individual’s stress levels and mental health. Research from Cornell University published in 2014 suggests that the anticipation of planning a trip might have the potential to increase happiness.

Traveling after graduation is a convenient time to start ticking locations off that bucket list, because graduates won’t be held back by a limited vacation time. Going abroad before working can give students more time and flexibility to travel as much as they’d like (and can afford to!).

With proper research, graduates can find more affordable ways to travel—such as a multi-country rail pass, etc. It doesn’t have to be all luxury all the time. Budget travel is possible especially when making conscious decisions, like staying in hostels and using public transportation.

If graduates are determined to travel before working, they can accomplish this by saving money and budgeting well.

Navigating Post Graduation Decisions

Whether a recent grad opt to start their careers off right away or to pursue one of the above-mentioned things to do after college besides work, student loans are something that millions of university students have taken out.

After graduating (or if you’ve dropped below half-time enrollment or left school), the reality of paying back student loans sets in. The exact moment that grads will have to begin paying off their student loans will vary by the type of loan.

For federal loans, there are a couple of different times that repayment begins. Students who took out a Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan, will all have a six month grace period before they’re required to make payments. Students who took out a Perkins loan will have a nine month grace period.

When it comes to the PLUS loan, it depends on the type of student that’s taken one out. Undergraduates will be required to start repayment as soon as the loan is paid out. Graduate and professional students with PLUS loans will be on automatic deferment while they’re in school and up to six months after graduating.

Some graduates opt to refinance their student loans. What does that mean? Well, refinancing student loans is when a lender pays off the existing loan with another loan that has a new interest rate. Refinancing can potentially lower monthly loan repayments or reduce the amount spent on interest over the life of the loan.

Both US federal and private student loans can be refinanced, but when federal student loans are refinanced by a private lender, the borrower forfeits guaranteed federal benefits—including loan forgiveness, deferment and forbearance, and income-driven repayment options.

Refinancing student loans may reduce money paid to interest. For graduates who have secured well-paying jobs and have improved their credit score since taking out their student loan, refinancing could come with a competitive interest rate and different repayment terms.

Graduating from college means officially entering the realm of adulthood, but that transition can take many forms. There are various financial tips that recent graduates may opt to look into.

Thinking about refinancing your student loans? With SoFi, you could get prequalified in just two minutes.



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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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The Ultimate College Senior Checklist

Earning a college degree is no easy feat. Think countless late-night cram sessions, tedious loan applications, heavy textbooks to haul around. For some college seniors, June cannot come fast enough, and it’s understandable why senioritis kicks in. That said, there’s still a lot of important work to do before crossing that graduation stage.

From jumping through the logistical hoops of making it to graduation day to launching a job search and addressing student loan payments, there are a lot of important pre-graduation to-do’s that may require prompt attention.

Here’s a comprehensive checklist that will help college seniors be prepared to graduate and enter the working world.

Dotting I’s and Crossing T’s

Ideally, before senior year begins (or sooner for those planning to graduate early), students should meet with their guidance counselor to make sure they have all of their ducks in a row in order to graduate. Switching majors, studying abroad, or misunderstanding degree requirements can lead to confusion about which classes must be taken to graduate.

Before setting a class schedule for the year, it can’t hurt to double-check with a college counselor that all requirements are being met. Some schools even have a certain amount of community service or chapel hours required in order to graduate, so again, it’s smart to confirm that everything is moving along as it should be.

Preparing for the graduation ceremony needs to be done in advance. Colleges and universities often require students to apply to graduate and register their planned attendance at the ceremony well ahead of the actual day.

To streamline the process, many schools have grad fairs where students can pick up their commencement tickets; buy a cap and gown, class rings and commencement announcements; and ask questions about the logistics of graduation day.

Transcripts can come in handy when applying for jobs and graduate school programs, so picking up a few copies while still on campus can save time down the road. And don’t forget to turn in those library books! No one will want to trek back to campus after graduation to pay late fees.

Getting a Jumpstart on a Job Search

It’s no secret that college graduates flood the job market each June, so getting ahead of the pack can make job searching a little easier. Applying for jobs earlier in the spring can lessen the competition and give seniors confidence that they have a job lined up when they graduate.

If launching a full-blown job search during school isn’t possible, college seniors can at least take steps toward preparing for the job search.

Stop by the career center and see what resources it can provide. Schools have a career center for a reason! Most are ready to help students prepare their resumes and perfect their cover letters, and they typically have job postings from companies looking to hire recent graduates.

Some career centers may offer mock interviews so students can hone those skills, or they may provide support when issues arise during a job search. Popping by between classes to see what services are offered will only take a few minutes.

At the very least, college seniors can poke around online job boards and research local companies to see what opportunities are out there.

Making Connections

As a student, it may feel like having a professional network is unattainable, but many build one while in school without realizing it. One easy way to get a head start on a job search, without doing too much work during a hectic final year of school, is to focus on building relationships and requesting references.

Professors, employers, and intern supervisors can all provide references that can strengthen a job search. Finding that first job out of college can be tricky, when resumes are on the shorter side, so a handful of strong references can make all the difference.

While requesting references, college seniors should tell their connections what career path they’re hoping to pursue. One never knows where the next opportunity might come from.

Paying Back Student Loans

Preparing to navigate life after college can be overwhelming, especially when it comes to finances. No one wants to think about student loan payments, but it can be helpful to start making repayment plans before graduation day.

Try beginning the planning process by simply looking up the current balance for each student loan held, including both federal and private loans. Then note when the grace period ends for each loan and when the lender expects payment. It’s important to plan to make loan payments on time each month, as that can boost a credit score.

Lenders usually provide repayment information during the grace period, including repayment options. Many federal student loans qualify for a minimum of one income-driven or income-based repayment plan.

Federal student loans may qualify for a variety of repayment plans, such as the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plans, Revised Pay As You Earn Repayment Plan, Income-Based Repayment Plan, Income-Contingent Repayment Plan, and Income-Sensitive Repayment Plan. It is important to carefully research each payment plan before choosing one.

For private student loan repayment, it is best to speak directly with the loan originator about repayment options. Many private student loans require payments while the borrower is still in school, but some offer deferred repayment. After the grace period, the borrower will have to make principal and interest payments. Some lenders offer repayment programs with budget flexibility.

Whether students or their parents chose to take out federal or private student loans (or both), reviewing all possible repayment plan options can provide choices. And who doesn’t like choices?

One Loan, One Monthly Payment

Some graduates may want to consider refinancing or consolidating their student debt.

Borrowers who have federal student loans may qualify for a Direct Consolidation Loan after they graduate, leave school, or drop below half-time enrollment.

Consolidating multiple federal loans into one allows borrowers to make just one loan payment each month. In some cases, the repayment schedule may be extended, resulting in lower payments, after consolidating (but increasing the period of time to repay loans usually means making more payments and paying more total interest).

Refinancing allows the borrower to convert multiple loans—federal and/or private—into one new private loan with a new interest rate, repayment term, and monthly payment. The goal is a lower interest rate. (It’s worth noting that refinancing a federal loan into a private loan can lead to losing benefits only available through federal lenders, such as public service forgiveness and economic hardship programs.)

Refinancing can be a good solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.

If that sounds like a good fit, SoFi offers student loan refinancing with zero origination fees or prepayment penalties. Getting prequalified online is quick and easy.

Learn more about SoFi Student Loan Refinancing options and benefits.



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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.
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.

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What to Know about FHA 203K loans

Buying a fixer-upper is sometimes romanticized by pop culture. While it’s fun to dream, the reality of home renovation is that it can be laborious and draining, especially if the home needs serious help.

Repair work requires energy and resources, and it can be difficult to secure a loan to cover both the value of the home and the cost of repairs—especially if the home is currently uninhabitable. Most lenders won’t take that sort of chance.

But if you have your heart set on buying a fixer upper, an FHA 203(k) loan can help.

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), insures loans for the purchase and substantial rehab of homes. It is also possible to take out an FHA 203(k) loan for home repairs only, though it might not be your best option if that’s all you need.

If you have the vision to revive a dreary house, here’s info about FHA 203(k) loans and other home improvement loan options.

What Is an FHA 203(k) home loan?

Section 203(k) insurance lets buyers finance both the purchase of a house and its rehabilitation costs through a single long-term, fixed- or adjustable-rate loan.

Before the availability of FHA 203(k) loans, borrowers often had to secure multiple loans to obtain a mortgage and a home improvement loan.

The loans are provided through HUD-approved mortgage lenders and insured by the FHA. The government is interested in rejuvenating neighborhoods and expanding homeownership opportunities.

Because the loans are backed by the federal government, you may be able to secure one even if you don’t have stellar credit. Rates are generally competitive but may not be the best, because a home with major flaws is a risk to the lender.

The FHA 203(k) process also requires more coordination, paperwork, and work on behalf of the lender, which can drive the interest rate up slightly. Lenders also may charge a supplemental origination fee, fees to cover review of the rehabilitation plan, and a higher appraisal fee.

The loan will require an upfront mortgage insurance payment of 1.75% of the total loan amount (it can be wrapped into the financing) and then a monthly mortgage insurance premium.

Applications must be submitted through an approved lender .

What Can FHA 203(k) Loans Be Used For?

Purchase and Repairs

Other than the cost of acquiring a property, rehabilitation may range from minor repairs (though exceeding $5,000 worth) to virtual reconstruction.

If a home needs a new bathroom or new siding, for example, the loan will include the projected cost of those renovations in addition to the value of the existing home. An FHA 203(k) loan, however, will not cover “luxury” upgrades like a pool, tennis court, or gazebo (so close!).

If you’re buying a condo, 203(k) loans are generally only issued for interior improvements. However, you can use a 203(k) loan to convert a property into a two- to four-unit dwelling.

Your loan amount is determined by project estimates done by the lender or the FHA. The loan process is paperwork-heavy. Working with contractors who are familiar with the way the program works and will not underbid will be important.

Contractors will also need to be efficient: The work must begin within 30 days of closing and be finished within six months.

Mortgage LoanMortgage Loan

Temporary Housing

If the home is indeed unlivable, the 203(k) loan can include a provision to provide you with up to six months of temporary housing costs or existing mortgage payments.

Who Is Eligible for an FHA 203(k) Loan?

Individuals and nonprofit organizations can use an FHA 203(k) loan, but investors cannot.

Most of the eligibility guidelines for regular FHA loans apply to 203(k) loans. They include a minimum credit score of 580 and at least a 3.5% down payment.

Applicants with a score as low as 500 will typically need to put 10% down.

Your debt-to-income ratio typically can’t exceed 43%. And you must be able to qualify for the costs of the renovations and the purchase price.

Again, to apply for any FHA loan, you have to use an approved lender. (It’s a good idea to get multiple quotes.)

Home Improvement Loan Options

The FHA 203(k) provides the most comprehensive solution for buyers who need a loan for both a home and substantial repairs. However, if you need a loan only for home improvements, there are other options to consider.

Depending on the improvements you have planned, your timeline, and your personal financial situation, one of the following could be a better fit.

Other Government-Backed Loans

In addition to the standard FHA 203(k) program, there is a limited FHA 203(k) loan of up to $35,000. Homebuyers and homeowners can use the funding to repair or upgrade a home.

Then there are FHA Title 1 loans for improvements that “substantially protect or improve the basic livability or utility of the property.” The fixed-rate loans may be used in tandem with a 203(k) rehabilitation mortgage.

The owner of a single-family home can apply to borrow up to $25,000 with a secured Title 1 loan.

With Fannie Mae’s HomeStyle® Renovation Mortgage, homebuyers and homeowners can combine their home purchase or refinance with renovation funding in a single mortgage. There’s also a Freddie Mac renovation mortgage, but standard credit score guidelines apply.

Cash-Out Refinance

If you have an existing mortgage and equity in the home, and want to take out a loan for home improvements, a cash-out refinance from a private lender may be worth looking into.

You usually must have at least 20% equity in your home to be eligible, meaning a maximum 80% loan-to-value (LTV) ratio of the home’s current value. (To calculate LTV, divide your mortgage balance by the home’s appraised value. Let’s say your mortgage balance is $225,000 and the home’s appraised value is $350,000. Your LTV is 64%, which indicates 36% equity in the home.)

A cash-out refi could also be an opportunity to improve your mortgage interest rate and change the length of the loan.

PACE Loan

For green improvements to your home, such as solar panels or an energy-efficient heating system, you might be eligible for a PACE loan .

The nonprofit organization PACENation promotes property-assessed clean energy (or PACE) financing for homeowners and commercial property owners, to be repaid over a period of up to 30 years.

Home Improvement Loan

A home improvement loan is an unsecured personal loan—meaning the house isn’t used as collateral to secure the loan. Approval is based on personal financial factors that will vary from lender to lender.

Lenders offer a wide range of loan sizes, so you can invest in minor updates to major renovations.

Home Equity Line of Credit

If you need a loan only for repairs but don’t have great credit, a HELOC may provide a lower rate. Be aware that if you can’t make payments on the borrowed funding, which is secured by your home, the lender can seize your home.

The Takeaway

If you have your eye on a fixer-upper that you just know can be polished into a jewel, an FHA 203(k) loan could be the ticket, but options may make more sense to other homebuyers and homeowners.

SoFi offers cash-out refinancing, turning your home equity into renovation money.

Or maybe a home improvement loan of $5,000 to $100,000 seems like a better way to turn your home into a haven.

Check your rate today.



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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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Home improvement loans

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

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

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

How Do Home Improvement Loans Work?

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

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

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

Types of Loans You Can Use for Home Improvements

Personal Loans

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

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

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

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

Government Loans

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

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

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

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

Home Equity Loans

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

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

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

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

Home Equity Lines of Credit (“HELOC”)

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

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

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

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

Other Ways to Pay for Home Improvements

Credit Cards

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

Cash-Out Refinancing

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

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

Tips for Getting a Home Improvement Loan

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

Have Specific Terms in Mind

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

Get a Cosigner If Necessary

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

Know Your Credit Score

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


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

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

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

Source: lexingtonlaw.com

The 9 Top Reasons Mortgage Loans Are Denied in the U.S.

Although interest rates have inched up recently, they remain at historic lows, spurring demand in both home purchases and mortgage refinancing. However, many lenders have tightened up their borrowing standards due to the economic uncertainty of the pandemic, and hopeful loan applicants may find it hard to get approved. According to loan-level mortgage data from the Home Mortgage Disclosure Act, the denial rate for conventional, single-family loans was 18.8% (excluding withdrawn and incomplete applications) in 2019.

Mortgage application denial rates vary by purpose of the loan. When considering total loan applications for conventional, single-family loans, 2,055,774 applications were denied. At 43%, denial rates were highest for home improvement loans. Loans for home purchases had the lowest denial rate, at just 10%. Refinancing applications, both with and without a cash-out component, had denial rates in between, at 16% for non-cash-out and 18% for cash-out refinance loans.

Mortgage application denial rates vary not only by purpose of the loan but also by the race and ethnicity of the applicant. Non-Hispanic White applicants and co-applicants of different races (“Joint”) had the lowest denial rates at 17%. Black, American Indian or Alaskan Native, and applicants of two or more minority races all had a denial rate that was more than twice as high as that for White applicants. Hispanic or Latino borrowers also had high denial rates, at nearly 30%. The difference in denial rates reflects differences in credit profiles and application types across different demographic groups, but it also may reflect racial and ethnic discrimination in lending behavior.

Loan approvals and denials also vary widely by location. Denial rates skew higher in the South, Southeast, and parts of the Northeast, while denial rates are much lower in the Midwest. This could be due to varying demographic makeups and local job market conditions. At the state level, Mississippi and Florida have the highest mortgage denial rates in the U.S. at 27.3% and 25%, respectively. At the opposite end of the spectrum, North Dakota has the lowest mortgage denial rate in the country, at just 10.2%.

To find the top reasons mortgage loans are denied, researchers at Construction Coverage analyzed the latest data from the Home Mortgage Disclosure Act. The researchers ranked reasons mortgage loans are denied based on the percentage of all denials mentioning each reason. For each reason that mortgage loans are denied, researchers also calculated the total annual denials and the percentage of denials that were due to that reason for several loan types: home purchase, refinancing, cash-out refinancing, and home improvement.

The Top Reasons Mortgage Loans Are Denied

Couple stressed about bills

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1. Debt-to-income ratio

  • Percentage of all denials: 37.2%
  • Total annual denials: 765,772
  • Percentage of home purchase denials: 36.2%
  • Percentage of refinancing denials: 38.0%
  • Percentage of cash-out refinancing denials: 35.4%
  • Percentage of home improvement denials: 37.2%

The debt-to-income ratio (DTI) ratio is the share of gross monthly income (pre-tax) that goes towards debt payments (rent or mortgage, car payment, credit cards, student loans, etc.). A lower DTI can help applicants get approved for a mortgage.

Paying with a credit card

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2. Credit history

  • Percentage of all denials: 34.8%
  • Total annual denials: 715,393
  • Percentage of home purchase denials: 34.2%
  • Percentage of refinancing denials: 24.8%
  • Percentage of cash-out refinancing denials: 25.8%
  • Percentage of home improvement denials: 44.8%

A mortgage applicant’s credit history gives lenders an idea of how risky it is to loan an applicant money. Credit history is a record of how an individual repays debts, such as credit cards, mortgages, car loans, and other bills.

Fixer upper house in disrepair

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3. Collateral

  • Percentage of all denials: 19.7%
  • Total annual denials: 404,084
  • Percentage of home purchase denials: 13.9%
  • Percentage of refinancing denials: 18.5%
  • Percentage of cash-out refinancing denials: 19.6%
  • Percentage of home improvement denials: 23.4%

Insufficient collateral means that the home an applicant is trying to purchase, refinance, or borrow against is not worth enough compared to the proposed loan amount.

Mortgage loan

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4. Other

  • Percentage of all denials: 12.9%
  • Total annual denials: 265,772
  • Percentage of home purchase denials: 13.2%
  • Percentage of refinancing denials: 12.9%
  • Percentage of cash-out refinancing denials: 15.0%
  • Percentage of home improvement denials: 12.0%

The “Other” category covers all other reasons that an applicant could be denied a home loan besides the eight covered by the Home Mortgage Disclosure Act and listed here.

Woman filling out paperwork

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5. Credit application incomplete

  • Percentage of all denials: 8.9%
  • Total annual denials: 183,024
  • Percentage of home purchase denials: 8.5%
  • Percentage of refinancing denials: 14.4%
  • Percentage of cash-out refinancing denials: 14.6%
  • Percentage of home improvement denials: 4.1%

Incomplete credit applications lack the necessary information for the lender to make a credit decision, resulting in a loan denial.

Tax forms

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6. Unverifiable information

  • Percentage of all denials: 6.7%
  • Total annual denials: 137,968
  • Percentage of home purchase denials: 8.9%
  • Percentage of refinancing denials: 5.8%
  • Percentage of cash-out refinancing denials: 4.5%
  • Percentage of home improvement denials: 6.4%

Mortgage denials due to unverifiable information often arise from inaccuracies in an applicant’s employment history or tax records or discrepancies between the application and credit report.

Writing a check

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7. Insufficient cash (down payment, closing costs)

  • Percentage of all denials: 4.0%
  • Total annual denials: 82,354
  • Percentage of home purchase denials: 8.6%
  • Percentage of refinancing denials: 4.0%
  • Percentage of cash-out refinancing denials: 4.4%
  • Percentage of home improvement denials: 1.4%

Mortgage applicants must have sufficient funds to cover down payments and closing costs and fees, or lenders may deny their application.

Woman learning on the job

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8. Employment history

  • Percentage of all denials: 1.8%
  • Total annual denials: 37,567
  • Percentage of home purchase denials: 3.9%
  • Percentage of refinancing denials: 1.4%
  • Percentage of cash-out refinancing denials: 1.6%
  • Percentage of home improvement denials: 1.0%

Mortgage lenders prefer that applicants have worked in the same field for at least two years. However, a new job is not necessarily a hurdle to securing a loan as long as it pays a steady salary.

Stressed out man

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9. Mortgage insurance denied

  • Percentage of all denials: 0.1%
  • Total annual denials: 1,665
  • Percentage of home purchase denials: 0.2%
  • Percentage of refinancing denials: 0.1%
  • Percentage of cash-out refinancing denials: 0.0%
  • Percentage of home improvement denials: 0.0%

Mortgage insurance protects the lender and allows borrowers making a down payment of less than 20% to still qualify for a home loan. Applicants who are denied mortgage insurance that need it are also likely to be declined for their loan.

Detailed Findings & Methodology

A low debt-to-income ratio (DTI) is the number one reason that mortgage applications are denied. Over 37% of denied applications had a low DTI as a reason for denial. This rate is constant across home purchase loans, refinancing loans, and home improvement loans. The second most common reason for mortgage application denials is credit history, accounting for almost 35% of denials. Indeed, credit history was a reason that almost 45% of home improvement loans were denied. The third most common reason for mortgage application denials is collateral, which was cited in about one out of five mortgage denials. Together, these top three reasons account for the vast majority of mortgage denials.

Less common reasons for mortgage denials are an incomplete credit application, unverifiable information, insufficient cash, employment history, and mortgage insurance denied. While most applications list one denial reason, some applications list two or more.

To find the top reasons mortgage loans are denied, researchers at Construction Coverage analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. The researchers ranked reasons mortgage loans are denied according to the percentage of all denials mentioning each reason. For each reason that mortgage loans are denied, researchers also calculated the total annual denials and the percentage of denials that were due to that reason for several loan types: home purchase, refinancing, cash-out refinancing, and home improvement.

Only conventional, single-family mortgage applications were considered in the analysis. In the calculation of denial rates, withdrawn and incomplete applications were excluded.

Source: constructioncoverage.com

How to Refinance Your Home Mortgage – Step-by-Step Guide

Deciding to refinance your mortgage is only the beginning of the process. You’re far more likely to accomplish what you set out to achieve with your refinance — and to get a good deal in the meantime — when you understand what a mortgage refinance entails.

From decision to closing, mortgage refinancing applicants pass through four key stages on their journey to a new mortgage loan.

How to Refinance a Mortgage on Your Home

Getting a home loan of any kind is a highly involved and consequential process.

On the front end, it requires careful consideration on your part. In this case, that means weighing the pros and cons of refinancing in general and the purpose of your loan in particular.

For example, are you refinancing to get a lower rate loan (reducing borrowing costs relative to your current loan) or do you need a cash-out refinance to finance a home improvement project, which could actually entail a higher rate?

Next, you’ll need to gather all the documents and details you’ll need to apply for your loan, evaluate your loan options and calculate what your new home mortgage will cost, and then begin the process of actually shopping for and applying for your new loan — the longest step in the process.

Expect the whole endeavor to take several weeks.

1. Determining Your Loan’s Purpose & Objectives

The decision to refinance a mortgage is not one to make lightly. If you’ve decided to go through with it, you probably have a goal in mind already.

Still, before getting any deeper into the process, it’s worth reviewing your longer-term objectives and determining what you hope to get out of your refinance. You might uncover a secondary or tertiary goal or benefit that alters your approach to the process before it’s too late to change course.

Refinancing advances a whole host of goals, some of which are complementary. For example:

  • Accelerating Payoff. A shorter loan term means fewer monthly payments and quicker payoff. It also means lower borrowing costs over the life of the loan. The principal downside: Shortening a loan’s remaining term from, say, 25 years to 15 years is likely to raise the monthly payment, even as it cuts down total interest charges.
  • Lowering the Monthly Payment. A lower monthly payment means a more affordable loan from month to month — a key benefit for borrowers struggling to live within their means. If you plan to stay in your home for at least three to five years, accepting a prepayment penalty (which is usually a bad idea) can further reduce your interest rate and your monthly payment along with it. The most significant downsides here are the possibility of higher overall borrowing costs and taking longer to pay it off if, as is often the case, you reduce your monthly payment by lengthening your loan term.
  • Lowering the Interest Rate. Even with an identical term, a lower interest rate reduces total borrowing costs and lowers the monthly payment. That’s why refinancing activity spikes when interest rates are low. Choose a shorter term and you’ll see a more drastic reduction.
  • Avoiding the Downsides of Adjustable Rates. Life is good for borrowers during the first five to seven years of the typical adjustable-rate mortgage (ARM) term when the 30-year loan rate is likely to be lower than prevailing rates on 30-year fixed-rate mortgages. The bill comes due, literally, when the time comes for the rate to adjust. If rates have risen since the loan’s origination, which is common, the monthly payment spikes. Borrowers can avoid this unwelcome development by refinancing to a fixed-rate mortgage ahead of the jump.
  • Getting Rid of FHA Mortgage Insurance. With relaxed approval standards and low down payment requirements, Federal Housing Administration (FHA) mortgage loans help lower-income, lower-asset first-time buyers afford starter homes. But they have some significant drawbacks, including pricey mortgage insurance that lasts for the life of the loan. Borrowers with sufficient equity (typically 20% or more) can put that behind them, reduce their monthly payment in the process by refinancing to a conventional mortgage, and avoid less expensive but still unwelcome private mortgage insurance (PMI).
  • Tapping Home Equity. Use a cash-out refinance loan to extract equity from your home. This type of loan allows you to borrow cash against the value of your home to fund things like home improvement projects or debt consolidation. Depending on the lender and jurisdiction, you can borrow up to 85% of your home equity (between rolled-over principal and cash proceeds) with this type of loan. But mind your other equity-tapping options: a home equity loan or home equity line of credit.

Confirming what you hope to get out of your refinance is an essential prerequisite to calculating its likely cost and choosing the optimal offer.


2. Confirm the Timing & Gather Everything You Need

With your loan’s purpose and your long-term financial objectives set, it’s time to confirm you’re ready to refinance. If yes, you must gather everything you need to apply, or at least begin thinking about how to do that.

Assessing Your Timing & Determining Whether to Wait

The purpose of your loan plays a substantial role in dictating the timing of your refinance.

For example, if your primary goal is to tap the equity in your home to finance a major home improvement project, such as a kitchen remodel or basement finish, wait until your loan-to-value ratio is low enough to produce the requisite windfall. That time might not arrive until you’ve been in your home for a decade or longer, depending on the property’s value (and change in value over time).

As a simplified example, if you accumulate an average of $5,000 in equity per year during your first decade of homeownership by making regular payments on your mortgage, you must pay your 30-year mortgage on time for 10 consecutive years to build the $50,000 needed for a major kitchen remodel (without accounting for a potential increase in equity due to a rise in market value).

By contrast, if your primary goal is to avoid a spike in your ARM payment, it’s in your interest to refinance before that happens — most often five or seven years into your original mortgage term.

But other factors can also influence the timing of your refinance or give you second thoughts about going through with it at all:

  • Your Credit Score. Because mortgage refinance loans are secured by the value of the properties they cover, their interest rates tend to be lower than riskier forms of unsecured debt, such as personal loans and credit cards. But borrower credit still plays a vital role in setting their rates. Borrowers with credit scores above 760 get the best rates, and borrowers with scores much below 680 can expect significantly higher rates. That’s not to say refinancing never makes sense for someone whose FICO score is in the mid-600s or below, only that those with the luxury to wait out the credit rebuilding or credit improvement process might want to consider it. If you’re unsure of your credit score, you can check it for free through Credit Karma.
  • Debt-to-Income Ratio. Mortgage lenders prefer borrowers with low debt-to-income ratios. Under 36% is ideal, and over 43% is likely a deal breaker for most lenders. If your debt-to-income ratio is uncomfortably high, consider putting off your refinance for six months to a year and using the time to pay down debt.
  • Work History. Fairly or not, lenders tend to be leery of borrowers who’ve recently changed jobs. If you’ve been with your current employer for two years or less, you must demonstrate that your income has been steady for longer and still might fail to qualify for the rate you expected. However, if you expect interest rates to rise in the near term, waiting out your new job could cancel out any benefits due to the higher future prevailing rates.
  • Prevailing Interest Rates. Given the considerable sums of money involved, even an incremental change to your refinance loan’s interest rate could translate to thousands or tens of thousands of dollars saved over the life of the loan. If you expect interest rates to fall in the near term, put off your refinance application. Conversely, if you believe rates will rise, don’t delay. And if the difference between your original mortgage rate and the rate you expect to receive on your refinance loan isn’t at least 1.5 percentage points, think twice about going ahead with the refinance at all. Under those circumstances, it takes longer to recoup your refinance loan’s closing costs.
  • Anticipated Time in the Home. It rarely makes sense to refinance your original mortgage if you plan to sell the home or pay off the mortgage within two years. Depending on your expected interest savings on the refinance, it can take much longer than that (upward of five years) to break even. Think carefully about how much effort you want to devote to refinancing a loan you’re going to pay off in a few years anyway.

Pro tip: If you need to give your credit score a bump, sign up for Experian Boost. It’s free and it’ll help you instantly increase your credit score.

Gathering Information & Application Materials

If and when you’re ready to go through with your refinance, you need a great deal of information and documentation before and during the application and closing processes, including:

  • Proof of Income. Depending on your employment status and sources of income, the lender will ask you to supply recent pay stubs, tax returns, or bank statements.
  • A Recent Home Appraisal. Your refinance lender will order a home appraisal before closing, so you don’t need to arrange one on your own. However, to avoid surprises, you can use open-source comparable local sales data to get an idea of your home’s likely market value.
  • Property Insurance Information. Your lender (and later, mortgage servicer) needs your homeowners insurance information to bundle your escrow payment. If it has been more than a year since you reviewed your property insurance policy, now’s the time to shop around for a better deal.

Be prepared to provide additional documentation if requested by your lender before closing. Any missing information or delays in producing documents can jeopardize the close.

Home Appraisal Blackboard Chalk Hand


3. Calculate Your Approximate Refinancing Costs

Next, use a free mortgage refinance calculator like Bank of America’s to calculate your approximate refinancing costs.

Above all else, this calculation must confirm you can afford the monthly mortgage payment on your refinance loan. If one of your aims in refinancing is to reduce the amount of interest paid over the life of your loan, this calculation can also confirm your chosen loan term and structure will achieve that.

For it to be worth it, you must at least break even on the loan after accounting for closing costs.

Calculating Your Breakeven Cost

Breakeven is a simple concept. When the total amount of interest you must pay over the life of your refinance loan matches the loan’s closing costs, you break even on the loan.

The point in time at which you reach parity is the breakeven point. Any interest saved after the breakeven point is effectively a bonus — money you would have forfeited had you chosen not to refinance.

Two factors determine if and when the breakeven point arrives. First, a longer loan term increases the likelihood you’ll break even at some point. More important still is the magnitude of change in your loan’s interest rate. The further your refinance rate falls from your original loan’s rate, the more you save each month and the faster you can recoup your closing costs.

A good mortgage refinance calculator should automatically calculate your breakeven point. Otherwise, calculate your breakeven point by dividing your refinance loan’s closing costs by the monthly savings relative to the original loan and round the result up to the next whole number.

Because you won’t have exact figures for your loan’s closing costs or monthly savings until you’ve applied and received loan disclosures, you’re calculating an estimated breakeven range at this point.

Refinance loan closing costs typically range from 2% to 6% of the refinanced loan’s principal, depending on the origination fee and other big-ticket expenses, so run one optimistic scenario (closing costs at 2% and a short time to breakeven) and one pessimistic scenario (closing costs at 6% and a long time to breakeven). The actual outcome will likely fall somewhere in the middle.

Note that the breakeven point is why it rarely makes sense to bother refinancing if you plan to sell or pay off the loan within two years or can’t reduce your interest rate by more than 1.5 to 2 percentage points.


4. Shop, Apply, & Close

You’re now in the home stretch — ready to shop, apply, and close the deal on your refinance loan.

Follow each of these steps in order, beginning with a multipronged effort to source accurate refinance quotes, continuing through an application and evaluation marathon, and finishing up with a closing that should seem breezier than your first.

Use a Quote Finder (Online Broker) to Get Multiple Quotes Quickly

Start by using an online broker like Credible* to source multiple refinance quotes from banks and mortgage lenders without contacting each party directly. Be prepared to provide basic information about your property and objectives, such as:

  • Property type, such as single-family home or townhouse
  • Property purpose, such as primary home or vacation home
  • Loan purpose, such as lowering the monthly payment
  • Property zip code
  • Estimated property value and remaining first mortgage loan balance
  • Cash-out needs, if any
  • Basic personal information, such as estimated credit score and date of birth

If your credit is decent or better, expect to receive multiple conditional refinance offers — with some coming immediately and others trickling in by email or phone in the subsequent hours and days. You’re under no obligation to act on any, sales pressure notwithstanding, but do make note of the most appealing.

Approach Banks & Lenders You’ve Worked With Before

Next, investigate whether any financial institutions with which you have a preexisting relationship offer refinance loans, including your current mortgage lender.

Most banks and credit unions do offer refinance loans. Though their rates tend to be less competitive at a baseline than direct lenders without expensive branch offices, many offer special pricing for longtime or high-asset customers. It’s certainly worth taking the time to make a few calls or website visits.

Apply for Multiple Loans Within 14 Days

You won’t know the exact cost of any refinance offer until you officially apply and receive the formal loan disclosure all lenders must provide to every prospective borrower.

But you can’t formally apply for a refinance loan without consenting to a hard credit pull, which can temporarily depress your credit score. And you definitely shouldn’t go through with your refinance until you’ve entertained multiple offers to ensure you’re getting the best deal.

Fortunately, the major consumer credit-reporting bureaus count all applications for a specific loan type (such as mortgage refinance loans) made within a two-week period as a single application, regardless of the final application count.

In other words, get in all the refinance applications you plan to make within two weeks, and your credit report will show just a single inquiry.

Evaluate Each Offer

Evaluate the loan disclosure for each accepted application with your objectives and general financial goals in mind. If your primary goal is reducing your monthly payment, look for the loan with the lowest monthly cost.

If your primary goal is reducing your lifetime homeownership costs, look for the loan offering the most substantial interest savings (the lowest mortgage interest rate).

Regardless of your loan’s purpose, make sure you understand what (if anything) you’re obligated to pay out of pocket for your loan. Many refinance loans simply roll closing costs into the principal, raising the monthly payment and increasing lifetime interest costs.

If your goal is to get the lowest possible monthly payment and you can afford to, try paying the closing costs out of pocket.

Choose an Offer & Consider Locking Your Rate

Choose the best offer from the pack — the one that best suits your objectives. If you expect rates to move up before closing, consider the lender’s offer (if extended) to lock your rate for a predetermined period, usually 45 to 90 days.

There’s likely a fee associated with this option, but the amount saved by even marginally reducing your final interest rate will probably offset it. Assuming everything goes smoothly during closing, you shouldn’t need more than 45 days — and certainly not more than 90 days — to finish the deal.

Proceed to Closing

Once you’ve closed on the loan, that’s it — you’ve refinanced your mortgage. Your refinance lender pays off your first mortgage and originates your new loan.

Moving forward, you send payments to your refinance lender, their servicer, or another company that purchases the loan.


Final Word

If you own a home, refinancing your mortgage loan is likely the easiest route to capitalize on low interest rates. It’s probably the most profitable too.

But low prevailing interest rates aren’t the only reason to refinance your mortgage loan. Other common refinancing goals include avoiding the first upward adjustment on an ARM, reducing the monthly payment to a level that doesn’t strain your growing family’s budget, tapping the equity you’ve built in your home, and banishing FHA mortgage insurance.

And a refinance loan doesn’t need to achieve only one goal. Some of these objectives are complementary, such as reducing your monthly payment while lowering your interest rate (and lifetime borrowing costs).

Provided you make out on the deal, whether by reducing your total homeownership costs or taking your monthly payment down a peg, it’s likely worth the effort.

*Advertisement from Credible Operations, Inc. NMLS 1681276.Address: 320 Blackwell St. Ste 200, Durham, NC, 27701

Source: moneycrashers.com

Defaulting on Student Loans: What You Should Know

“Student loan default” might be about the scariest combination of words possible. More young people than ever are starting their careers with large amounts of student loan debt, and for some, figuring out how to make the required monthly payments can be a struggle.

Student loan default is basically just a term for when you completely stop paying your student loans. You get a bill, hide it under the mattress, and go back to binging true crime TV—and that pattern repeats for several months until your student loan provider turns your debt over to a collection agency.

To get more technical, defaulting on federal student loans is a process that takes place over a period of non-payment . When you first miss a payment, the loans are delinquent but not yet in default. At 90 days past due, your lender can report your missed payments to credit bureaus. And when you reach 270 days past due, your student loans are officially in default.

get your student loans out of default.

First, stop avoiding those collection calls. If your student loan provider or a collection agency is calling, your best bet is to meet your lender or the agency head-on and take charge of the situation. The lender or the collection agency will be able to talk through the repayment options available to you based on your personal financial situation. They want you to pay, which means that they might be able to help find a payment plan that works for you.

The lender may be able to offer a variety of options tailored to your individual circumstances. Some of these options might include satisfying the debt by paying a discounted lump sum, setting up a monthly payment plan based on your income, consolidating your debts, or even student loan rehabilitation for federal loans. Don’t let your fear stop you from reaching out to your lender or the collection agency.

How to Avoid Defaulting on Student Loans

Of course, even if you can get yourself out of student loan default, the default can still impact your credit score and loan forgiveness options. That’s why it’s generally best to take action before falling into default. If the student loan payments are difficult for you to make each month, there are things you can do to change your situation before your loans go into default.

First, consider talking to your lender directly. The lender will be able to explain any alternate payment plans available to you. For federal loans, borrowers may be able to enroll in an income-driven repayment plan. These repayment plans aim to make student loan payments more manageable by tying them to the borrower’s income. This can make the loans more costly over the life of the loan, but the ability to make payments on time each month and avoid going into default are valuable.

Refinancing student loans could potentially help you avoid defaulting on your student loans by combining all your student loans into one, simplified new loan. When you refinance, qualifying borrowers may be able to secure a lower interest rate or loan terms that work better for their situation.

If a borrower is already in default, refinancing could be difficult. When a student loan is refinanced, a new loan is taken out with a private lender. As a part of the application and approval process, lenders will review factors including the borrower’s credit score and financial history among other factors.

Borrowers who are already in default may have already felt an impact on their credit score, which can influence their ability to get approved for a new loan. In some cases, adding a cosigner to the refinancing application could help improve a borrower’s chances of getting approved for a refinancing loan. Know that if federal student loans are refinanced they are no longer eligible for federal repayment plans or protections.

The Takeaway

Student loan default can have serious negative effects on your credit score and financial stability. If you’re worried about defaulting on your student loans, or you have already defaulted, consider taking immediate steps to remedy the situation before it gets worse. Contact your lender or servicer to learn about options available, and consider refinancing your loans to secure a lower interest rate or monthly payment.

If you’re ready to take control of your loans, learn more about how SoFi student loan refinancing may be able to help.



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

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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

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Source: sofi.com

New Fannie/Freddie Refinance Option Drops Adverse Market Fee, Offers $500 Appraisal Credit

Posted on April 28th, 2021

In an effort to undo some of the damage the Federal Housing Finance Agency (FHFA) basically caused itself, it’s throwing a bone to so-called low-income families to save on their mortgage.

It all spurs from the adverse market fee the very same agency implemented back in August 2020 to contend with heightened losses related to COVID-19 forbearance and loss mitigation.

The 50-basis point fee, which went into effect on September 1st, 2020, applies to all new refinance loans backed by Fannie Mae and Freddie Mac.

While it’s not a .50% increase in mortgage rate, the fee does get passed along to consumers in the form of either higher closing costs or a slightly higher mortgage rate, perhaps an .125% increase all told.

Either way, it wasn’t well received at the time, and still isn’t today, and this announcement is a somewhat bittersweet one, as it only applies to a certain subset of the population.

Still, the FHFA believes families who are eligible for this new refinance initiative could see monthly savings between $100 and $250 on average.

Who Is Eligible for Adverse Market Fee Waiver and Appraisal Credit?

  • Applies to homeowners with incomes at or below 80% of the area median income and loan amounts at/below $300,000
  • Must result in savings of at least $50 in monthly mortgage payment, and at least a 50-basis point reduction in interest rate
  • Must currently hold an agency-backed mortgage (Fannie Mae or Freddie Mac)
  • Property must be a 1-unit single-family that is owner-occupied
  • Borrower must be current on their mortgage (no missed payments in past 6 months, 1 allowed in past 12 months)
  • Max LTV is 97%, max DTI is 65%, and minimum FICO score is 620

Perhaps the biggest eligibility factor is the borrower’s income must be at or below 80% of the area median income.

This new refinance program specifically targets what the FHFA refers to as low-income families, which director Mark Calabria said didn’t take advantage of the record low mortgage rates.

Apparently more than two million of these homeowners did not bother refinancing, even though it would have been advantageous to do so (and still is).

He noted that this new refinance option was designed to help eligible borrowers who have not already refinanced save somewhere between $1,200 and $3,000 annually on their mortgage payments.

That’s actually a requirement as well – the borrower must save at least $50 per month in mortgage payment, and their mortgage rate must be at least .50% lower.

For example, if your current mortgage rate is 4%, you’ll need a rate of at least 3.5% to qualify.

Additionally, you must currently have a home loan backed by either Fannie Mae or Freddie Mac, and your property must be owner-occupied and no more than one unit.

I assume condos/townhomes work as well, as long as it’s your primary residence.

The adverse market fee is waived as long as your income is at/below 80% of the area median AND your loan balance is at/below $300,000.

If your loan amount happens to be higher, my understanding is you can still get the $500 appraisal credit.

You’ve also got to be current on your mortgage, meaning no missed payments in past six months, and up to one missed payment in past 12 months.

Lastly, there is a maximum loan-to-value ratio of 97%, a max debt-to-income ratio of 65%, and a minimum FICO score is 620.

Most borrowers should have no issue with those requirements as they are extremely liberal.

Is This New Refinance Option a Good Deal for Homeowners?

  • It’s an excellent deal for those who haven’t refinanced their mortgages yet
  • You get a slightly lower mortgage rate and/or reduced closing costs
  • And with mortgage rates already super cheap it could be a double-win to save you some money
  • Even though who don’t qualify for this new program should check to see if a refinance could be worthwhile

As Calabria said, many higher-income homeowners probably already refinanced, or are currently refinancing their mortgages to take advantage of the low rates on offer.

Meanwhile, lots of lower income borrowers haven’t for one reason or another, perhaps because they’re not aware of the potential savings or had a bad experience with a mortgage lender in the past.

Whatever the reason, those who haven’t yet and meet the income requirement can take advantage of a refinance without the pesky adverse market fee.

That means they could get a mortgage rate maybe .125% lower than other borrowers who aren’t eligible for this program.

Additionally, they’ll get a $500 home appraisal credit from the lender, assuming the transaction doesn’t already qualify for an appraisal waiver.

Either way, eligible homeowners won’t have to pay for the appraisal, which is another plus to save on the refinance itself via lower closing costs.

It’s actually a great deal for those who haven’t refinanced yet because you might wind up with an even lower mortgage rate and reduced closing costs.

And because your new mortgage payment must be at least $50 cheaper per month, there’s less likelihood of it being a meaningless refinance.

All in all, this is good news for the so-called low-income homeowners who’ve yet to refinance, but bittersweet for everyone else.

Still, mortgage rates remain very attractive for everyone, so even if you have to pay the adverse market fee (and the appraisal fee), it could be well worth your while.

The FHFA said the new refinance option will be available to eligible borrowers beginning this summer, though it’s unclear exactly what date that is as of now.

Read more: When to a refinance a mortgage.

Source: thetruthaboutmortgage.com

HARP Now Extended Through 2016

The program, which helps underwater borrowers refinance, won’t be ending any time soon.

Since it first launched in 2009, the Home Affordable Refinance Program (HARP) has helped 3.2 million borrowers across the country lower their monthly payments by refinancing at historically low interest rates. Friday, FHFA Director Melvin Watt announced this relief won’t be ending any time soon.

HARP will continue through the end of 2016, allowing homeowners who owe more than their homes are worth and regularly make mortgage payments to refinance. To help eligible borrowers take advantage of this program, Zillow remains the only marketplace supporting HARP and FHA Streamline refinances.

The FHFA has started a 10-day Twitter campaign using the hashtag #HARPfacts to help spread the word. They’re targeting Chicago first, where nearly 40,000 Chicago-area homeowners could save an average $189 per month or $2,300 a year with HARP.

Get answers to your HARP questions here.

Related:

Source: zillow.com