The Consumer Financial Protection Bureau (CFPB) on Wednesday released a new edition of its Supervisory Highlights publication, which includes the agency’s actions to combat what it calls “junk fees charged by mortgage servicers, as well as other illegal practices.”
Examinations conducted by the bureau found mortgage servicers levied charges it deems “illegal,” including prohibited property inspection fees, the issuance of “deceptive” notices to borrowers, and violations of loss-mitigation rules. Financial institutions refunded these fees to borrowers based on CFPB findings and “stopped their illegal practices,” the agency said.
“Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees,“ CFPB Director Rohit Chopra said in a statement accompanying the new publication. “Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”
In addition to these findings, the bureau also claims that certain mortgage servicers failed to waive certain late fees and penalties that stem from challenges faced by borrowers during the COVID-19 pandemic. The agency also asserted that deadlines to pay property taxes and homeowners insurance were impacted.
“Mortgage servicers that accepted or required money from borrowers to pay taxes and insurance failed to make those payments in a timely manner, which caused some borrowers to incur penalties,” the bureau stated. “Servicers only took responsibility for those penalties for missed on-time payments if homeowners submitted complaints.”
Among the allegedly deceptive notices sent to borrowers include statements that certain borrowers in financial distress “had been approved for a repayment option,” when the reality was that “no final decisions had been made, and some of the homeowners were ultimately rejected.”
CFPB examiners also found servicers sent some homeowners “false notices saying that they had missed payments and should apply for repayment options,” and that servicers also “improperly denied requests for help and failed to evaluate struggling borrowers for repayment options as required under the CFPB’s mortgage servicing rules.”
The bureau added that mortgage servicers are taking corrective actions, including changes to certain policies and procedures. Servicers are also providing refunds for any issues related to fees, the agency said.
“The CFPB has been looking at ways to streamline mortgage servicing rules, while making sure mortgage servicers fulfill their obligations to treat homeowners fairly,” the bureau added.
If you’ve owned your car for several years, it may be a source of cash even if you don’t want to sell it. Enter auto equity loans, which lets you turn the equity you have in your car into a loan you can use for any purpose.
While the risks and interest rates may not be suitable for every borrower, a strategic approach to this loan can quickly get you the cash you need. Here’s how to tell if a car equity loan makes sense for you.
How Auto Equity Loans Work
Vehicle equity loans depend on how much a borrower’s car is worth versus how much they owe on the car. For example, say your car is worth $15,000. You’re almost finished paying off your car loan and only owe $1,000 on it. So, you have $14,000 of equity you can leverage with an auto equity loan.
Your equity in your vehicle is the basis for a loan, and terms vary by lender. For example, some lenders may loan a maximum of 100% of your auto equity, while others loan 125%.
Like any loan, a car equity loan comes with terms and conditions. This includes the interest rate, repayment schedule, and loan fees.
However, the unique aspect of auto equity loans is the vehicle serves as collateral. The advantage is that you can obtain better terms and rates than an unsecured loan. The downside is that the failure to repay the loan gives the lender the right to repossess the vehicle to recoup their losses.
Auto Equity Loan vs. Auto Title Loan
Auto title loans and car equity loans sound similar, but they have stark differences with severe implications for borrowers. Auto equity loans allow you to turn the equity you have in your car into a loan you’ll repay over the coming months or years. Defaulting on the loan can result in repossession, but the loan terms are typically affordable enough for borrowers to avoid this outcome.
Auto title loans also use equity in your car but have harsher terms and rates. Typically, auto title loans give the borrower one month to repay the loan with higher interest rates than auto equity loans.
The sole upside is that these loans have minimal credit requirements, making them accessible to more borrowers. The downside is that the loan terms are so stringent that borrowers often fail to repay the loan within 30 days, default, and lose their vehicle. 💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
How to Get an Auto Equity Loan
Getting an auto equity loan means assessing your equity, finding a lender, and applying. Here’s the step-by-step guide:
Check Your Equity Level
Get an accurate estimate of your car’s current market value. An online tool, such as Kelley Blue or Edmunds, can help. Once you know the value, subtract any outstanding loan balance on your car from it. The result is your equity. Remember, lenders use the equity amount to determine the maximum loan amount you can receive.
Shop for a Lender
Look for reputable lenders that offer auto equity loans. Specifically, auto lenders, credit unions, and online lenders offer these loans. Peruse customer reviews and gather offer information, including interest rates and loan fees. In addition, lenders have different eligibility requirements, such as equity amount and credit score standards.
Apply for the Loan
Once you choose your lender, prepare the required documentation for the application, including proof of income, identification, vehicle title, and proof of insurance. Then, you can apply using your lender’s website, visiting a physical location, or contacting the lender by phone.
If approved, carefully review the loan terms before accepting. Pay attention to interest rates, repayment schedules, and any fees associated with the loan.
Pros and Cons of an Auto Equity Loan
Like any financial decision, getting a car equity loan has advantages and disadvantages. Here are some potential pros of auto equity loans:
• Competitive interest rates: Because you secure the loan with your vehicle, you’ll likely get a lower interest rate than an unsecured loan or credit card.
• Less-stringent approval: Because a car secures the loan, borrowers with lower credit scores or a less-than-perfect credit history are more likely to qualify.
• Quick funding: Auto equity loans often provide a faster funding process than traditional loans. In some cases, borrowers can receive funds within a day of approval.
• Customizable terms: Some auto equity lenders may offer flexibility in repayment schedules, allowing borrowers to customize the loan terms to better suit their financial situation. For example, you can shorten the term to reduce how long the loan lasts, reducing total interest costs.
However, consider the following cons as well:
• Risk of losing your car auto equity: Auto equity loans are secured loans, meaning the vehicle serves as collateral. If you fail to repay the loan according to the agreed-upon terms, the lender can repossess and sell your car.
• Full-coverage insurance requirements: Many auto equity lenders require borrowers to maintain full-coverage insurance on the vehicle throughout the loan period. This coverage costs more than minimum liability insurance.
• Uncommon among lenders: While auto equity loans are available, they might not be as common or widely offered as other types of loans. This drawback can limit the options available to borrowers. In addition, your current auto lender might not offer this loan, meaning you’ll end up having auto loans with multiple lenders.
Auto Equity Loan Alternatives
A vehicle equity loan is just one way to get the financial assistance you need. Other loan tools are available. Here are some to consider.
Personal Loans
Personal loans can be used for various purposes, including financing a car or covering regular expenses. Unlike car equity loans, personal loans are unsecured, meaning they do not require collateral like your vehicle.
Interest rates on personal loans can vary based on your creditworthiness and may be higher because they don’t have collateral. However, borrowers with higher credit scores generally qualify for lower interest rates. Personal loans usually have fixed monthly payments over a predetermined term.
New Credit Card
Credit card companies frequently offer credit cards with low or no APR to draw new customers. So, you can apply for a new card and take advantage of the promotional interest rate. For example, if you get a new card with 0% APR for one year, you only have to make the minimum payment on the balance each month for the first 12 months.
This feature allows you to accrue debt without paying it back immediately. Just remember that when the promo period ends, any balance will start accruing the card’s regular APR.
In addition, credit cards are unsecured, so no collateral is needed.
Home Equity Loan
A home equity loan is like a car equity loan, but it uses the equity in your home instead of your vehicle. It is a secured loan because your home serves as collateral, and the debt becomes a second mortgage.
Home equity loans typically have fixed interest rates and fixed monthly payments over a specific term. The loan amounts can be larger because homeowners can build up hundreds of thousands of dollars of equity to tap.
Plus, interest rates on home equity loans are often lower than those on unsecured loans. However, you could lose your home if you default on the loan.
Auto Loan Refinance
Car loan refinancing involves replacing your existing auto loan with a new one, usually with better terms such as a lower interest rate or an extended repayment period. Doing so usually lowers your monthly payment, making your loan more affordable. 💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.
The Takeaway
Car equity loans leverage a vehicle’s equity for access to cash with low waiting times. While offering advantages such as potentially lower interest rates and quick funding, they can also pose significant risks, including possibly losing the car. Full-coverage insurance requirements and the relative uncommonness of these loans among lenders add to their drawbacks.
Individuals considering auto equity loans should carefully assess their financial situation and alternatives, exploring options like personal loans, credit cards, home equity loans, or auto loan refinancing. Thorough research into reputable lenders is crucial to making an informed decision that aligns with their financial needs and goals.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is it good to have equity in your car?
It’s good to have equity in your car because you can use it as collateral to get an auto equity loan or sell your car for a profit.
Can you cash out auto equity?
You can turn the equity you have in your car into cash with a cash-out refinance from a lender. Doing so will provide you with a lump sum equal to your equity amount and replace your current auto loan with a new loan with an accordingly larger balance.
Is it a good idea to get an auto equity loan?
If you have thousands of dollars in equity and can’t access other forms of debt, a vehicle equity loan can provide a quick solution. However, it’s crucial to carefully evaluate if you can afford the monthly payments before deciding. Otherwise, you may lose your car if you fail to repay the loan.
Photo credit; iStock/sturti
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Buying your first home can be tedious and overwhelming.
While it’s exciting to visit properties and daydream about your dream home, getting over the financing hurdles is another story. But don’t fret.
This comprehensive guide for first-time homebuyers will walk you through the entire process from start to finish.
Benefits of Being a First-Time Homebuyer
As a first-time homebuyer, you may feel a mix of excitement and apprehension. While the home buying process can seem overwhelming, it’s important to recognize the numerous benefits that come with this milestone.
Financial Assistance
First-time homebuyers have access to several financial assistance programs that can make homeownership more affordable. These include down payment assistance programs, low-interest mortgage loans, and grants specifically designed for first-time buyers. Some of these programs are offered by state and local governments, while others are provided by non-profit organizations or private lenders.
Lower Down Payments
Several loan programs offer lower down payment requirements for first-time homebuyers. The FHA loan, for example, requires as little as 3.5% down if your credit score is 580 or higher. The USDA and VA loans even offer zero down payment options in some cases.
Access to Educational Resources
There’s a lot to learn when you’re buying a home for the first time, but fortunately, there are plenty of resources available. Many organizations offer homebuyer education courses that can help you understand the process and make informed decisions. Some lenders and assistance programs require you to take one of these courses, but even if it’s not mandatory, it can still be a valuable resource.
Before Starting Your Home Search
Check Your Credit
Not only will your credit score play a considerable factor in whether you’re approved for a mortgage, but it will also determine your interest rate.
A small increase or decrease in interest rates may not seem like a big deal. However, mortgage loans are for a hefty sum and for an extended period of time. So, a slight increase or decrease equates to thousands of dollars more spent or saved over the life of the loan.
To have the best chance of being approved for a home loan, you should aim for a credit score of at least 620. It’s possible to get approved for select home loan programs with a score as low as 580, but you may have fewer lenders to choose from.
Run the Numbers
It’s tempting for first-time homebuyers to start searching for homes when they know their credit score is up to par. But that’s probably not a good move until you determine how much home you can afford. Yes, the loan officer will give you a figure when you obtain a preapproval, but that amount isn’t always indicative of what you can afford.
Why so? Well, they focus on the debt-to-income (DTI) ratio to get an idea of a loan amount you qualify for. According to the Consumer Financial Protection Bureau, lenders prefer a DTI ratio of 43% or lower with your new mortgage payment. To illustrate:
CURRENT MONTHLY DEBT
GROSS INCOME
DEBT-TO-INCOME RATIO
MAXIMUM MORTGAGE PAYMENT (USING 43% RECOMMENDATION)
$1,000
$4,000
25%
$720
$2,000
$6,000
33%
$580
$3,000
$10,000
30%
$1,300
Note: Debt-to-Income Ratio = Aggregate Amount of Monthly Debt / Gross Income
The problem is that it fails to consider any expenses unrelated to debt. And if you have hefty insurance, childcare, or even grocery bills, that could be a major concern.
So, your best bet is to look at your current budget and come up with a realistic figure for your new mortgage payment. But don’t forget to keep the recommended DTI ratio in mind.
Explore Mortgage Options
There are several mortgage options on the market for first-time homebuyers, but the most prevalent are:
Conventional Loans
A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. It’s typically offered by a private lender, such as a bank or credit union, and is the most common type of mortgage used to purchase a home.
Conventional mortgages typically require a down payment of at least 3% of the purchase price of the home. Borrowers typically must have a credit score of 620 or higher and a DTI ratio of 36% or lower to qualify. If you have bad credit or are unable to make a large down payment may have a harder time qualifying for a conventional mortgage.
If the loan amount is over $726,200, it becomes a jumbo loan and requires a higher down payment.
FHA Loans
An FHA loan is a type of home loan insured by the Federal Housing Administration (FHA), a government agency within the U.S. Department of Housing and Urban Development (HUD).
FHA loans are designed to make it easier for people to buy homes, especially for first-time homebuyers. They offer lower down payment requirements and more flexible credit guidelines than conventional mortgages.
The minimum credit score required for an FHA loan is 500. If your credit score is between 500 -579, the down payment is 10%. However, if you have a credit score of 580 or above, the down payment is 3.5% of the purchase price.
VA Loans
VA Loans are insured by the Department of Veterans Affairs. They don’t require a down payment and are easier to qualify for than conventional loan products. However, you must be an active-duty member of the armed forces. Surviving spouses also qualify.
USDA Loans
A USDA loan is a type of mortgage offered by the U.S. Department of Agriculture (USDA) to low- and moderate-income borrowers who are looking to buy a home in a rural or suburban area.
See also: 14 First-Time Home Buyer Grants and Programs
Check Out Our Top Picks for 2024:
Best Mortgage Lenders
Most mortgages have a 30 or 15-year term. The latter will cost you more per month, but you’ll save a load of cash on interest.
You can also choose from a fixed or adjustable-rate mortgage (ARM). Fixed-rate mortgages have the same interest rate for the duration of the loan. But ARMs typically start with a lower interest rate for a set amount of time. In fact, they usually span from five to ten years and then adjust depending on the housing market.
Some first-time homebuyers choose ARMs over fixed-rate mortgages because it gives them the option to make a smaller monthly payment in the first few years. It could also mean that you can qualify for a more expensive home. But, be careful not to get too overextended, as erratic market behavior could cause the rate to skyrocket.
Get Preapproved
This is one of the more time-consuming parts of the entire mortgage process for a first-time home buyer. The good news is you don’t have to settle for the first offer that comes your way out of fear that your credit score will take a hit.
“FICO Scores ignore [mortgage] inquiries made in the 30 days prior to scoring,” according to myFICO. So, you won’t be penalized for multiple inquiries.
So, start by researching mortgage lenders that you may be interested in working with. You could also solicit the help of a mortgage broker if you’re strapped for time or want someone to do the legwork for you.
Once you’ve settled on a few lenders, be prepared to provide the following to get preapproved:
Financial statements to confirm your assets, including retirement accounts and real estate
Recent bank statements
Last two pay stubs
W-2s from the last two years
They will also pull your credit report and credit scores. If you qualify, the mortgage lender will then provide you with a preapproval letter, valid for a certain time period, that specifies how much you’re eligible for.
Save Up for a Down Payment and Closing Costs
During the preapproval process, the lender should have discussed loan options that could be a good fit for you. They should also have communicated how much you will need for a down payment and closing costs.
While some sellers may be willing to cover closing costs, be prepared to provide earnest money to secure your offer. And you may need a large down payment if you’re taking out a jumbo loan, or don’t qualify for the FHA or VA loan program. If that’s the case, now’s the time to figure out a plan for it.
If the seller is not paying closing costs, expect to pay between 2% and 5% of the sales price. And if a hefty down payment isn’t required, it’s not a bad idea to bring money to the table. Doing so allows you to reduce the Loan-to-Value, which positions you as less risky to the lender.
You may also be able to avoid private mortgage insurance (PMI), which is required until you reach 20% in equity, and possibly qualify for a reduced interest rate.
How to Find the Perfect Home
Go Home Shopping
All squared away with a preapproval and planned to save up the cash you need? Now, it’s time to go home shopping. But before you go, you have to decide if you want to enlist the assistance of a real estate agent.
It’s possible to find a slew of listings within your price range on the web with minimal effort. However, real estate agents have access to a system that could expand your reach. Even better, they could be integral in helping you choose a home that’s a good buy and negotiating the final purchase price.
And the seller’s agent pays their commission, so no need to worry about forking over extra cash. Just be sure to hire a real estate professional that is seasoned and reputable.
Now for the fun part: home shopping. Be careful not to judge a home solely by its appearance. Some other important factors to keep in mind:
Taxes: are the property taxes affordable or beyond what you can comfortably afford? (You can roll property taxes and homeowners insurance into an escrow account, but they can easily make or break your budget if the figures are steep).
Location: is the home in an area that has historically held its value? Is the location optimal for your commute to and from work?
Crime: is it a high crime area or is it relatively safe?
Condition: how old is the property? Does it need tons of repairs, or is it close to being move in ready?
Floor plan: is the floor plan feasible or ideal for your situation? Would it be appealing to other buyers if you had to sell?
School district: how are the schools? Have they received a good rating, or do they struggle to stay afloat?
All of these factors can have an effect on the value of the property over time.
Submit an Offer
You’ve found the perfect home, and you’re ready to sign on the dotted. Before you can finalize the paperwork and move in, there’s one more important step. And that’s making the offer. Even if the sales price seems fair, you may need to make an offer that’s higher or lower to snag the home.
Why so? Well, there could be a slight or drastic bidding war going on, and the only way for you to win is to beat out the competition. Or maybe your real estate agent did some research and determined the asking price was a bit high based on similar properties in the area or the home’s current condition.
Either way, you want to submit an offer that stands out and gets accepted. Your real estate agent will be able to do so on your behalf. But if you don’t have a real estate agent, check out these letters from Trulia to get you started.
The Mortgage Process
Even after your offer is accepted, there’s still more work to do. You’re not done just yet! It’s time to move on to the mortgage process.
Remember that preapproval letter? The lender will make sure all the information you initially provided is accurate through a process called underwriting.
Depending on how long it’s been since you were preapproved, you may be asked to provide updated bank statements or pay stubs.
The faster you submit the requested information, the quicker you’ll get a response. So, don’t drag your feet if you want a closing date that’s sooner than later.
Home Inspections and Appraisals
Before you close on the home, you will need to have a home inspection and appraisal complete.
The home inspection shouldn’t cost you more than $500. It will give you an overall assessment of the property and identify any potential issues.
The appraisal also plays an integral role as it will give you a solid idea of the home’s fair market value. The lender will mandate it, but it’s not a bad idea to get an independent appraisal done to serve as a second opinion.
An inspection and appraisal may help you decide if you should lower your offer or walk away from the property.
Purchase Homeowners Insurance
Your mortgage lender will require that you take out homeowners insurance. So, you want to start shopping around for quotes and select a policy prior to closing.
Close on Your Loan
At last! You’ve reached the finish line, and it’s time to close on your loan. During the closing, expect to:
Sign a load of paperwork.
Provide any amounts owed for the down payment.
Pay closing costs, which could include property tax obligations, premiums for homeowner’s insurance and association dues, title insurance, and any other costs associated with finalizing the loan.
Pay discount points or prepaid interest that can reduce the interest rate.
But before you show up at closing, it’s a good idea to speak with the lender, so you’ll know what to expect. You can also request a copy of the final closing document, or Closing Disclosure, to see a detailed breakdown of expenses.
A Few More Tips
Here are a few more suggestions for first time home buyers to help you get approved for your first loan:
Refrain from applying for new credit before you close. This could throw off your DTI ratio, lower your credit score, and ultimately prevent you from closing on the loan.
State and local programs may be available to assist with down payments. If you’re low on funds, be sure to explore options that may be available to you.
Several builders offer buyer incentives, like allowances for upgrades and closing costs. So if you haven’t considered new construction, it may not be such a bad idea to take a look if the price points are within your budget.
Should You Rent, Instead?
Perhaps you’ve done a little legwork, ran the numbers, and are on the fence about home buying. You will typically find that it’s cheaper to make monthly mortgage payments than to pay rent.
You can also take advantage of tax deductions and build up equity as you’re making monthly payments. The equity can be borrowed against for a loan or put some extra money in your pocket should you decide to sell before the repayment period ends.
However, renting a home gives you the flexibility to move to a new location if the home isn’t quite what you expected, don’t like the neighborhood, or want something more affordable.
Furthermore, renting allows you to pass the costs of maintaining the home on to the owner. But as a homeowner, you’ll be responsible for costs associated with maintenance and repairs.
Another reason why some choose to rent over buying is the upfront costs. Most landlords require a security deposit. However, it could be substantially lower than the money you may have to bring to the table for the down payment and closing costs.
Ultimately, you have to decide which is the better fit: investing in an asset that could build wealth or continuing to pay rent until you feel the time is right. There is no right or wrong answer; it just depends on your personal preference and financial situation.
Bottom Line
By taking the time to learn about the home buying process, you’ll be well-prepared and save yourself time and headaches. Best of all, you’ll increase your chances of landing your dream home with the most competitive mortgage product on the market.
Frequently Asked Questions
What is the process for buying a home?
The process for buying a home typically involves the following steps:
Determine your budget and get preapproved for a mortgage.
Find a real estate agent and start looking for homes.
Make an offer on a home and negotiate the terms.
Get a home inspection and address any issues that are found.
Get a mortgage and close on the home.
How much house can I afford?
When determining how much house you can afford, there are several factors to take into account. You should consider your income, expenses, down payment, credit score, and mortgage type before making a decision.
A larger down payment can help you get a lower mortgage rate, and a higher credit score can qualify you for better rates and loan terms. Shopping around for mortgage rates and considering different types of mortgages, such as fixed-rate or adjustable-rate, can also help you find the best deal.
Keep in mind that owning a home involves more than just the monthly payments. You will also need to factor in property taxes, insurance, and maintenance costs. You should create a budget that includes all of these costs and leaves room for unexpected expenses.
How much money do I need for a down payment?
The amount of money you need for a down payment will depend on the type of mortgage you get and the price of the home you are buying.
Some mortgage programs, such as FHA loans, allow for down payments as low as 3.5%, while others may require a higher down payment. It’s a good idea to speak with a mortgage lender to determine how much you will need.
Can I buy a house if I have a low credit score?
It’s possible to buy a house with a low credit score. However, it may be more difficult to get approved for a mortgage, and you may have to pay a higher interest rate. Before applying for a mortgage, work on improving your credit scores, as this will help you qualify for a better loan and save you money over time.
How much will closing costs be?
Closing costs are fees that are paid at the closing of a real estate transaction. These costs can vary widely and may include things like mortgage origination fees, title insurance, and appraisal fees. On average, closing costs can range from 2% to 5% of the purchase price of the home.
What is a mortgage preapproval?
A mortgage preapproval is a letter from a lender that indicates how much you are qualified to borrow for a mortgage. The preapproval letter is based on a review of your financial information, including your credit score, monthly income, and debts. A mortgage preapproval can help you understand how much you can afford to borrow and can make you a more competitive buyer in the real estate market.
What is a mortgage rate?
A mortgage rate is the interest rate that you will pay on your mortgage. The mortgage rate will determine the amount of your monthly payments and the overall cost of your loan. Interest rates can vary depending on the type of mortgage you get and your credit scores.
What is PMI?
PMI, or private mortgage insurance, is insurance that is required by lenders for certain types of mortgages when the borrower has less than a 20% down payment. PMI protects the lender in the event that the borrower defaults on the mortgage. The cost of PMI is typically added to the borrower’s monthly mortgage payment.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. It does mean the loan will be more expensive, as you won’t get the lowest interest rate.
It’s possible to get a home equity loan with a fair credit score — as low as 620 — as long as other requirements around debt, equity and income are met.
Strategies for getting a loan despite your bad credit include taking on a co-signer, applying to a place where you currently bank, and writing a letter of explanation to the lender.
Alternatives to a home equity loan include personal loans, cash-out refinances, reverse mortgages and shared equity agreements.
Can you get a home equity loan with bad credit?
Yes, you can. A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income.
That’s not to say it’ll be easy: Lenders tend to be stringent, even more so than they are with mortgages. Still, it’s not impossible. Here’s how to get a home equity loan (even) with bad credit.
Requirements for home equity loans
Not all home equity lenders have the exact same borrowing criteria, of course. Still, general guidelines do exist. Typical requirements for home equity loan applicants include:
A minimum credit score of 620
At least 15 percent to 20 percent equity in your home
A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases
On-time mortgage payment history
Stable employment and income
To learn the requirements for a home equity loan with a specific lender, you’ll need to do some research online or contact a loan officer directly. If you aren’t ready to apply for the loan just yet, ask for a no-credit check prequalification to avoid having the loan inquiry affect your credit score.
What are “good” and “bad” scores for home equity loans?
First, let’s define our terms. Here’s how FICO — the most popular credit scoring model — categorizes different scores:
Score
Classification
Source: MyFico.com
300-579
Poor
580-669
Fair
670-739
Good
740-799
Very Good
800-850
Excellent
When it comes to home equity loans, lenders set a high bar for creditworthiness — higher, even, than mortgages. That’s because they are considered riskier than mortgages: You, the applicant, are already carrying a big debt load. Should you default and your home get seized, the home equity loan — as a “second lien” — only gets paid after the primary (the original) mortgage.
Furthermore, home equity loans don’t have government backing, like some mortgages do. The lender bears all the risk.
So home equity lenders set stricter criteria, demanding scores squarely in the “fair” range. A score in the 500s – good enough for an FHA mortgage — will have a tough time qualifying for a home equity loan. Some lenders have loosened their standards of late and are approving applicants with scores as low as 620. But a “good” score, preferably above 700, remains the threshold for many institutions. It can vary even within one lender, depending on factors like the loan amount or other loan terms.
And of course — as with any loan — the lower your credit score, the less likely you will qualify for the best interest rates.
How to apply for a bad credit home equity loan
Before applying for a home equity loan, remember that it’s not just a question of getting the financing, but also how you can overcome a lower credit score to get the best possible rate. Here are some steps to take:
1. Check your credit report
While it’s possible to get a home equity loan with bad credit, it’s still wise to do all you can to improve your score before you apply (more on that below). A better credit score gets you a better rate. It can also help you get a bigger loan (up to the tappable amount of your equity, of course).
Check your credit reports at AnnualCreditReport.com to get a sense of where you stand. If there are any errors, like incorrect contact information, contact the credit bureau — Equifax, Experian or TransUnion — to get it updated as soon as possible.
2. Determine your equity level
To qualify for a home equity loan, lenders typically require at least 15 percent or 20 percent equity. The amount of equity you have, your home’s appraised value and combined loan-to-value (CLTV) ratio help determine how much you can borrow.
Home Equity
Bankrate’s home equity loan calculator can quickly estimate your potential home equity loan amount.
To estimate your home’s equity, take the value of your home and subtract the balance left on your mortgage. While lenders will only consider the official appraised value of your home when determining how much you can borrow, you can get an idea of your home’s value through Bankrate or a real estate listing portal or brokerage. Let’s say your home is worth $420,000 and you have $250,000 to pay on your mortgage:
$420,000 – $250,000 = $170,000
In this example, you’d have $170,000 in home equity. That doesn’t mean you can borrow $170,000, however. If the lender requires you to maintain at least 20 percent equity, you’d need to preserve $84,000 ($420,000 * 0.20). That leaves you with a home equity loan of up to $86,000 ($170,000 – $84,000).
Say you want to add a $60,000 home equity loan to the mix. That would increase your total mortgage debt — for both your first mortgage and the home equity loan — from $250,000 to $310,000.
That 20 percent equity requirement also means you’d need a CLTV ratio of 80 percent or lower. To calculate your CLTV ratio, divide the total mortgage debt ($310,000) by the value of your home ($420,000):
($250,000 + $60,000) / $420,000 = 73.8%
In this example, you’d be under the lender’s 80 percent CLTV requirement.
3. Find out your DTI ratio
The DTI ratio is a measure lenders use to determine whether you can reasonably afford to take on more debt. To calculate your DTI ratio, simply divide your monthly debt payments by your gross monthly income. For example, say you bring in $6,000 a month in income and have a $2,200 monthly mortgage payment and a $110 monthly student loan payment:
$2,310 / $6,000 x 100 = 38.5%
To make things even easier, you can use Bankrate’s DTI calculator.
For a home equity loan, most lenders look for a DTI ratio of no more than 43 percent.
4. Consider a co-signer
If your credit disqualifies you for a home equity loan, a co-signer with better credit might be able to help, in some cases.
“A co-signer can help with credit and income issues for an applicant who has a lower credit score, but ultimately the main applicant or primary borrower will have to have at least the bare minimum credit score that is required based on the bank’s underwriting guidelines,” says Ralph DiBugnara, president of Home Qualified, a real estate platform for buyers, sellers and investors.
A co-signer is just as responsible for repaying the loan as the primary borrower, even if they don’t actually intend to make payments. If you fall behind on loan payments, their credit suffers along with yours.
5. Try a lender you already work with
If your bank, credit union or mortgage lender offers home equity products, it might be able to extend some flexibility, or at least help with your application, since you’re an existing customer.
“A loan officer familiar with the details of an applicant’s situation can help them present it to an underwriter in the best possible way,” says DiBugnara.
6. Write a letter to the lender
Write a letter of explanation describing why your credit score is low, especially if it has taken a recent hit. This letter should matter-of-factly explain credit issues — avoid catastrophizing — and include any relevant paperwork, like bankruptcy documentation. If your credit score was impacted by late payments due to job loss, for example, but you’re employed now, your lender can take this context into consideration.
Lenders that offer home equity loans with bad credit
There are home equity lenders that offer loans to borrowers with lower credit scores. Here are some to consider, along with requirements:
Lender
Bankrate Score (scale of 1-5)
Loan types
Credit score minimum
Maximum CLTV
Maximum DTI
Figure
4.37
HELOC
640
75%-90%
Undisclosed
Guaranteed Rate
3.3
HELOC
620
90%-95%
50%
Spring EQ
2.7
Home equity loan, HELOC
620 for home equity loans, 680 for HELOCs
Up to 97.5%
43%
TD Bank
4.0
Home equity loan, HELOC
660
Undisclosed
Undisclosed
Connexus Credit Union
3.5
Home equity loan, HELOC
640
90%
Undisclosed
Discover
4.4
Home equity loan
660
90%
43%
Pros and cons of getting a home equity loan with bad credit
Getting a home equity loan with bad credit has its benefits and drawbacks. You can tap your equity to help with expenses, but it’s also risky.
Pros
You’ll pay a fixed rate: Home equity loans are for a fixed sum at a fixed interest rate, so you’ll know exactly how much your payment is each month. This can help you budget for and reliably pay down debt, which can help boost your credit score.
You could get out of costlier debt: If you have high-interest debt — like credit card debt — you could pay it off with a lower-rate home equity loan, then repay that loan, with one payment, for less.
Cons
You’re taking on more debt: If you’ve had trouble managing money in the past, it might not be wise to take on more debt with a home equity loan, even if you qualify.
It’ll be more expensive: A lower credit score won’t qualify you for the best home equity loan rates, meaning you’ll pay more in interest.
You could lose your home: If you fall behind on loan payments, you’ll further damage your credit. Even worse: If you’re eventually unable to pay back the loan, your home could go into foreclosure.
What to do if your home equity loan application is denied
If your application for a home equity loan is rejected, don’t despair. First, ask the lender for specific reasons why your application was denied. The answer can help you address any issues before applying in the future.
If your credit was one of the deciding factors, you can improve your score by making on-time payments and paying down any outstanding debt. If you don’t have enough equity in your home, wait until you’ve built a bigger stake (mainly by making your monthly mortgage payments) before submitting a new application.
Both these approaches may take a half-year to a year to make a significant difference in your credit profile. If you’re in more of a hurry, consider applying to other lenders, as their criteria may differ. Just bear in mind that more lenient terms often mean higher interest rates or fees.
And of course, you can consider other forms of financing.
Home equity loan alternatives if you have bad credit
If you need cash but have bad credit, a home equity loan is just one option. Here are some alternatives:
Personal loans
Personal loans can be easier to qualify for than a home equity product, and they aren’t tied to your home. This means that if you fail to repay the loan, the lender can’t go after your house. Personal loans have higher interest rates, however, and shorter repayment terms. This translates to a more expensive monthly payment compared to what you might get with a home equity loan.
Cash-out refinance
In a cash-out refinance, you take out a brand-new mortgage for more than what you owe on your existing mortgage, pay off the existing loan and take the difference in cash. Most lenders require you to maintain at least 20 percent equity in your home in order to cash out.
A caveat, however: A cash-out refi makes the most sense when you can qualify for a lower rate than what you have on your current mortgage, and if you can afford the closing costs. With bad credit, getting that lower rate might not be possible.
Reverse mortgage
Reverse mortgages allow homeowners over the age of 62 to tap their home’s equity as a source of tax-free income. These types of loans need to be repaid upon your death or when you move out or sell the home. You can use reverse mortgages for anything from medical expenses to home renovations, but you must meet some requirements to qualify.
Shared equity agreement
Home equity investment companies might work with you even if you have a lower credit score, often lower than what traditional lenders would accept. These companies offer shared equity agreements in which you receive a lump sum in exchange for an ownership percentage in your home and/or its appreciation.
Unlike with home equity lines of credit (HELOCs) or home equity loans, you don’t make monthly repayments in a shared equity arrangement. Some companies wait until you sell your home, then collect what they’re owed; others have multi-year agreements in which you’ll pay the balance in full at the end of a stated period.
Make sure you understand all the terms of this complex arrangement. Technically, you’re not borrowing money, you’re selling a stake in your home — to a financial professional who naturally wants to see a return on their investment.
How to get a HELOC with bad credit
Applying for a HELOC is pretty much the same as applying for a home equity loan, but if you have bad credit, a loan might have a slight edge over the line of credit. That’s because home equity loans have fixed interest rates and fixed payments, so you’ll know exactly what you need to repay each month. This predictability could help you better manage your budget and keep up with payments.
A HELOC, on the other hand, has a variable rate, which can cause unexpected increases in your monthly payments. For this reason, lenders often have higher credit score criteria for HELOCs than home equity loans.
Tips for improving your credit before getting a home equity loan
To increase your chances of getting approved for a home equity loan, work on improving your credit score well before applying — at least several months. Here are three tips to help you improve your score:
Pay bills on time every month. At the very least, make the minimum payment, but try to pay the balance off completely, if possible — and don’t miss that due date.
Don’t close credit cards after you pay them off. Either leave them open or charge just enough to have a small, recurring payment every month. That’s because closing a card reduces your credit utilization ratio, which can decrease your score. The recommended utilization ratio: no more than 30 percent.
Be cautious with new credit. Getting a higher credit limit on a card or getting a new card can lower your credit utilization ratio — but not if you immediately max things out or blow through the bigger balance. Treat the newly available funds as sacred savings.
FAQ on getting a home equity loan with bad credit
In general, it’s better to get a home equity loan with bad credit. A home equity loan often has a lower credit score requirement compared to a HELOC, and it comes with a fixed interest rate, so your payment will be the same every month, making it easier to plan for.
Yes — in fact, this is the rule for any type of loan, including a home equity product. The higher your credit score, the lower your interest rate.
If you’re trying to save some money, trimming some discretionary spending categories from your budget can be a good way to start.
But it isn’t necessarily the only or best way to save — especially if reducing or removing things like streaming services, concerts, or monthly massages from your budget makes it harder to stick to your plan.
Instead, it may make sense to track where your money is going for a few weeks and then take a look at all your spending categories to determine which cuts could have the biggest impact.
What Are Spending Categories?
Spending categories can help you group similar expenses together to better organize your budget. They can come in handy when you’re laying out your spending priorities, deciding how much money to allot toward various wants and needs, and determining whether an expense is essential or nonessential.
Many of the budgets you’ll see online use pretty much the same spending categories, such as housing, transportation, utilities, food, childcare, and entertainment. But you may find it’s more useful to track your spending for a while with a money tracker, and then create some of your own categories. You may choose to drill down to specific bills or go broader, breaking down your budget into just the basics.
By personalizing your spending categories, you may be able to put together a budget that’s more manageable — and, therefore, one you’re more likely to stay with.
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How Do Spending Categories Work?
To customize your spending categories, it can help to gather as much information as possible about where your money is actually going.
You can start by looking at old bank and credit card statements to get a good picture of past spending. Your bigger spending categories should be easier to figure out. Those bills are often due on the same day every month and are usually about the same amount. But you’ll also want to keep an eye out for expenses that come just once or a few times a year (such as taxes, vet bills, etc.). And, if you use cash frequently, you’ll want to determine where that money went, too.
A tracking app can help you grasp the hard truth about your spending as you move forward. That cute plant you bought for your windowsill? Pitching in for a co-worker’s going-away gift? Those little splurges can add up before you know it.
Once your spending picture comes into focus, you can divide your expenses into useful personal budget categories, and start thinking about what you might be able to trim or cut out altogether. 💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.
Examples of Spending Categories
Although it can be effective to organize your spending categories in a way that’s unique to you, there are a few basic classifications that can work for most households when making a budget: They include:
Essential Spending
• Housing: This category could include your rent or mortgage payment, property taxes, homeowners or renters insurance, HOA fees, etc.
• Utilities: You could limit this to basic services like gas, electricity, and water, or you might decide to include your cell phone service, cable, and WiFi costs.
• Food: This amount could be limited to what you spend on groceries every month, or it could include your at-home and away-from-home food costs.
• Transportation: Your car payment could go in this category, along with fuel costs, parking fees, car maintenance, car insurance, public transportation, and DMV fees. You could also include the cost of Uber rides.
• Childcare: If you need childcare while you work, this cost would be considered necessary spending. If it’s for a night out, you may want to move it to the entertainment or personal care category.
• Medical Costs and Health Care: This could include your health insurance premiums, insurance co-pays and prescription costs, vision and dental care, etc.
• Clothing: Clothing is a must-have, of course, but with limits. You may want to put impulse items in a separate category as a nonessential or discretionary expense.
Non-essential Spending
• Travel: This category would be for any travel that isn’t work-related, whether it’s a road trip or a vacation in Paris.
• Entertainment: You could get pretty broad in this category, but anything from streaming services and videogames to concerts and plays could go here.
• Personal: This might be your category for things like salon visits, your gym membership, and clothes and accessories that are more of a want than a need.
• Gifts: If you’re a generous gift-giver, you may find you need a separate category for these expenses.
Other Spending
• Savings and investments: Though it isn’t “essential” for day-to-day life, putting money aside for long- and short-term goals is a must for most budgets.
• Emergency fund: This will be your go-to for unexpected car repairs, home repairs, or medical bills.
• Debt repayment: Student loan payments, credit card debt, and other balances you’re trying to pay off could fit in this category.
Pros and Cons of Spending Categories
The idea of making a budget can be daunting, particularly if you’re trying to fit your needs and wants into spending categories that aren’t suited to how you live. Here are some pros and cons to using categories for spending that might keep you motivated and help you avoid potential budgeting pitfalls.
Pros
• More control: Creating a budget with spending categories that match your lifestyle can help you put your money toward things that really matter to you.
• Less stress: If you’re living paycheck to paycheck even though you know your income is sufficient to cover your needs, a budget with realistic spending categories can help you see where your money is going.
• Better planning: Whether you’re trying to save for a vacation, wedding, house, retirement, or all of the above, including those goals in your spending categories will help ensure they get your attention.
Cons
• May feel limiting: Working with a budget can feel restrictive, especially if you’ve been winging it for a while or aren’t including enough discretionary spending.
• Time consuming: It might take some trial and error to find a budget system that works for you. And if you’re budgeting as a couple, you’ll likely have to work out some compromises when determining your spending categories.
• Requires maintenance: Budgeting isn’t a one and done. You’ll be more likely to succeed if you consistently track your spending to make sure you’re hitting your goals.
Common Spending Categories to Cut First
Often when you see or hear budgeting advice, it tends to focus on cutting back on small extras — $6 daily lattes at your favorite café, for example, or those weekly Happy Meals for the kids. Some other top spending categories that traditionally are among the first to hit the chopping block include:
• Gym memberships
• Dining out
• Subscription services you don’t use anymore
• Cable
• Personal care services you can do at home for less, such as manicures and pedicures
• Alcoholic beverages
• Cigarettes and vaping products
• Vacations
But it can also be useful to review, and potentially cut back on, how much you’re budgeting for basic living expenses, such as:
• Clothing and shoes
• Utility bills
• Groceries
• Insurance
• Cars
• Cellphones and computers
• Rent
Tips for Customizing Your Spending Categories
As you create your spending plan, keep in mind that it doesn’t have to be like anyone else’s. If you track your expenses and use that information to create your personalized budget, you may have a better chance of building a plan you can stick with.
Here are some more steps to consider as you get started:
• Be realistic. It may take a while to get to your goal, but doing even a little bit consistently can make a difference. Know yourself and do what you can.
• Don’t forget irregular expenses. Bills that you pay every month can be easy to remember. (You might even put them on autopay to make things more convenient.) But infrequent expenses such as tax bills can get away from you if you don’t include them in your spending categories.
• Avoid spending more than you have. Knowing how much you’ll have left after taxes each month is an important part of successful planning. An emergency fund can help you stay on track when unexpected expenses pop up.
• Leave room for fun. Eliminating date nights and small splurges completely could make it much harder to stay with your plan.
• Pay yourself. Make saving and investing goals a separate spending category.
• Find a budgeting method that works for you. Whether it’s the popular 50/30/20 budget — which divides your after-tax income into needs, wants, and savings — or a detailed spending breakdown with multiple categories, try various budgeting methods until you find one that motivates you.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
The Takeaway
Want to save some money but know you need to make some changes? Monitoring where your money is going every month can help you create a spending plan with categories that are customized to your needs, wants, and goals. A plan that’s realistic, but not too restrictive, can give you the kind of control and motivation you need to get and stay on track financially.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
With SoFi, you can keep tabs on how your money comes and goes.
FAQ
What are the four main categories in a budget?
The four main spending categories for most budgets are housing, food, utilities, and transportation. Once you’ve established how much you’ll need to cover these costs, you can move on to planning for other expenses.
What is the 50/30/20 rule of budgeting?
The 50/30/20 rule is a budgeting method that allocates your take-home income to three main spending categories: needs or essentials (50%), wants or nonessentials (30%), and saving or financial goals (20%).
What are the four characteristics of a successful budget?
A successful budget usually includes accurate income and spending projections, realistic and personalized spending categories, consistent and frequent check-ins, and solid savings goals.
Photo credit: iStock/mapodile
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Deciding on a streaming service can be a difficult choice when there are so many companies and plans to choose from. Many households subscribe to popular platforms like Netflix and Prime Video, but there are a multitude of other options including Sling TV, which had about 2 million subscribers as of the fourth quarter of 2023.
Sling TV is a streaming platform owned by Dish Network that has live TV, including sports, and on-demand shows and movies. There are no contracts and you can cancel at any time.
You can stream for free or pay for upgraded services with a subscription. Read on to find out the features each plan offers.
How much is Sling Freestream per month?
As the name implies, Sling Freestream is free. You don’t even need an account to access it, though creating one will give you a more personalized experience like being able to create a favorite watch list.
While shows include ads, Freestream has over 500 live TV channels and a library of 40,000 on-demand shows and movies.
If you’re looking for a no-cost solution for streaming and you don’t mind watching ads, Freestream could be a good choice. If you want the most current live program selections, Sling TV’s paid subscriptions provide that.
How much is Sling TV per month?
Sling TV has several paid subscriptions for live TV: Sling Orange, Sling Blue and Sling Orange + Blue. All of the plans are ad-supported, but include 50 hours of DVR storage so you could record shows and fast-forward through commercials.
Prices vary based on location, and first-month price promotions are common. Input your ZIP code on Sling’s website to see pricing and features available for each plan in your area.
Sling Orange
Sling Orange typically costs $40 per month and comes with 32 channels, including seven sports and family channels like ESPN and Disney that can’t be found on Sling Blue’s plan. You’ll be able to stream on just one device at a time with the Orange plan.
Sling Blue
Sling Blue varies from $40 to $45 per month depending on your location. With Sling Blue, you won’t get the family and sports channels available on Sling Orange, but you will get other channels that Orange doesn’t have like Bravo and FX. You can stream on up to three devices at one time on this plan.
Sling Orange + Blue
Deciding between Sling Orange and Blue may not be a straightforward choice as each includes popular channels that the other doesn’t. Determining which one to go with comes down to what your viewing preferences are and the channels you want.
If you want access to all channels, you can get Sling Orange + Blue for $55 to $60 per month. This plan combines the Orange and Blue channel packages into one subscription. While you’ll pay a little extra for this plan, you won’t have to worry about missing a game on ESPN or not catching the latest reality shows on Bravo because you’ll have access to the full channel lineup.
Sling TV extras
One of the unique features of Sling TV is the ability to create your own add-ons, or Extras as Sling refers to them, to customize your viewing experience. Extras are mini-channel collections that can be added to your subscription.
There are specific offerings available for Orange and Blue plans so you’ll want to check Sling’s website to see which channel collections are available for your subscription type.
Extras range from $6 to $11 per month and include the following categories:
Entertainment Extra: $6 per month for extra entertainment channels such as Paramount Network and MTV.
Heartland Extra: $6 per month for outdoor sporting channels like Sportsman Channel.
Hollywood Extra: $6 per month for movie-focused channels like Sundance TV and TCM.
Kids Extra: $6 per month for children’s channels like Disney Junior and NickToons.
Lifestyle Extra: $6 per month for lifestyle content such as Hallmark Channel and Cooking Channel.
News Extra: $6 per month for national and world news channels like BBC World News and News Nation.
Sports Extra: $11 per month for sports channels like NHL Network and MLB Network.
You also have an option to buy more than one Extra for a small cost savings. For instance, for $13 per month, you can get a bundle that includes four Extras, which is a savings of about $10 per month compared with buying each Extra without the grouped pricing.
For subscribers seeking premium channels, like Showtime or Starz, those can be added for an additional monthly fee. There are currently about 35 premium Extras to choose from, depending on where you live; they range in monthly price from $1.99 to $10.
How Sling TV might fit into your budget
A helpful budgeting method is the 50/30/20 budget, where you allocate 50% of your income to needs and minimum debt payments, 30% to wants, and 20% to savings and debt repayment beyond those minimums.
A streaming service like Sling TV usually falls into the 30% wants category, meaning it would be nice to have but isn’t essential to your survival in the same way that needs are.
With hundreds of streaming services to choose from, knowing how much you can spend in your wants category — and what streaming features you value most — is a good starting point in making a selection.
You could look for ways to save money by reviewing Sling TV’s offerings to see if there are any deals you can score.
For instance, if you don’t want to commit to a paid subscription but Freestream doesn’t quite fit your needs, you could explore purchasing standalone channels. You don’t need a Sling base service to add Extras like Showtime or Starz. Standalone channels start at $3 per month.
You can also take advantage of Sling TV’s promotions, which we’ve seen with $10 to $25 off the first month.
If you need a streaming device, Sling TV currently gives new subscribers an AirTV Mini — a device optimized specifically for Sling — for free when you prepay two months.
The average 30-year and 15-year mortgage rates have risen for the third week in a row, according to Freddie Mac. The increases over the past week were more substantial than over the previous two weeks, making it feel disheartening for aspiring home buyers who expected rates to go down in 2024.
Higher inflation numbers are keeping mortgage rates high for now. For the Federal Reserve to cut the federal funds rate — a move that typically also leads to lower mortgage rates — inflation needs to get closer to the central bank’s target of 2%. In March, inflation was up 3.5% year over year, according to the latest Consumer Price Index (CPI) report. This was a slightly higher increase than economists had predicted.
It’s unlikely that mortgage rates will significantly rise or fall during the spring and summer home-buying season, so you may not want to wait for rates to drop to buy a house. Instead, focus on factors you can control: Figure out how much house you can afford and improve your finances if necessary to get the lowest rate possible.
Learn more: The credit score needed to buy a house in 2024
Current mortgage rates
Mortgage rates are up across the board this week. The national average 30-year mortgage rate is 7.10%, which is 22 basis points more than last week and 71 points higher than this time in 2023.
The average 15-year mortgage rate is 6.39%. This is 23 basis points higher than last week and up 63 points since a year ago.
How mortgage interest rates work
A mortgage interest rate is a fee for borrowing money from your lender, expressed as a percentage. You can choose from two types of rates: fixed or adjustable.
A fixed-rate mortgage locks in your rate for the entire life of your loan. For example, if you get a 30-year mortgage with a 6.75% interest rate, your rate will stay at 6.75% for the entire 30 years unless you refinance or sell.
An adjustable-rate mortgage locks in your rate for a predetermined amount of time, then changes it periodically. Let’s say you get a 7/1 ARM with an introductory rate of 6%. Your rate would be 6% for the first seven years, then the rate would increase or decrease once per year for the last 23 years of your term. Whether your rate goes up or down depends on several factors, such as the economy and housing market.
At the beginning of your mortgage term, most of your monthly payment goes toward interest. Your monthly payment toward principal and interest stays the same throughout the years — however, less and less of your payment goes toward interest, and more goes toward the mortgage principal or the amount you originally borrowed.
Learn more: 5 strategies to get the lowest mortgage rates
Which mortgage term length should you get?
A 30-year fixed-rate mortgage is a good choice if you want a lower mortgage payment and the predictability that comes with having a fixed rate. Just know that your rate will be higher than if you choose a shorter term and will result in paying significantly more in interest over the years.
You might like a 15-year fixed-rate mortgage if you want to pay off your mortgage quickly and save money on interest. These shorter terms come with lower interest rates, and since you’re cutting your repayment time in half, you’ll save a lot in interest in the long run. But you’ll need to make sure you can comfortably afford the higher monthly payments that come with 15-year terms.
Read more: How to decide between a 15-year and 30-year fixed-rate mortgage
An adjustable-rate mortgage could be good if you plan to sell before the introductory rate period ends. Adjustable rates usually start lower than fixed rates, but there’s always the chance that the rate will increase once the rate-lock period is over. But if you get a 10/1 ARM, for example, and plan to sell before the 10-year period is up, you get to enjoy a lower rate and monthly payment without worrying about your rate increasing later.
Expert predictions for mortgage rates in 2024
In Fannie Mae’s latest rate forecast, the government-sponsored enterprise said it expects 30-year fixed rates to end 2024 at 6.4%. This is less optimistic than its February forecast when Fannie Mae expected rates to dip to 5.9% by the end of the year.
When the Federal Reserve lowers the federal funds rate, mortgage rates typically go down in response. However, according to the CME FedWatch Tool, there’s roughly a 98% chance that the Fed will not lower its rate at the central bank’s next meeting on May 1. So we probably won’t see significant changes anytime soon. If you’re ready to buy a house but holding out for rates to plummet first, it might not be worth the wait.
Learn more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
When you pay off your mortgage, you may have some paperwork and account switching (such as property taxes) to take care of. And you may look forward to greater cash flow.
But is paying off a mortgage always the right move? In some cases, a person who is about to pay off a mortgage may want to consider a couple of options that could make more sense for their particular financial situation.
Learn more about the payoff path and alternatives here.
Pros and Cons of Paying Off Your Mortgage
Paying off your mortgage is a fantastic milestone to reach, but it’s not without trade-offs. Here are a few considerations to help you make the best decision for your situation.
Pros of Paying Off a Mortgage
Cons of Paying Off a Mortgage
No monthly payment
May lose tax deduction
No more interest paid to the lender
Your cash is all tied up in your home’s equity
More cash in your pocket each month
If you pay extra to pay off your home, you may miss out on investment strategies
You’ll need less income in retirement
Lost opportunity costs for other uses for your money
Greatly reduced risk of foreclosure
No tax deduction for mortgage interest, if you’re among the few who still take the deduction
💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.
What Happens When You Pay Off Your Mortgage?
Here’s how mortgage payoff works:
• To get the amount you need to pay off your mortgage, the first thing you need to do is request a mortgage payoff letter. If you pay the amount on your last statement, you won’t have the right amount. A mortgage payoff letter will include the appropriate fees and the amount of interest through the day you’re planning to pay the loan off.
• Know that the payoff letter is only good for a set amount of time, and make sure to get your payment in on time.
• Follow the instructions you’re given about where and how to submit the payment.
• Once you’ve sent the payoff amount, your mortgage lender is responsible for sending you and the county recorder documentation to release the mortgage and lien on your home.
• You should be sent any funds remaining in escrow.
• You will want to contact your insurance company about this change if your insurance was paid along with your mortgage payment and have the bills switched over to you directly.
• If your property taxes were paid as part of your mortgage, you will want to contact your local tax collector about shifting those bills to you as well.
What Documents Do You Get After Paying Off a Mortgage?
After paying off your mortgage, you should receive (or have access to) documents proving you paid off the mortgage and no longer have a lien attached to your home. These include:
• Satisfaction or release of mortgage. This document will be filed with the county recorder (or other applicable recording agency). It states that the mortgage has been satisfied and the lien released.
• A canceled promissory note. When you closed on your home, one of the documents you signed was called a promissory note. Now that the mortgage has been satisfied, you may receive this document back with a “canceled” or “paid in full,” though it’s also possible you may have to call and request the document.
• A statement on the paid-off loan balance. Your lender should send you a statement showing that your loan has been paid in full.
What Should You Do After Paying Off Your Mortgage?
After you pay off your mortgage, you’ll need to take care of a few housekeeping items (a couple are mentioned above).
• Close your escrow account. Since you’re no longer sending a mortgage payment to a mortgage servicer, you’ll need to take care of the items in your escrow account, primarily your taxes and homeowners insurance.
• Contact your county recorder’s office to double-check that the mortgage satisfaction paperwork has been filed. Once that has been filed, you will have a clear title on the property.
• Make plans for the extra money. Whether you want to make a bigger push in your retirement account, enlarge your emergency fund, or pay off other debts, you now likely have more cash to do it with. If you don’t make plans for the extra money, it might just evaporate.
Recommended: 2024 Home Loan Help Center
Is Prepaying a Good Idea?
Generally, paying off your mortgage early is a great idea. It reduces the principal, which in turn reduces the amount you’ll pay in interest over the life of your loan. Still, there are reasons that some homeowners consider not paying their mortgage off early.
Most lenders do not charge a prepayment penalty, but home loans signed before January 10, 2014, may include one. Nonconforming mortgage loans signed after that date may have a prepayment penalty that applies within the first three years of repayment. (The different types of mortgage loans include conforming and nonconforming conventional mortgages.)
The best way to find out if prepayment is subject to a penalty is to call your mortgage servicer. The terms of your mortgage paperwork should also outline whether or not you have a prepayment penalty.
Should You Refinance Instead?
Another option you may consider is refinancing your mortgage. There are several reasons you may want to refinance instead of paying off your mortgage.
Lower monthly payment. Getting a lower rate or different loan term may lower your monthly payment. Be sure to check out current rates, and use a calculator for mortgages to find out what a possible new payment would be.
Shorter mortgage term. Refinancing a 30-year mortgage to, say, a 15-year mortgage can keep you close to paying off your mortgage while also providing financial flexibility.
Spare cash. Whatever your need is — home renovations, college funding, paying off higher-interest debt — a cash-out refinance might be an option.
💡 Quick Tip: Compared to credit cards and other unsecured loans, you can usually get a lower interest rate with a cash-out refinance loan.
The Takeaway
What happens when you pay off your mortgage? After doing a jig in the living room, you’ll need to take care of a few housekeeping tasks and make plans for the extra money.
An option to consider: Would a refinance to a shorter term make more sense, or pulling cash out with a cash-out refi? It can be wise to review all your options as you move toward taking this major financial step.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is paying off your mortgage a good idea?
The answer depends on an individual’s situation. If you have the money and you’d love to shed that monthly obligation for good, paying off a mortgage is a good idea. But if you’re worried about funding your retirement or losing opportunities to invest, paying off your mortgage may not be a good idea for you.
What do you do after you pay off your mortgage?
Ensure that you have received your canceled promissory note, and update your property tax and insurance billers on where to bill you. Since you no longer will have a mortgage servicing company, you must pay your insurance and property taxes yourself.
Is it better to pay off a mortgage before you retire?
Paying off a mortgage could give you more money to work with in retirement. But if your retirement accounts need a boost, most financial experts contend that allocating money there is a better idea than paying off your mortgage. Paying off a mortgage when you have low cash reserves can also put you at risk.
Does paying off your mortgage early affect your credit score?
Surprisingly, paying off your mortgage early won’t affect your credit score much. Your credit score has already taken into account the years of full, on-time payments you made each month.
Photo credit: iStock/katleho Seisa
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.