In the short term, mortgage rates haven’t experienced any extreme movement since earlier in the month, but a slow trickle of weakness is starting to add up. As of last Friday, the average 30yr fixed rate was as high as it’s been since late November. There was a modest recovery yesterday, and it has now been erased by today’s market movement.
In other words, the average lender is now back in line with last Friday’s rates–the highest since November 30th, 2023. That’s the bad news. The good news is that those rates are still almost a full percent lower than the long-term highs seen in October.
Good, bad, or indifferent… where we’re going is more interesting than where we’ve been. That itinerary is constantly evolving based on incoming economic data and other events. The biggest influences are still several weeks away. We’re just watching fine-tuning adjustments in the meantime.
In the short term, it’s nice to see that today’s massively higher PPI reading didn’t do more than it did to crush the bond market’s spirit. This isn’t the craziest turn of events given that we already had a bit of spirit crushing after Tuesday’s CPI, but that several Fed speakers said they’re not reading too much into one month of data that breaks from the recent disinflationary trend. In the slightly bigger picture, however, there’s an opportunity cost. Sure, things may not be unimaginably worse than they were last week, but where would we be if inflation came in slightly below forecast? Very likely, that would have resulted in a much more constructive narrative heading into March where a decent result in NFP and CPI in 3 weeks would pave the way for the Fed to give the first signal that a rate cut would be on the table in subsequent meetings. As it stands, even if the data released in March is bond-friendly, it will have to be taken with a grain of salt until April. More waiting as opposed to less.
M/M Core PPI
0.5 vs 0.1 f’cast -0.1 prev
Y/Y Core PPI
2.0 vs 1.6 f’cast, 1.8 prev
09:08 AM
Moderate overnight weakness and additional selling after PPI data. MBS down half a point. 10yr up 7.5bps at 4.311
10:47 AM
Well off the lows now with MBS down only 11 ticks (.34) and 10yr up 6bps at 4.295
12:36 PM
Slipping again. MBS down 14 ticks (.44) and 10yr up 7bps at 4.307.
04:53 PM
Near best levels since before this AM’s data after a steady afternoon grind. MBS down only 10 ticks (.31) and 10yr up 4.3bps at 4.279
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
Credit card debt is a widespread issue that affects countless Americans, becoming a heavy burden that can disrupt financial stability and well-being. Whether due to unforeseen expenses, medical emergencies, or the convenience of online shopping, the roots of accumulating debt vary widely across individuals.
However, when debt reaches overwhelming levels, seeking ways to reduce or eliminate it becomes a critical goal. This is where the concept of debt settlement enters the picture—a strategy that involves negotiating with creditors to resolve a debt for less than the total amount owed.
The path to settling credit card debt might appear challenging, but armed with the correct information and strategies, it’s entirely possible to regain control over your financial destiny. This article aims to provide a comprehensive guide through the different paths available for settling credit card debt, ranging from self-managed methods to seeking professional assistance.
By gaining an understanding of your options, the steps involved, and the implications of each decision, you can make choices that align with your financial situation and objectives.
Understanding Your Debt Settlement Options
When faced with credit card debt, choosing the best strategy to reduce what you owe can seem overwhelming. However, understanding your options can simplify this process, making it clearer and more manageable. Whether you’re considering a do-it-yourself approach, thinking about seeking legal advice, or pondering the assistance of a debt relief service, it’s crucial to weigh the benefits and challenges of each method.
DIY Settlement Strategies
Settling debt on your own can be empowering and financially beneficial, as it saves you the fees associated with professional debt settlement companies. This approach requires you to directly contact your credit card company to negotiate a settlement—a lump sum payment that’s less than the total amount owed.
To succeed, you’ll need to be well-prepared: research your credit card company’s policies on debt settlement, understand your financial situation thoroughly to know how much you can afford to offer, and be ready to present your case persuasively. While this method demands significant time and effort, it allows you to maintain complete control over the negotiation process.
Consulting with a Debt Settlement Attorney
For those who prefer professional guidance, consulting with a debt settlement attorney can provide valuable legal insights and negotiation leverage. An attorney can evaluate your financial situation from a legal standpoint, offer advice on the feasibility of a settlement, and represent you in negotiations with creditors.
This option is particularly beneficial if you’re facing lawsuits from creditors or if your debt situation is complex. While hiring an attorney involves legal fees, their expertise can lead to more favorable settlement terms and protect you from potential legal pitfalls.
Engaging a Professional Debt Settlement Company
Debt settlement companies act as an intermediary between you and your creditors. These services negotiate on your behalf to reduce the total amount of debt you owe. Opting for a debt relief company can be a good choice if you’re uncomfortable handling negotiations yourself or if you have a significant amount of debt.
It’s important to do thorough research before selecting a debt settlement company: look for reputable companies with transparent fee structures and positive customer reviews. Keep in mind, however, that while a debt relief service can simplify the process, it also means you’ll pay a fee for their assistance, which is typically a percentage of the debt reduced or settled.
Evaluating Whether Debt Settlement Is the Right Choice for You
Deciding to settle credit card debt is a significant financial decision that requires careful consideration of your personal circumstances. It involves analyzing your financial situation, understanding the advantages and drawbacks of settlement, and considering other potential strategies for managing debt.
Assessing Your Financial Situation
The first step in determining if debt settlement is the right path involves a thorough assessment of your financial situation. This means taking stock of all your debts, including credit card balances, loans, and any other financial obligations.
Additionally, evaluate your income, monthly expenses, and any savings or assets you may have. This comprehensive financial overview will provide clarity on how much you can realistically afford to pay towards settling your debts. If you find that your debts far exceed your capacity to pay, and you’re experiencing financial hardship, debt settlement might be a viable option to consider.
The Pros and Cons of Debt Settlement
Before deciding on debt settlement, it’s essential to understand both the benefits and potential drawbacks.
Pros
Reduced debt: The most significant advantage is the possibility of paying off your debt for less than the full amount owed, potentially saving you thousands of dollars.
Avoiding bankruptcy: For many, working with a debt settlement company is a preferable alternative to bankruptcy, which has a longer-lasting impact on your credit scores.
Cons
Credit score impact: Settling your debt can negatively affect your credit score in the short term, as it involves paying less than the agreed-upon amount.
Potential fees: If you use a debt settlement company, you will likely incur fees, which can be substantial.
Tax implications: Forgiven debt may be considered taxable income, which could increase your tax liability.
The Step-by-Step Process to Negotiate Credit Card Debt Settlement on Your Own
Tackling credit card debt through settlement is a proactive approach to managing financial challenges. This process involves several key steps, each designed to help you successfully negotiate with credit card companies and reach a settlement that reduces your debt. Here’s a structured guide to navigating this journey on your own.
1. Educate Yourself on Debt Settlement
Begin by conducting thorough research on how to settle your debt. Learn about the process, its impact on your credit scores, and the legal factors involved. Become familiar with the typical practices in this area, including the average percentage by which debts can be reduced. Gaining knowledge in these areas is crucial and equips you for effective negotiation with credit card companies.
2. Inventory Your Debts
Compile a detailed list of all your debts, including credit card company information, outstanding balances, interest rates, and monthly payment amounts. This comprehensive overview will clarify the total amount you owe and help you prioritize which debts to settle first based on their impact on your financial health.
3. Analyze Your Financial Capacity
Assess your financial situation by reviewing your income, expenses, and available assets. This analysis will help you determine how much you can realistically afford to offer in a settlement without compromising your basic living needs. Creating a budget, if you haven’t already done so, is a crucial step in this process.
4. Organize Your Negotiation Strategy
Before contacting your credit card issuer, develop a clear negotiation strategy. Decide on the initial settlement offer you’re comfortable with and the maximum amount you’re willing to pay. Also, plan how to address any counteroffers from the credit card company. Having a strategy in place will help you navigate the negotiation process more effectively.
5. Establish Communication with Credit Card Companies
Initiate contact with your credit card companies to express your interest in negotiating a settlement. It’s often best to start this communication in writing, followed by phone calls. Be polite, concise, and clear about your financial situation and your desire to settle the debt.
6. Negotiate with Persistence and Patience
Negotiation is a process that requires both persistence and patience. A credit card company may initially resist your settlement offers, so be prepared to negotiate firmly but respectfully. Keep detailed records of all communications and offers made during the negotiation process.
7. Secure and Review the Settlement Agreement
Once you reach an agreement, request a written settlement agreement from the credit card company. Review this document carefully to ensure it accurately reflects the terms you negotiated, including the settlement amount and any conditions regarding the reporting of the debt to credit bureaus.
8. Fulfill the Settlement Terms Diligently
After securing the settlement agreement, adhere to the terms diligently. Make the agreed-upon payment by the specified deadline to ensure the settlement is honored. Once the payment is made, confirm that the account is reported as settled on your credit report.
Negotiating a credit card debt settlement on your own can be challenging, but with thorough preparation and a strategic approach, it’s possible to reduce your debt and move towards financial recovery.
Alternatives to Debt Settlement
Turning to a debt settlement company is only one of several strategies for handling overwhelming debt. It’s crucial to explore all available options to make an informed decision that aligns with your financial situation and goals. Here’s a more comprehensive look at the alternatives:
Debt Consolidation
Debt consolidation involves taking out a new loan to pay off multiple debts, effectively combining them into a single debt with one monthly payment. This approach is particularly beneficial if you can secure a consolidation loan with a lower interest rate than your current debts.
The advantages include simplifying your monthly payments, potentially lowering your overall interest rate, and providing a clear timeline for debt repayment. However, it requires a good credit score to obtain favorable loan terms.
Credit Counseling
Credit counseling agencies offer a valuable service for those struggling with debt. They work with you to create a personalized debt management plan (DMP) and can often negotiate lower interest rates and waived fees with your creditors.
Enrolling in a DMP means making a single monthly payment to the credit counseling agency, which then distributes the funds to your creditors according to the plan. A credit counselor can help you manage your debts more effectively without taking on new loans, but usually involves a small monthly fee.
Bankruptcy
Filing for bankruptcy is a legal process that offers a way out for those in severe financial distress. There are two main types of bankruptcy for individuals: Chapter 7, which liquidates your assets to pay off as much debt as possible, and Chapter 13, which sets up a repayment plan to pay back debts over time.
Bankruptcy can severely impact your credit scores and your ability to obtain future credit, but it provides a clean slate for those who have no other way to manage their debts. It’s advisable to speak to a bankruptcy attorney to understand the implications fully.
Budget Adjustments
Sometimes, the solution to managing debt is as straightforward as adjusting your budget. Reviewing your income and expenses meticulously to identify areas where you can cut back can free up additional funds to pay down your debt.
This might include reducing discretionary spending, canceling subscriptions, or finding ways to increase your income. While it requires discipline and may involve some lifestyle changes, this approach avoids the potential negative impacts on your credit score associated with other debt relief strategies.
Preparing for Life After Settlement
Successfully negotiating a debt settlement marks a significant milestone in your financial journey. However, the path to full financial recovery extends beyond just settling your debts.
Preparing for life after settlement involves taking proactive steps to monitor your credit report, rebuild your credit score, and develop healthy financial habits. These actions are crucial for ensuring long-term financial health and avoiding future debt issues.
Monitor Your Credit Report
After settling your debts, it’s important to regularly check your credit report from the three major credit bureaus—Equifax, Experian, and TransUnion. Ensure that the settled debts are accurately reported and reflect a zero balance.
Monitoring your credit report helps you catch and correct any inaccuracies or errors that could negatively affect your credit scores. It also keeps you informed of your credit status, which is essential for rebuilding credit. You’re entitled to one free credit report from each bureau per year through AnnualCreditReport.com, making it easier to keep tabs on your financial standing.
Rebuilding Your Credit Scores
Settling your debts can impact your credit scores, so focusing on rebuilding it is crucial. Start by making any remaining debt payments on time, as payment history is a significant factor in your credit scores.
Consider using a secured credit card, which requires a deposit that serves as your credit limit. Using this card responsibly and paying the balance in full each month can help demonstrate your creditworthiness and improve your credit scores over time. Additionally, keeping your credit utilization ratio low—below 30% of your available credit—is key to showing lenders you can manage credit effectively.
Developing Healthy Financial Habits
The final step in securing your financial future is developing and maintaining healthy financial habits. Create a realistic budget that accounts for your income, expenses, savings, and investments. Stick to this budget to avoid overspending and to ensure you’re saving adequately for emergencies and future goals.
Prioritize building an emergency fund with enough savings to cover at least three to six months of living expenses. This fund can help you avoid falling back into debt in case of unexpected expenses. Finally, continue educating yourself on financial management and seek professional advice when necessary to make informed decisions about investing and saving for the future.
Frequently Asked Questions
What happens if I miss a payment on a settled debt?
If you miss a payment on a settled debt, it could potentially void the settlement agreement, leading the credit card company to possibly demand the full original amount owed or take legal action against you. It’s crucial to adhere to the terms of the settlement agreement and make payments on time. If you foresee difficulties making a payment, contact the credit card company immediately to discuss your options.
Can I settle debt that’s already in collections?
Yes, you can settle debts that have been transferred to a collection agency. In fact, collection agencies might be more willing to negotiate a settlement since they acquire debts at a fraction of the original amount owed.
Negotiating with a debt collector follows a similar process to negotiating with the original creditor, but ensure any agreement is documented and that you understand the impact on your credit report.
How does debt settlement affect my ability to get new credit?
Debt settlement can impact your credit scores and might be viewed negatively by future lenders, as it shows you did not pay the full amount owed. This can make obtaining new credit more challenging, at least in the short term. However, as you rebuild your credit over time and demonstrate financial responsibility, lenders may be more willing to extend credit to you.
Should I use my savings to settle debts?
Using savings to settle debts can be a viable strategy, especially if it significantly reduces your financial burden and avoids accruing additional interest. However, consider keeping enough in your savings for emergencies.
Evaluate your financial situation carefully to make an informed decision. Consider working with a financial advisor to ensure you’re not putting yourself at risk for future financial emergencies.
How long does a settled debt stay on my credit report?
A settled debt typically remains on your credit report for seven years from the date of the original delinquency that led to the settlement. While the impact of the settled debt on your credit scores decreases over time, it’s important to focus on rebuilding your credit by maintaining good financial habits.
Earning $90,000 a year puts you in a good position to afford a home priced at around $350,000, as long as you don’t already have significant other debts to pay. That’s good news considering the U.S. average home value these days is just above $342,000. But there are many variables in play that could adjust your budget up or down. Let’s examine them to get closer to your personal housing budget number.
What Kind of House Can I Afford With $90K a Year?
Congratulations! At $90,000 a year, your salary is almost $15,000 higher than the American median household income. It makes sense that you’ve set your sights on homeownership. Making $90,000 per year may feel like a lot of money … or not so much, depending on whether you live in an affordable place. The question is less about how much house you can afford than how much you can afford to spend on housing each month.
There’s a basic rule of thumb that you should spend no more than a third of your gross income (i.e., income before taxes) on housing. (Ideally, you’d spend closer to about a quarter.) So someone earning $90,000 per year, can reasonably afford to spend between $22,500 and $29,700 on housing each year — which translates to between $1,875 and $2,475 per month.
That’s a substantial enough chunk of change to cover many mortgage payments. For example, if you took out a home mortgage loan of $310,000 at an interest rate of 7%, your monthly payment might be around $2,060, which falls into your affordable range. (This assumes you make a down payment of $40,000 on a home priced at $350,000.)
However, more factors than your income affect what size loan mortgage lenders will qualify you for — and more factors than the price of the house itself affect whether or not you can afford it. 💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
What is Debt-to-Income Ratio (DTI) — and Why Does It Matter?
Let’s take a second to talk about DTI, or debt-to-income ratio. Your DTI is, as its name suggests, a ratio of how much debt you currently have to how much income you make. It’s calculated by dividing your debts by your gross monthly income, and it’s one of the factors lenders consider when qualifying you for a home loan.
If you’re in a lot of debt — meaning your DTI is higher — it may be harder for you to qualify for a mortgage, no matter how much money you make. Inversely, if your DTI is lower, that’s a favorable mark even if you’re not making huge amounts of money.
Consider how much debt you currently carry before applying for a home loan. If you’re already paying off a car, student loan, credit card balance or all of the above, you may want to work on dialing down your debt; even if you qualify for a mortgage, your interest rate might be higher as a result.
Factoring in Your Down Payment
Along with your DTI and income, mortgage lenders also consider how much money you’re able to pay toward a home up front — otherwise known as your down payment. Although a larger down payment might not significantly shift your monthly payment, it can have an effect on the amount a lender is willing to offer you. (Having a significant amount of money available for a down payment can be a favorable marker for lenders.)
That said, it can take a long time to save up a substantial down payment, even for those earning good income — and you may be sacrificing the opportunity to build equity in the short term if you wait to buy a house.
In any case, remember that responsible homeownership will require a well-set savings habit. (After all, your new home is going to need repairs—and you won’t be able to just call your landlord anymore!)
How to Afford More House With Down Payment Assistance
For many would-be homebuyers — especially first-time homebuyers — the process of saving a downpayment is the single largest obstacle to owning a home. Fortunately, down payment assistance programs offer one way for buyers to give themselves a leg up. Offered through government agencies and nonprofits, down payment assistance programs offer very-low-cost loans or grants that can amplify whatever you’ve already saved up for a down payment.
There are often requirements in order to qualify, such as not out-earning a certain income threshold or having less than a given amount of liquid assets available. Still, these programs can bridge the gap for many first-time buyers trying to leap the down-payment hurdle into homeownership.
Other Factors That Affect Your Ability to Afford a Home
Along with your DTI, the size of your down payment, and the size of the loan you’re hoping to take out, your credit score — and credit history in general — has an impact on your housing budget. Even if you earn good money, a poor credit score may keep you from qualifying for a mortgage, and a score that is fair but not great may push your interest rate higher than it would otherwise be.
Additionally, lenders are interested not only in how much you make, but the stability of your capacity to earn that money. That means they’ll consider not only your job, but how long you’ve had it; most like to see a steady job history of two years. That said, it may still be possible to qualify for a home loan if your job is new to you if you’ve had consistent income over that time, especially if your other markers are favorable.
How to Calculate How Much House You Can Afford
To get the best sense of how much you can afford, consider trying an online mortgage calculator, or home affordability calculator, which will allow you to plug in all of your specific metrics and see how much of a mortgage you’re likely to qualify for (and the size of the associated monthly payment). Keep in mind that your mortgage is just the start. When you buy a house, you’ll also be responsible for any maintenance and upkeep, not to mention property taxes, utility costs, furnishings, and more.
Speaking to a lender is another great way to understand in depth how much house you’re likely to be able to afford based on their algorithm and your specific financial standing. 💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†
Home Affordability Examples
Let’s say you earn $90,000 per year and are interested in buying a house that costs $400,000. You’ve saved up $30,000 for a down payment (7.5% of the purchase price of this home), and you have a credit score of 750.
With interest rates around 7%, as they’ve been lately, your monthly payment for such a home would likely be at or above $3,200—in part because, if your down payment is less than 20%, you’ll need to pay for mortgage insurance, which is an additional monthly cost. That’s substantially more than a third of your gross income at $90,000, so it’s probably not a good idea.
So let’s say you take your $30,000 down payment and look at a significantly cheaper home, perhaps in a significantly cheaper state. This one costs $250,000. In that case, with everything else the same, you’d likely pay less than $2,000 per month, which is a comfortable amount for your income level.
Remember that if your credit score and income trend upward after you purchase a home, and you want to improve your mortgage loan terms, you can always look into a mortgage refinance.
How Your Monthly Payment Affects Your Price Range
As you can see, your monthly payment has a huge effect on the price range of the home you’re comfortably able to afford. Although $90,000 per year may seem like a lot of income (and is, at a national level), it may not translate to being able to afford a very large or costly home.
Types of Home Loans Available to Households with $90,000 in Income
Good news: There are many different types of mortgage loans available to those who earn $90,000. Along with conventional loans from private lenders, you may also be eligible for government-subsidized loans like VA loans, FHA loans, or USDA loans, all of which can lower the qualifying requirements and make the home loan process easier for first-time homebuyers.
The Takeaway
Although $90,000 is a large income, especially for a single person, it doesn’t translate to an unlimited home-buying budget. Aside from income, your credit history, DTI, and available down payment amount also have a significant impact on how much mortgage lenders will be willing to offer you.
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 $90K a good salary for a single person?
A salary of $90,000 is substantially higher than the national median household income, so yes, it’s a good salary for a single person. Exactly how good depends on where you live, as the cost of living varies significantly across the U.S.
What is a comfortable income for a single person?
“Comfortable” is relative! While one person may be comfortable sharing a home with multiple roommates, others might require more space or greater luxuries to feel satisfied. Personal finance is just that—personal—and only you can decide how much income you need to be truly comfortable.
What is a liveable wage in 2024?
The living wage changes substantially based on the cost of living where you live. For example, according to the MIT Living Wage Calculator, $14.54 per hour is a living wage for a single adult with no children in Pocatello, Idaho, but that figure goes up to $21.58 in Portland, Oregon.
What salary is considered rich for a single person?
While “rich” is relative, the top 5% of people in America earned more than $335,000 in 2021 according to a study by the Economic Policy Institute. However, depending on where you live, $90,000 may feel rich — or not. Cost of living has a major impact.
Photo credit: iStock/andreswd
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*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.
‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will provide you $2,000.^ Terms and conditions apply. This Guarantee is available only for loan applications submitted after 6/15/22 for the purchase of a primary residence. Please discuss terms of this Guarantee with your loan officer. The property must be owner-occupied, single-family residence (no condos), and the loan amount must meet the Fannie Mae conventional guidelines. No bank-owned or short-sale transactions. To qualify for the Guarantee, you must: (1) Have employment income supported by W-2, (2) Receive written approval by SoFi for the loan and you lock the rate, (3) submit an executed purchase contract on an eligible property at least 30 days prior to the closing date in the purchase contract, (4) provide to SoFi (by upload) all required documentation within 24 hours of SoFi requesting your documentation and upload any follow-up required documents within 36 hours of the request, and (5) pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. The Guarantee will be void and not paid if any delays to closing are due to factors outside of SoFi control, including delays scheduling or completing the appraisal appointment, appraised value disputes, completing a property inspection, making repairs to the property by any party, addressing possible title defects, natural disasters, further negotiation of or changes to the purchase contract, changes to the loan terms, or changes in borrower’s eligibility for the loan (e.g., changes in credit profile or employment), or if property purchase does not occur. SoFi may change or terminate this offer at any time without notice to you. ^To redeem the Guarantee if conditions met, see documentation provided by loan officer.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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Debt relief won’t hurt your credit alone. However, closing your oldest accounts can drastically lower your standing.
Debt relief and debt settlement options don’t hurt your credit score on their own. These programs aim to help reduce your debt and if that debt is revolving credit, it can reduce your credit utilization and improve your credit. However, a debt relief program could accidentally drop your score if it closes your account with the longest payment history.
There are many debt relief options available, so it’s important to consider your unique financial circumstances when choosing a plan. We’ll help you weigh those options and share several resources that can help you learn how to reduce debt over time.
Key Takeaways:
Credit utilization makes up 30% of your credit score.
Each debt relief option has its pros and cons.
Having good credit can help you secure better loans.
How Debt Relief Programs Affect Credit
Your credit utilization rate makes up 30% (roughly one-third) of your overall credit score. When you pay off revolving debt, your credit score often will improve if that is the area most impacting your credit. TIf you’ve nearly reached your credit card’s total credit limit. Keeping your utilization rate below 10% is ideal, but less than 30% is also a strong move.
Below is a breakdown of the five factors that influence credit, according to the FICO® credit scoring model:
The type of debt relief program you use can also positively or negatively affect your credit. Debt settlement, for example, utilizes some tactics that generally have a more negative effect than other types of debt relief programs.
Credit.com’s free credit report card tool can help you better understand your current creditworthiness and which factors you need to work on to help you improve your standing.
The Main Approaches to Debt Relief
Once you have a clear picture of your credit history, you can choose one of the six main approaches to debt relief to help you get out of debt. Each option has its advantages and drawbacks as well as a distinct impact on your credit score, both short term and long term.
Debt Snowball and Debt Avalanche
Immediate credit impact: None
Long-term credit impact: Reliably positive
The debt snowball is when you pay off your debts one at a time, starting with the ones that have the lowest balance. This eliminates those debts from your credit record quickly.
The debt avalanche is when you pay off your debts one at a time, but you start with those that have the highest balances instead. While it takes longer to clear debt from your credit history, the debt you clear takes a larger chunk out of your overall balance owed.
As long as you stick to the minimum payments needed on all of your other credit accounts while you work to pay down your debt, this method has little immediate impact on your credit report and a reliably positive one in the long term.
Debt Consolidation
Immediate credit impact: Small (positive or negative)
Long-Term credit impact: Minimal
Debt consolidation loans and balance transfer credit cards can help you manage your debt by combining multiple lines of credit under one loan or credit card. While this helps by making one payment out of several, it’s not a strategy that directly gets you out of debt. It’s more like a tool to help you get out of debt faster and easier.
Consolidation loans often offer lower interest rates than the original credit lines, enabling you to pay off your debt faster. In addition, having one lower monthly payment makes it easier to avoid late or missed payments.
Balance transfer credit cards let you transfer debt from other cards for a minimal fee. These cards sometimes require that you pay off the balance transfer balance within a certain time frame to avoid incurring interest. If you choose a balance transfer card, choose one with terms favorable to your situation and needs.
A debt consolidation loan adds a new account to your credit report, which can briefly cause your score to drop. On the other hand, adding a loan or credit card to your credit history could improve your credit mix. You’ll need to consider these factors when determining whether a debt consolidation loan is right for you.
Credit Counseling
Immediate credit impact: None expected
Long-term credit impact: None expected
A credit counselor is a professional adviser who helps you manage and repay your debt. Counselors may offer free or low-cost consultations and educational materials. They often lead their clients to enroll in other debt relief programs, such as a debt management plan, which generally require a fee and can affect your credit.
Be sure you fully understand the potential impact of any debt relief program suggested by a credit counselor before you sign up. Ask as many questions as you can, like “Will this debt relief program have high interest rates?”
Counselors can also help you avoid accumulating too much debt. Seeking advice from a counselor about a loan that you’re interested in can save you money in the long run. Learning how to choose a credit counselor who can meet your needs is essential.
Debt Management Plan
Immediate credit impact: Moderate (positive or negative)
Long-term credit impact: Minimal
A Debt Management Plan is typically set up by a credit counselor or counseling agency. You make one monthly payment to that agency, and the agency disburses that payment among your creditors. This debt management program can affect your credit in several ways—mostly positively.
While individual lenders may care that a credit counseling agency is repaying your accounts, FICO does not. Since FICO is the leading data analytics company responsible for calculating consumer credit risk, a DMP will not adversely affect your credit. Of course, delinquent payments and high balances will continue to bring your score down, even if you’re working with an agency.
When you agree to a DMP, you have to close your credit cards. This will likely lower your scores, but how much depends on how the rest of your credit report looks. Factors such as whether or not you have other open credit accounts that you pay on time will determine how much closing these lines of credit will hurt your score.
Regardless, the negative effect is temporary. Ultimately, the impact of making consistent on-time payments to your remaining credit accounts will raise your credit scores.
Debt Settlement and Debt Negotiation
Immediate credit impact: Severe damage
Long-Term credit impact: Slow recovery
Some creditors may allow you to settle your debt. Negotiating with creditors allows you to pay less than the full balance owed and close the account.
Creditors only do this for consumers with several delinquent payments on their credit report. However, creditors generally charge off debts once they hit the mark of being 180 days past due. Since charged-off debts are turned over to collection agencies, it is important to try to settle an account before it gets charged off.
Debt settlement companies negotiate with creditors on your behalf, but their tactics often require you to stop paying your bills entirely, which can have a severe negative impact on your credit. In general, debt settlement is considered a last resort, and many professionals recommend bankruptcy before debt settlement.
Bankruptcy
Immediate credit impact: Severe damage
Long-term credit impact: Slow recovery
Filing for bankruptcy will severely damage your credit and can stay on your credit report for as long as 10 years from the filing date. However, if you are truly in a place of debt from which all other debt relief programs cannot save you, bankruptcy may be the best option.
Moreover, working diligently to rebuild your credit after bankruptcy can help improve your credit scores. Depending upon which type of bankruptcy you file for—Chapter 7, Chapter 11 or Chapter 13—you will pay back different amounts of your debt, and it will take varying timelines before your credit can be restored.
Learning the difference between bankruptcy types can help you choose the right one. A qualified consumer bankruptcy attorney can help you evaluate your options.
Boost Your Personal Finance Knowledge With Credit.com
Whichever method of debt relief you choose, the ultimate goal is always to pay off your debt. That way, you can save and invest for your future goals. For some, taking a hit to their credit temporarily is worth it if it means finally getting their balances to zero.
Credit.com has an extensive library of personal finance resources that can enhance your knowledge and help you determine if a loan or line of credit is right for you. Plus, you’ll find plenty of resources to help with your debt relief goals.
The hope is always that you’ll communicate and work out any problems you have before it ever gets this far, but that doesn’t always happen. Sometimes relationships can become toxic by the end. And when that happens, it’s difficult for both parties involved. Here are the signs your roommate doesn’t like you.
1. Cutting off communication
This is one of the big signs your roommate doesn’t like you. When you two stop speaking, or even worse, when all communication comes in the form of a terse text message or a sticky note on the fridge, that’s good indication the relationship is either dead or dying.
2. What a mess
If you’re sharing a home, you need to share the responsibilities of maintaining that home. Sometimes it means maintaining the water heater. But it always means keeping your home neat and tidy. A messy desk is one thing (the sign of a genius, even!). And you can forgive a messy room. But not so much when that mess creeps out of your bedroom and into your shared space like the bathrooms, living room or worse, the kitchen. Keep your kitchens clean!
3. Who ate my creamy all-natural almond butter?
Is your roommate eating your food, deleting your shows from the DVR or even wearing your clothes without your permission? Talk it out before they delete all those reruns of “Say Yes To The Dress” you’ve been saving for a rainy Sunday.
4. The invisible roommate
If your roommate is never there, it could mean one of two things: Either they lead a busy and full life and aren’t home much or they’re not home much because they’re actively avoiding you.
5. They follow the trail
Can your roommate track your movements by the trail of chaos and mess you leave behind? Shoes by the door, clothes on the couch, dirty pots and pans on the stove and a messy bathroom all lead to one riled up roomie.
6. Feeling your inner Felix Unger
On the other side of the coin, if you’re a neat freak who disinfects the remote and follows people around with a dustpan while reminding them to use a coaster, you won’t win any popularity contests, either. Being neat is great. Being a neat freak isn’t.
7. Tummy time!
Do you hang out all day sitting naked on the couch? Do you work and sleep in your roommate’s bed? These behaviors are acceptable only if you’re a dog. Are you a dog? Bad roommate! Very bad roommate!
8. Is it the first already?
Pay your half of the rent on time. Every month. No exceptions. If you come up short, or if you’ll need help paying your half, tell your roommate early. Waiting ’til the last minute or even worse, flaking out altogether, is how you make a roommate an ex-roommate.
9. Do you smell that?
Can you remember the last time it was “your turn” to take out the trash? If you’re stomping on the trash trying to pack it down, odds are you’re not winning any popularity contests.
10. TMI
There’s confiding, and there’s chronic oversharing. Sure, as roommates, you’re expected to share some stuff, but not everything. Some details are better kept to yourself.
11. That looks fun…I guess
No one expects you to have all of the same interests. You may have some stuff in common. That’s part of the reason you’re living together. But if you’re putting down someone’s interests or insulting their favorite reality show, that’s just a jerk move.
12. Overnight guests
No one says you can’t have a partner spend the night, but if your significant other is over a lot (like A LOT), be discreet and respectful. Being kept awake all night by the headboard banging against your shared wall won’t win you any popularity contests.
13. Oh, did I wake you?
Just because you “don’t get tired until late” doesn’t mean anyone living in your home should have to stay awake. It’s fine if one of you is a night owl and the other is an early bird. But keeping the lights on and blasting the TV at 3 a.m. on a Wednesday isn’t cool.
14. Occupado!
Hogging the bathroom, using all the hot water, leaving your makeup all over the vanity or not cleaning out the sink after you shave isn’t only inconsiderate and gross. It’s also just bad hygiene. And if you use all the toilet paper, replace the dang roll. It’s not hard!
15. Your only habits are bad habits
If your roommate isn’t a smoker and complains the furniture and the carpet smells like your cigarettes, it’s a sign your roommate doesn’t like you. You need to take your ashtray outside or take your stuff to another house.
16. Vicious recycle
If your city or town collects recycling, you need to sort all your recyclables. Paper and plastic in one bin. Glass in another. If you think, “Eh, they’ll do it when they collect it,” when you bring everything out to the curb (you ARE bringing out the recycling, right?), you’re wrong. They won’t. And it’s not winning you any friends.
17. Molting and revolting
Personal hygiene is for the bathroom. Not the living room or the kitchen. So, when your hair gets all over the furniture and floors, no one thinks of it as a reminder of your presence. Also, no one wants to see you clipping your toenails on the coffee table. Take that mess to your room!
18. It’s not my fault!
And nothing ever is. If you’re not taking responsibility for your own actions, your roommate will want to take your keys back. Owning your actions is a part of adulthood, and hiding behind excuses and sob stories is what children do. The milk didn’t go bad because it was angry at you. It went bad because you left it on the kitchen table and it sat out all day.
19. I’m sorry you feel that way
You’re quick with a non-apology apology. When you finally realize you did something wrong, do you accept the consequences of your actions and try to make peace? Or, do you say what you think the other person wants to hear?
20. So funny I forgot to laugh
You think you’re hilarious, so why does every joke land with a silent thud? If every attempt at levity results in an indifferent eye roll, it might be time to take a step back.
21. Huh? You say something?
Maybe you don’t have a terrible roommate. Maybe they even try to include you in events and activities, inviting you to come along tubing down a lazy river or to an improv show. And maybe while you appreciate the gesture, it’s not really your scene. But instead of saying that, you ignore their invitations and sit on your couch staring at your phone. If you’re actively ignoring and not engaging, those offers of friendship will dry up.
22. Au naturale
The human body is a beautiful thing. But your roommate doesn’t want to see yours. Wear a towel or a robe when you’re coming out of the bathroom. And when there’s a roommate situation happening, pants are NEVER optional.
23. What’s that in your mouth? Drop it! Drop it!
Sometimes roommates come as a team with a pet. But when there’s an animal in the house, there should be rules and repercussions. If your dog got into your roommate’s bathroom and destroyed everything, you’re responsible. And if you don’t take responsibility, you’ll have to take your stuff and go.
24. You wouldn’t like me when I’m angry
You won’t get along with everyone you meet. And not all people are a good match. But if your roomie gets easily annoyed or angry, it’s a good sign your roommate doesn’t like you. Why live with someone who brings out the worst in you? Why bring out the worst in each other?
25. You’re just different people
Sometimes in life, you’re going to meet people you just don’t like and who don’t like you. Neither of you was offensive or rude or inconsiderate. Not everyone was meant to live together. And some relationships are better off being short term arrangements and ending peacefully.
How to handle roommate problems
If you see signs your roommate doesn’t like you, try to talk it out calmly and respectfully.
Roommates will bicker and annoy each other. It’s bound to happen in any dynamic. And no one is saying you have to be best friends. Most of us weren’t that lucky in the freshman dorms. But that doesn’t mean you can’t find some things to bond over…like a peaceful home, bad reality TV and not leaving dirty dishes in the sink overnight.
Mortgage rates stabilized in the past week but remain close to the narrow range observed since the start of this month.
The 30-year fixed-rate mortgage averaged 6.69% as of Jan. 25, an increase from last week’s figure of 6.60%, according toFreddie Mac’s Primary Mortgage Market Survey released on Thursday. Meanwhile, the 15-year fixed rate averaged 5.96% this week, up from 5.76% during the prior week. And HousingWire’s Mortgage Rates Center showed that Optimal Blue’s average 30-year fixed rate for conventional loans was 6.713% on Thursday, up from 6.709% at the same time last week.
“Given this stabilization in rates, potential homebuyers with affordability concerns have jumped off the fence back into the market,” Freddie Mac chief economist Sam Khater said in a statement. “Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.”
In the short term, all eyes are turned toward the meeting of the Federal Open Market Committee (FOMC) next Tuesday and Wednesday. According to Realtor.com economist Jiayi Xu, December’s higher-than-expected inflation reading made a dent in market confidence concerning the Federal Reserve’s readiness to implement interest rate cuts.
“The Federal Reserve is now facing a new challenge: determining the optimal timing for a shift to rate cuts,” Xu said in a statement. “The central bank faces the dilemma of potential negative impacts on the economy if the current restrictive policy persists longer and the risk of a dangerous rebound in inflation in 2024 if rates are cut prematurely.”
Mat Ishbia, chairman and CEO of United Wholesale Mortgage, told CNBC on Monday that he believed the Fed might start to cut rates as soon as March, April or May.
Meanwhile, the Bright MLS forecast for 2024 calls for mortgage rates to decline further this year, reaching 6.2% by the fourth quarter. But inventory is likely to remain an issue for homebuyers this year, cautioned Lisa Sturtevant, chief economist at Bright MLS. To stay within budget, buyers will have to talk through trade-offs and compromises with a real estate professional who understands local market conditions, Sturtevant said in a statement.
In January, builder confidence came in strong on the strength of declining mortgage rates. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report rose seven points month-over-month to a reading of 44 in January.
Finance of America Companies (FOA) Chief Marketing Officer Chris Moschner found himself working for the lender in the wake of its acquisition of American Advisors Group (AAG), and Moschner previously told RMD about his journey to the position and the “intoxicating” opportunity he sees in the reverse mortgage space.
But that space is also facing a series of challenges including lower origination volume, high interest rates and liquidity challenges. The companies have to react and respond to the macroeconomic environment, which could include employing other tools — including more market research — in its messaging, he said.
‘It’s obviously about the macros’
Describing the larger economic environment in the housing finance sector, Moschner said that those factors — particularly interest rates — are not able to be controlled by reverse mortgage companies themselves.
“It’s obviously about the macros,” Moschner explained. “I don’t think it’s anything about [what] the companies themselves [are doing], it’s strictly related to things like the health of the bond market, rates and our ability to invest [correctly] in the short term.”
In such instances, it becomes important to focus on what the companies can control, he explained. That includes borrower outreach efforts and methodologies.
“I think [we’ve seen] all of the ingredients and all of the tools for success the category has been laying down for a long time,” he said. “We know that we’ve got to do a better job of educating our customers. Education continues to be a barrier, but that’s not a problem that’s solved overnight. That’s a problem that’s solved with content.”
That content could include reverse mortgage marketing material that includes influencers, and more focused public relations exercises that aim to streamline messaging and advertising, he explained.
But making those more focused moves might need to come after the macroeconomic environment becomes more favorable, which could allow the companies to pivot to marketing “offense” as opposed to macroeconomic “defense.”
“Those types of things will avail themselves over time when we’ve had the opportunity to have a bit more of a stable footing enabled by the macro environment,” he said. “[At a time] when we’re not dealing with strong interest rate headwinds that are leading to bond market volatility, which is leading us to be unsure about what we’re going to get for these loans when we securitize them in the market. So, that’s really it.”
Passion for customers
Moschner identifies passion for the customer base as a key driver for his work, he said.
“[It’s about] truly understanding what it means to be an older American today,” he said. “And not just understanding it at a surface level, and not just [speaking in generalities]. It’s about really understanding them. Some of the work we’re doing now — that I can’t say much about yet — is really focused on foundationally understanding this category.”
Despite sharing a label of “senior” or “older American,” a wide swath of age ranges exist within the demographic. The interests of a 62-year-old are not necessarily identical to the interests or realities of an 85-year-old, Moschner suggested.
“[It’s about discovering] who’s in their network, who their influencers are, what’s important to them,” he said. “And it’s not only about their financial situation but the things that make them excited, nervous or otherwise. So we’re going to that exercise because again, one of the things I learned going back to [my time at Procter & Gamble (P&G)] was that ‘who-what-how’ framework.”
The first step is to “assess the landscape,” which includes a comprehensive review of the category and determining messaging for them that is most resonant and relevant, he said.
Market research
In his “Origins” interview, Moschner shared his history at P&G and how he came to his role at FOA from a classically oriented marketing background in consumer goods. When asked if a P&G-like approach that more regularly makes use of traditional market research tools could benefit the reverse mortgage industry, he agreed.
“FOA and AAG have certainly made use of market research in the past, but I think as an industry more broadly, we need to go deeper,” he said. “The 65-plus demographic is a very interesting and unique one because it is not where the majority of the marketing dollars are spent.”
Instead, most of those marketing dollars tend to focus on people at or below the age of 45, he said.
“Which is interesting because most of the wealth in this country is actually held by people 65 and above,” he explained. “That is certainly changing, but I would argue because of that fact there has been underinvestment in formal market research. There’s been underinvestment in things like attitude and demography studies, and the 65-plus demographic is very diverse in terms of life stage, lifestyle and socioeconomic pillars.”
Understanding the nuances of everyone within that larger demographic will be essential to unlocking the industry’s potential, Moschner said.
Inside: Are you looking to maximize your rewards and credit card hacks? This guide will teach you the most effective methods for using your hacking, signing up for bonus rewards, and making efficient card purchases.
Credit card use extends beyond just making purchases. Savvy credit card users understand that with the right set of hacks and optimal usage, there’s a world of rewards that are ripe for the picking.
Money saved can be money earned, and this simple philosophy forms the cornerstone of these 25 credit card hacks you’ll be learning about today.
Why do credit card hacks matter? Well, I just received a $700 check for credit card rewards. That is enough to pay for a weekend trip away.
What are Credit Card Hacks?
Credit card hacks are creative strategies employed by credit card users to maximize the benefits and rewards offered by their credit cards while also potentially saving more money.
This trend has become more popular in recent years due to the rise in premium travel and cashback cards that offer lucrative ongoing rewards programs. Users who learn about these hacks can save you money on travel or just put cold hard cash back in your wallet.
With strategic approaches, these hacks provide an avenue to optimize rewards and navigate the financial landscape more effectively.
Proven Credit Card Hacks to Maximize Rewards
Tip #1 – Utilize sign-up bonuses
One of the most attractive features of credit cards is the sign-up bonuses they offer, which are essentially rewards that cardholders can earn after meeting a certain spending threshold within a specified timeframe. The bonuses can range from hundreds to even thousands of points, miles, or cash – favorably impacting your rewards balance.
To illustrate, if you take the Chase Sapphire Preferred® credit card, both partners in a household can get up to 50,000 extra points each as part of the sign-up bonus.
Bonus tip: Stagger your applications, so once one person gets the bonus after meeting the spending requirement, the other person can then apply and achieve the next round of bonuses.
Tip #2 – Increase credit limit
The principle behind this is simply buffering your “credit utilization ratio”, which is how much of your total available credit you are utilizing.
To illustrate how a credit limit increase will work, let’s consider an example: with a credit limit of $10,000 and a credit usage of $3,000, your utilization ratio stands at 30%. But once your credit limit increases to $15,000 with the same credit usage, your utilization ratio drops to 20% – which is a noticeable improvement.
Remember, when requesting a credit limit increase, some card issuers might execute a hard inquiry on your credit report, which could temporarily decrease your score. Hence, you should try to find out beforehand whether your issuer is likely to perform a hard or soft credit pull. Soft inquiries won’t affect your credit score, making them the preferable approach.
Tip #3 – Master balance transfers
A balance transfer, executed proficiently, can be an effective way to handle significant credit card debt. By focusing on reducing the cost of debt through lower interest rates, balance transfer can accelerate your debt repayment process while saving you considerable money over time.
This is what one of my clients did and the date when the 0% interest ended was very motivating to pay off their debt.
This process entails the shuffling of debt from one card (usually one with a high interest rate) to another card—preferably with a 0% promotional APR offer. With this interest-free period, you can focus on repaying the principal balance, hence clearing your debt faster.
As a finance expert, make sure balance transfers are only beneficial if you’re mindful of the terms, like how long your 0% rate will last and what fees are involved in the transfer to the new card.
Tip #4 – Purchase prepaid cards with credit
Need a way to spend a certain dollar amount by a certain deadline? Then, look at purchasing prepaid cards with a credit card as a strategy to earn extra rewards points. This method entails buying prepaid cards or gift cards using your credit card, and later using these prepaid cards to cover those expenses you typically will use.
In other cases, customers have reported that their credit card companies have clawed back rewards points that were initially given for gift card purchases. Double check their terms and conditions, many issuers, including American Express, explicitly exclude such transactions from earning rewards. 1
Tip #5 – Harnessing the 15/3 Methodology
The 15/3 Methodology is a credit card hack that intends to optimize your credit utilization ratio—one of the significant factors that impact your credit score.
Here’s how it works: You pay off a majority of your card’s balance 15 days before your statement date, and then pay off the remaining balance three days before the statement date. By doing this, you create the illusion of a lower balance, which can positively impact your credit score.
There is still a debate about whether or not this strategy improves your credit card score. Paying your bill on time will definitely improve your score.
Tip #6 – Strategies to earn additional rewards through third-party programs
An often overlooked but highly effective credit card hack is utilizing third-party apps and websites that offer additional rewards when you shop at participating retailers and restaurants. These rewards are additional to the cash back, miles, or points awarded by your credit card.
One such app is Dosh, a cashback app. By linking your credit card to your Dosh account, you can earn up to 10% cash back from participating retailers on top of the rewards earned from your credit card. Similarly, apps like Drop and Bumped give users points for every dollar spent, and these points can be redeemed for gift cards.
Furthermore, many airlines and hotels participate in dining rewards programs where you’ll earn extra rewards at select restaurants. Airlines like United, Southwest, Delta, and hospitality giant companies like Marriott and Hilton actively participate in such programs.
Tip #7 – Earn a credit card sign-up bonus then canceling the card right away
Also known as credit card flipping or churning, the tactic of earning a credit card sign-up bonus and then canceling the card right away has been employed by some savvy credit card users to maximize rewards.
However, this practice isn’t as easy or beneficial as it appears. While it sounds like an accessible system to generate easy money, it comes with several potential pitfalls that could make it a risky move.
Firstly, numerous card issuers have, over the years, implemented stricter rules to deter this practice. Chase, for instance, has the 5/24 rule indicating you can have only five new credit cards within the last 24 months. 2
Repeatedly opening and closing the same card can result in a declined application or rescinded bonus and hurt your credit score-perceived as credit misbehavior by the issuer.
It can also be viewed as unethical and potentially lead to you being barred from opening accounts with that issuer in the future.
Churning can negatively affect your ability to get approved for future credit cards and loans because lenders may think you’re a risky borrower.”
Tip #8 – Develop a multi-card system
This method aims to cover all your spending by using different cards that offer elevated rewards for certain purchase categories.
For instance, we have one card that pays an unlimited flat rate of 2% on all purchases. Then, another rewards card offering increased category rewards, with travel and gas. Then a there card that rotates through various categories each quarter.
Diversifying your spending amongst several credit cards can help you to earn the maximum possible rewards. However, endowing yourself with several credit cards is not for everyone as it requires careful financial management. In some cases, the potential of overspending can outweigh the benefits.
Tip #9 – Transfer points between multiple cards
Transferring points between cards (provided they are from the same issuer) is another useful strategy whereby you can redeem them at their maximum possible value.
The goal is to make your spending work for you and maximize the rewards you can earn from daily expenses. However, people should employ this strategy responsibly and ensure they’re not overspending just to earn rewards.
In such a strategy, points on traditional cashback cards can be transferred to airline and hotel partners when you also have a transferable points card like the Sapphire Reserve or Sapphire Preferred. So, not only are you earning cashback on your purchases, but you’re also accumulating lucrative points that can be redeemed for travel.
Tip #10 – Don’t use cash
In the world of credit card rewards, cash is no longer king. Whenever feasible, you should consider using your credit cards instead of cash or debit to pay for everyday purchases. This allows you to earn rewards on purchases you’re making anyway.
The best way to implement this is for you to bills with their credit cards instead of cash or debit and set this up on autopay. This serves a dual purpose of potentially earning rewards on these payments whilst also conveying a positive message to the banks about your money management skills, leading to possible credit score improvements.
However, this method works best when your spending doesn’t increase as a result. Only use your credit card for expenses that you’d normally pay in cash and for which you already have the money set aside to pay.
Tip #11: Time your purchasing
Being strategic about when you make your credit card purchases can help you wring out some extra benefits.
One way to optimize your earning potential and maintain a healthy credit score is to plan your large purchases around your credit card’s billing cycle. Making your most significant purchases immediately after your statement date ensures that you have the longest possible repayment period, effectively offering you a short-term, interest-free loan.
Furthermore, if your issuer has a rewards cut-off at the end of a calendar year, you can make larger purchases ahead of time to push yourself into a higher rewards bracket.
Tip #12 – Make Micropayments
Rather than making one full payment, consider making multiple payments over the billing cycle, commonly referred to as ‘micropayments.’ This helps keep your running balance low and, in turn, your credit utilization ratio – the percentage of your available credit limit you’re using – also low, positively impacting your credit score.
Plus it helps to keep your checking account at a more accurate level.
Tip #13: Have your spouse apply for the same credit card
Known informally as the “two-player mode” amongst credit card hacking enthusiasts, having your spouse or partner apply for the same credit card can be an effective strategy to earn double the sign-up bonus. This approach is based on the idea that instead of just adding your spouse or partner as an authorized user to your card, they should apply separately.
For instance, if a card like the Chase Sapphire Preferred® offers a 50,000 points bonus on sign-up, both partners can potentially earn up to 100,000 points collectively, essentially doubling the bonus.
But remember, this hack should be used strategically – you should stagger your card applications and ensure each of you fulfills the spending criteria to qualify for the bonus.
Tip #14 – Importance of prompt payment
Quite possibly the hack with the most significant impact on both your credit score and your pocket, prompt payment of your credit card bill cannot be overstated.
Making on-time payments can drastically improve your credit score since your payment history is the most heavily-weighted factor that credit scoring models consider.
Plus paying your balance in full each month can help you avoid interest charges and penalties, effectively saving you money in the long run.
Tip #15 – Know What Rewards you Want
Rewards such as travel miles, discounts at partnered retailers, cashback, or access to premium experiences like airport lounges or concert tickets are available, depending on your card.
By understanding and leveraging these varied rewards, you can get the most excellent value out of your credit card expenses.
Cautionary Advice on Credit Card Hacks
While credit card hacks can undoubtedly offer substantial benefits when done right, pitfalls can ensue if one isn’t careful.
Pitfall #1 – Overspending
For starters, these hacks can inadvertently lead to overspending or unnecessary purchases. Be wary of making purchases you don’t need or can’t afford in an attempt to earn more rewards or meet the spend necessary for a sign-up bonus.
Consequently, the pursuit of credit card rewards could also lead to accumulated debt if you’re not diligent about paying off your balance in full each month. The interest that you need to pay on balances carried over can easily eat up the value of any rewards earned.
Pitfall #2 – Impact on your Credit Score
Applying for multiple cards can lead to hard inquiries on your credit report, which can temporarily lower your credit score. Similarly, canceling cards after acquiring the sign-up bonus could harm your credit utilization ratio and your length of credit history, both key factors in your credit score calculation.
Additionally, irresponsible habits like ‘credit card churning’ and ‘paying for everything with credit’ may risk your relationship with card issuers. Some companies might close accounts or even ban individuals from opening new ones if they’re perceived as abusing the system.
While some of the top-tier reward and travel credit cards often come with hefty annual fees, not all of them are worth paying. This is especially true when a card’s annual fees outstrip the value of the rewards earned.
Before you sign up for a credit card with an annual fee, it’s advised to read the fine print and estimate what you can earn from it. You should evaluate whether the perks, bonuses, rewards, and credits offered offset the annual fee cost.
Personally, I don’t use any cards that have an annual fee.
Pitfall #4 – Paying interest
Credit card interest can significantly impact your overall financial health if you’re not careful. The money invested toward paying it off could be better used elsewhere – for saving, investing, or spending on your needs and desires. Hence, one of the best “credit card hacks” out there is to simply stop paying interest.
You want to focus on debt free living.
Pitfall #5 – Avoiding counterproductive habits like “balance surfing”
Balance surfing is a strategy where you continually move credit card debt from one card with an ending 0% APR promotion to another card with a new 0% APR offer. While this approach can potentially delay interest payments, it can become a dangerous cycle if you find yourself simply transferring debt instead of reducing it.
Meanwhile, the total debt remains the same. Without a consistent debt repayment strategy, this method can lead to an endless cycle of balance surfing.
What are some of the best credit card rewards and hacks for 2024?
As we venture into the new year, some credit card reward strategies remain timeless while others evolve in response to new credit card offers and updated reward programs. In 2024, here are some of the best credit card hacks worth considering:
Take Advantage of Updated Card Offers: Credit card issuers frequently update their card offers and rewards programs. Ensure you stay updated on these changes to maximize your card benefits.
Focus on Cards with Flexible Reward Categories: Some cards, like the Bank of America® Customized Cash Rewards credit card, allow you to choose your highest cash-back category (like online shopping, dining, or grocery stores). These flexible category cards can be more advantageous as you can adapt them to your spending habits.
Leverage Rotating Categories: Cards like the Chase Freedom Flex℠ and Discover it® Cash Back offer 5% cash back on up to $1,500 in purchases in various categories that rotate each quarter, once you activate. Plan your spending in advance to leverage these rotating categories optimally.
Remain Alert on Loyalty Program Partnerships: Many credit cards and airlines have partnerships with other brands. This can mean increased rewards when shopping with those brands, so always watch for new partnerships or promotions.
Revisiting Annual Fees: If your credit card perks no longer justify its annual fee due to changes in lifestyle or spending habits, consider downgrading to a no-fee card from the same issuer. This way, you can save on annual fees without closing your account which could potentially harm your credit score.
Diversify Your Rewards: While it may be tempting to concentrate all your spending on a single card, diversifying your rewards can make you earn more. Consider employing a multi-card system to maximize rewards across different spending categories.
Your credit card should be a tool to enhance your financial flexibility, not a burden that leads to financial stress.
Frequently Asked Questions (FAQs)
Deciding whether to focus on paying off a single card or distributing payments over several cards can seem complicated, but there are a couple of methodologies to strategize your payoff.
The Debt Avalanche method suggests focusing on the card with the highest interest rate first. Once you’ve paid this card off in its entirety, you then move on to the card with the next highest interest rate. This can potentially save you more money in the long term as it targets high-interest debt first.
Alternatively, the Debt Snowball method, proposed by financial guru Dave Ramsey, recommends paying off the card with the smallest balance first, then moving on to the card with the second-smallest balance. While you may not save as much money in interest compared to the debt avalanche method, the psychological motivation of paying off a credit card balance entirely may be more important for maintaining consistent repayment.
Either method requires you to make minimum payments promptly on all cards to avoid late fees and possible credit score damage.
Getting credit card points without spending any additional money may seem like wishful thinking, but there are certain strategies that you can employ to achieve this. Strategically managing your credit cards can turn your everyday spending into reward points, miles, or cash back.
Referral Bonuses: Many credit card companies offer referral bonuses to their existing cardholders who refer friends or family members. If the person you referred gets approved for the card, you can earn bonus points.
Cardholder Perks: Credit card companies often run promotions offering bonus points for certain activities. These can range from enrolling in paperless billing, adding authorized users to your account, or completing an online financial education course. Check with your card issuer to view any current promotions.
Shopping Portals: Many credit card issuers, and even airline and hotel rewards programs, have their own online shopping portals where you can earn additional bonus points for every dollar spent. If you were already planning on making an online purchase, consider making it through these portals to earn extra rewards.
Sign-up Bonuses: Some cards offer sizeable sign-up bonuses for new cardholders who meet a required minimum spend within the first few months. Although this technically requires spending money, it doesn’t require spending more money if you use your card for purchases you were already planning to make.
While implementing certain credit card strategies can potentially earn you higher rewards or save money, they can also unintentionally harm your credit score if not executed responsibly.
Several factors can contribute to this potential downfall:
Opening and Closing Accounts: A high frequency of card applications can lead to multiple hard inquiries on your credit report, which might lower your score in the short term. Closing credit cards, especially older ones, can affect both your credit utilization ratio and the age of your credit history, two significant factors in your credit score calculation.
Carrying a Balance: Maintaining a high credit utilization ratio—i.e., carrying a large balance relative to your credit limit—can negatively impact your credit score.
Late Payments: If these deadlines are not strictly adhered to, they could result in late payments, which can seriously harm your credit score.
Excessive Spending: Some tactics lead to unnecessary spending to earn more reward points or meet an initial spend required for a sign-up bonus. Not only can this increase your credit utilization ratio and potentially lower your credit score, it can lead to debt if these balances are not paid off in time.
While both rewards cards and travel rewards cards offer perks to their users in return for spending, the primary difference lies in the kind of rewards they offer and their target user base.
A Rewards Card generally offers cash back, points, or miles for every dollar spent, redeemable in a variety of ways. This is the type of card I prefer. For example, you may redeem your accumulated rewards as cash back into your account, use them to purchase products or services, or exchange them for gift cards. The flexibility of rewards makes these cards are suitable for people with varied spending habits and prefer a variety of redemption options.
A Travel Rewards Card, on the other hand, is designed specifically for frequent travelers. These cards earn you points or miles on specific travel-related expenses, like booking flights or hotel stays. The redeemed rewards are typically used towards further travel-related expenses like airfare, hotel stays, or car rentals. Travel Rewards Cards often offer additional travel-centric perks like free checked bags, priority boarding, airport lounge access, and more.
Consider your spending habits, lifestyle, travel frequency, and preference in terms of reward redemption.
Protecting yourself from credit card fraud is an important aspect of managing your credit card usage effectively.
Monitor Your Accounts Regularly: Keep a thorough watch on your credit card statements for any unauthorized or suspicious charges. Report them to your credit card issuer as soon as possible.
Use Secure Networks: When making online purchases, only shop on secure websites (look for “https” in the web address), and avoid using public Wi-Fi networks for transactions.
Keep Your Personal Information Safe: It’s important to dispose of old credit card statements properly, and avoid giving out credit card information over the phone unless you initiated the call and you trust the recipient.
Protect Your PIN and Password: Don’t share these with anyone, and avoid using easily guessable combinations like birth dates or the last four digits of your social security number.
Enable Account Alerts: Most banks now offer optional security alerts that can be sent via text message or email whenever a charge above a certain amount gets made to your account.
Protect Your Computer and Phone: Make sure your devices are equipped with up-to-date antivirus software and that your phone is locked with a secure password or fingerprint identification.
In case you become a victim of credit card fraud, know the steps to protect yourself – report it to your bank or credit card company immediately, file a report with the Federal Trade Commission, and report it to the three major credit bureaus, requesting them to put a fraud alert or a credit freeze on your account.
Also remember, credit cards don’t have routing numbers.
Making the Most of Credit Card Hacking
When used wisely, credit card hacks and reward strategies can play a significant role in stretching your budget and rewarding your spending. These secrets of savvy credit card use — from aligning your card to your spending habits, making the most of sign-up bonuses and reward categories, to understanding the ins and outs of your credit card’s rewards structure — can help maximize your potential rewards and save money.
Personally, we use all of our credit card rewards to pay for our travel expenses.
However, it’s paramount to remember that these tips and tactics should not encourage unnecessary spending or carrying a balance. Only spend within your means, ensure you pay off your balances each month to avoid interest charges and remember to safeguard your credit score by handling credit card applications and closures cautiously.
Ultimately, credit card hacks and rewards should fit within your overall financial plan and goals, adding value to your everyday spending habits and rewarding you for well-managed financial practices.
Remember your goal is to reach your FI number.
Source
Reddit. “American Express Clawing Back Points Earned From Gift Card Purchases.” https://www.reddit.com/r/AmexPlatinum/comments/14hywaq/american_express_clawing_back_points_earned_from/. Accessed January 19, 2024.
CNN. “What is the Chase 5/24 rule?” https://www.cnn.com/cnn-underscored/money/chase-5-24-rule#:~:text=The%205%2F24%20rule%20is,your%20approval%20odds%20with%20Chase. Accessed January 19, 2024.
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There’s no one-size-fits-all mortgage. When deciding between a conventional loan vs FHA loan, you’ll have to compare costs and benefits based on your personal finances.
Compare home loan options. Start here
A conventional loan is often better if you have good or excellent credit because your mortgage rate and PMI costs will go down. But an FHA loan can be perfect if your credit score is in the high-500s or low-600s. For lower-credit borrowers, FHA is often the cheaper option.
These are only general guidelines, though. And the choice between a conventional loan vs FHA loan might be different for you. So be sure to look closely at both loan types and choose the best one for your financial situation.
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Conventional loan vs FHA comparison
There are plenty of low-down-payment options for today’s home buyers. But many will choose either a conventional loan with 3% down or an FHA loan with 3.5% down.
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So, which type of home loan program is better? That depends on your financial situation.
Here’s an overview of what you need to know about qualifying for a conventional loan vs FHA loan.
Conventional 97 Loan
FHA Loan
Minimum Down Payment
3%
3.5%
Minimum Credit Score
620
580
Maximum Debt-to-Income Ratio
43%
50%
Loan Limit for 2024 (in most areas)
$
$
Income Limit
No income limit
No income limit
Mortgage Insurance
Annual fee
Annual and upfront fee
Down payment requirements
Both conventional and FHA mortgage programs have minimum down payment amount requirements which borrowers must meet in order to be eligible for a home loan and reach their goal of homeownership.
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FHA: 3.5% down with a 580 credit score, or 10% down a score between 500-579
Conventional 97: 3% down
Like other conventional loans, conventional 97 applicants will pay private mortgage insurance (PMI) with less than 20% down. And all FHA borrowers are required to pay mortgage insurance regardless of down payment.
Credit scores
In deciding between an FHA loan and the Conventional 97 loan, your individual credit score matters. This is because your credit score determines the type of mortgage loan you’re eligible for. Credit history affects your monthly mortgage payments, too.
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Minimum credit score requirements for FHA and conventional loans are:
FHA: 580 credit score with 3.5% down, or 500-579 credit score with 10% down
Conventional: 620 credit score
If your credit score is between 500 and 620, the FHA loan is best suited for you because it’s your only available option.
But if your credit score is above 620, it’s worth looking into a conventional loan with 3% down. Especially because, as your credit score goes up, your mortgage rate and PMI costs go down.
Debt-to-income ratio
Another factor you need to consider when choosing between a conventional and FHA loan is your debt-to-income ratio or DTI ratio. This is the amount of debt you owe on a monthly basis, compared to your monthly gross income.
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Conventional loans usually allow a maximum DTI of 43% — meaning your debts take up no more than 43% of your gross monthly income
FHA loans allow for a higher DTI of up to 50% in some cases
However, even with FHA loans, you’ll have to shop around if your debt-to-income ratio is above 45%. Because the FHA allows mortgage lenders to set their own in-house loan requirements, some may set stricter DTI requirements that are below 50%.
Debt-to-income ratios tend to make a bigger difference in high-cost areas, like big cities, where home values are high.
If you’re buying somewhere like Los Angeles, New York, or Seattle, your monthly debt (including mortgage costs) will take up much more of your income simply because real estate is so much more expensive.
Mortgage insurance
FHA and conventional loans both charge mortgage insurance. But the cost varies depending on which type of loan program you have, and how long you keep the mortgage.
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FHA mortgage insurance (MIP): The costs for MIP is the same for most borrowers: 0.55% of the loan amount per year, with a one-time upfront fee of 1.75%
Conventional loans private mortgage insurance (PMI): The costs for PMI vary depending on your credit score and loan-to-value ratio. You’ll only pay PMI when you put less than 20% down, and you’ll only continue to pay monthly premiums until you reach 20% home equity
Conventional Loans
FHA Loans
Mortgage Insurance Type
Private Mortgage Insurance (PMI)
Mortgage Insurance Premium (MIP)
Upfront Mortgage Insurance Fee
n/a
1.75% of loan amount
Annual Mortgage Insurance Rate
Up to 2.25% of loan amount
0.55% of loan amount
Duration
Until the loan reaches 80% LTV
11 years (down payment of 10% or more) OR life of the loan (down payment of 3.5% to 10%)
The cheaper mortgage insurance option for you depends on your financial situation.
Conventional 97 mortgage insurance goes away at 80% loan-to-value. You’ll also hear loan officers refer to this as 20% home equity (both terms essentially refer to the same thing).
This means that, over time, your Conventional 97 can become a better value — especially for borrowers with high credit scores.
Also, consider upfront charges.
In addition to MIP, the FHA charges an upfront mortgage insurance premium known as UFMIP. UFMIP costs 1.75% of your loan size, is added to your loan balance, and is non-recoverable except via the FHA Streamline Refinance
The Conventional 97 charges no equivalent upfront fee for mortgage insurance. It only charges monthly mortgage insurance premiums
Conventional loan vs FHA loan limits
Both the FHA and conventional loans have limits on the amount of money you can borrow.
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In 2024, the FHA loan limits for a single-family home is $ in most of the U.S.
The conventional loan limit for a single-family home is $.
Any loan amount that exceeds these limits are considered non-conforming loans or jumbo loans.
Conventional loan vs FHA mortgage rates
Mortgage rates typically look lower for FHA loans than conventional loans on paper. For instance, today’s average FHA rates are as low as % (% APR)*, while conventional mortgage rates are as low as % (% APR)*.
Compare conventional and FHA mortgage rates. Start here
However, those rates can’t be taken at face value. First, because mortgage rates vary depending on your personal finances, your rate will likely be different from the average rate.
Second, PMI and credit score can also affect your interest rate and mortgage payment. For conventional loans, a lower credit score means a higher interest rate. So if your score is in the low- to mid-600s, an FHA loan might be cheaper.
Conventional loans also base mortgage insurance rates on your credit score, which contributes to a higher monthly payment as well.
*Current rates according to The Mortgage Reports’ lender network. Rates are for sample purposes only; your own rate will be different.
Conventional loan vs FHA mortgage payments
For home buyers with good credit scores, a conventional loan may be more attractive. That’s because conventional loan costs are more dependent on your credit score and down payment than FHA loan costs. And as a result, your monthly payments and PMI are lower when your credit score is higher. This is a key difference from how FHA loans work.
Compare conventional and FHA mortgage rates. Start here
With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.
That means in the short term, FHA loans may be more advantageous.
But over the long-term, borrowers with above-average credit scores will typically find Conventional 97 loans more economical relative to FHA ones.
Remember, mortgage insurance for conventional loans can be canceled at 20% loan-to-value ratio. But FHA mortgage insurance lasts the entire life of the loan. The only way to bypass this requirement is if you put down at least 10% down. This way you may be able to drop FHA mortgage insurance after 11 years (assuming 20% loan-to-value).
So if you’ll be staying in the home long enough to reach 20% equity — and especially if you have a good credit score — a conventional loan could be your cheaper option in the long run.
FHA vs Conventional infographic
Alternative low-down-payment loan programs
The conventional 97 loan and FHA loan aren’t the sole options for low-down-payment mortgages. Explore a variety of other mortgage loans with low or no upfront expenses to make homeownership more accessible:
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Fannie Mae HomeReady: This home loan offers below market interest rates, reduced private mortgage insurance costs, and it allows the income of everyone living in the household to qualify. However, there are income limits, loan maximums, and you’ll need a FICO score of 620 or more and a DTI of 50% or less
Freddie Mac Home Possible: Similar to HomeReady, it has income and loan limits, and it requires a minimum credit score of 660, 3% down payment, and DTI below 43%. However, Freddie Mac Home Possible offers flexible loan approval requirements that help low-income families become homeowners
VA loan: This mortgage loan requires no down payment and offers flexible credit score minimums and below-market rates. VA loans have no maximum loan amounts. Plus, bankruptcy and foreclosure are not immediate disqualifications. Yet, this program is only available to eligible service members and veterans
USDA loan: This rural housing government-backed loan requires no down payment and has no maximum home purchase price. Although there are drawbacks. This government-agency loan does have property standards that require the home to be located in a rural area. There are also income limits for the buyer, and it does carry mortgage insurance for the entire loan term
Most of these mortgage loan products can only be used to purchase a primary residence — a home in which you live in for the majority of the year.
Vacation homes and investment properties are generally not allowed.
For many first-time homebuyers, though, the choice among low-down payment loans will be between the FHA loan and the Conventional 97. This is because VA loans are available to military borrowers only. USDA loans are restricted to suburban and rural areas, with maximum loan and income limits, and HomeReady has similar income restrictions.
Conventional loan vs FHA loan FAQ
Which is a better loan, FHA or conventional?
Between FHA and conventional, the better loan for you depends on your financial circumstances. FHA might be better than conventional if you have a credit score below 680, or higher levels of debt (up to 50 percent DTI). Conventional loans become more attractive the higher your credit score is because you can get a lower interest rate and monthly payment.
Can you switch from FHA to conventional?
You can switch from an FHA to a conventional loan by refinancing your mortgage. This means you get a new conventional loan to pay off your existing FHA loan. This might make sense to do if you have at least 20 percent equity in your home and a 620 or higher credit score. Then, you may be able to save by switching from an FHA to a conventional loan with no PMI.
What are the benefits of a conventional home loan?
If you get a conventional loan with 20 percent down or more, you won’t have to pay for mortgage insurance. That’s a big benefit over FHA loans, which require mortgage insurance regardless of your down payment size. The conventional 97 loan also lets you put just 3 percent down, while FHA requires 3.5 percent at minimum. And conventional loans offer lower mortgage rates the higher your credit score is. That’s good news if you have a good credit score of 720 or higher.
Is an FHA loan bad?
FHA loans are great for borrowers who need a home loan with a lower bar of entry. The big benefits are that they allow lower down payments (just 3.5 percent) and a lower credit score (580) than many other mortgage loans.
What are the disadvantages of FHA loans?
You have to pay for FHA mortgage insurance regardless of your down payment size. And you can’t get rid of it unless you refinance. So if you have a great credit score and/or you’re putting 20 percent or more down, an FHA loan likely isn’t the right choice for you. In that case, look into a conventional loan instead.
What credit score do I need for a conventional loan?
Conventional loans require a credit score of at least 620. But some mortgage lenders might set their own requirements, starting at 640, 660, or even higher. Plus, your conventional mortgage rate will be better the higher your credit score is. So especially if your credit is on the lower end, be sure to show around with different lenders for the best deal.
What credit score do I need for an FHA loan?
FHA loans require a credit score of 580 or higher in most cases. You might be able to get an FHA loan with a credit score of 500-580 if you make a 10 percent or bigger down payment. But you’ll have to search for the right lender because few mortgage companies allow scores in that range for FHA loans.
What’s the interest rate on a conventional loan?
Conventional loan interest rates are typically a little higher than FHA mortgage rates. That’s because FHA loans are backed by the Federal Housing Administration, which makes them less “risky” for lenders and allows for lower rates. However, if you have a great credit score (above 680, in most cases) you might qualify for a lower conventional rate. But, you also have to consider the annual mortgage insurance rate with each loan. Depending on your credit score and down payment, conventional mortgage insurance rates could be higher or lower than FHA insurance rates. This will affect which loan is cheaper overall.
Who qualifies for a conventional loan?
You might qualify for a conventional loan if you have a credit score of at least 620; a debt-to-income ratio of 43 percent or lower; a 3 percent down payment; and a steady, two-year employment history proven by tax returns and bank statements. To qualify for the low-down-payment conventional 97 loan, you must buy a single-family property (no 2-,3-, or 4-units allowed).
Which loan type has a higher credit score requirement?
Generally, conventional loans have a higher credit score requirement than FHA loans. Conventional loans may require a credit score of 620 or higher, while FHA loans may allow for a credit score as low as 500 to 580, depending on the lender.
What is mortgage insurance, and how does it differ for conventional loans and FHA loans?
Mortgage insurance is a type of insurance that protects lenders in case the borrower defaults on the loan. With a conventional loan, private mortgage insurance (PMI) is generally required if the down payment is less than 20%. With an FHA loan, mortgage insurance premiums (MIP) are required for the life of the loan.
Which loan type has more flexible underwriting requirements?
FHA loans generally have more flexible underwriting requirements compared to conventional loans. They may allow for higher debt-to-income ratios, lower credit scores, and non-traditional credit histories. Conventional loans may have stricter underwriting requirements.
Can you refinance from an FHA loan to a conventional loan?
Yes, you can refinance from an FHA loan to a conventional loan. Refinancing may help you get a lower interest rate, lower monthly payments, or eliminate mortgage insurance. However, it’s important to evaluate the potential costs, benefits, and qualification requirements before proceeding with the refinance.
Conventional loan vs FHA: The bottom line
For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing; and there are scenarios in which the Conventional 97 is the clear winner. Mortgage rates for both home loans should be reviewed and evaluated.
Ready to make a home purchase? Talk with a loan officer about your mortgage options. You should compare personalized quotes for both FHA and conventional loans to see which one is cheaper for your situation and suits your needs best.
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