The Consumer Financial Protection Bureau issued a rule Tuesday to slash credit card late fees in a move the agency says should save millions of credit card users an average of $220 per year. The decision drew immediate objection from banking trade groups.
The government agency reduced the typical credit card late fee from $32 to $8, which should translate to more than $10 billion in annual savings among the roughly 45 million consumers who are charged late fees.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra in a statement, asserting that the new rule will end these practices.
The lower fees are expected to take effect within three months, which would give card issuers time to update their disclosures and systems. It’s unclear how possible challenges to the rule could affect the timing.
Rule halts late fees’ steady climb since 2010
The rule, which was proposed in 2023, closes a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009.
The CARD Act banned credit card companies from charging higher late fees than needed to cover the companies’ costs associated with the late payment. But in 2010, the Federal Reserve Board of Governors voted to include a provision in the CARD Act that allowed banks to charge no more than $25 for the first late payment and $35 for subsequent late payments, with both of those figures being adjusted for inflation each year.
Today, those figures have swelled to $30 and $41, respectively, despite credit card companies having adopted cheaper business practices in recent years, the CFPB said in a statement. The average credit card late fee was $32 in 2022, up from $23 in 2010.
“Almost all of the credit card giants have been hiking these fees every year using automatic inflation adjustments as an excuse,” Chopra said in a call Monday announcing the CFPB’s new rule. “Today, the credit card industry hauls in more than $14 billion in late fee revenue, which our research shows is more than five times the companies’ associated costs.”
The rule applies to large credit card companies with more than 1 million open accounts. These companies hold more than 95% of open credit card balances, the CFPB said in the statement.
Find the right credit card for your wallet
Check out NerdWallet’s picks for the best credit cards across categories such as travel, cash back, and 0 APR.
Industry trade groups speak out against the rule
Banking industry executives slammed the new rule. Rob Nichols, president and CEO of the American Bankers Association (ABA) said in a statement that the new CFPB rule “relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior.”
Adding that the ABA will try to challenge the new policy, Nichols said, “This rule should not be allowed to go into effect.”
Lindsey Johnson, president and CEO of the Consumer Bankers Association, said in a statement that the new rule is “normalizing being late on credit card payments” and ultimately puts consumers’ financial health at risk.
A crackdown on junk fees
The CFPB’s latest announcement follows a similar move earlier in the year on overdraft fees, signaling a concerted crackdown on junk fees from federal officials and regulators.
In January, the agency proposed restrictions that could lower the average overdraft fee from $35 to $3 per transaction. Banking industry advocates spoke out fiercely against this proposal too. The restriction is currently expected to go into effect in October 2025.
The Biden administration will soon announce a “strike force” intended to “hold companies accountable when they engage in unfair and illegal practices that keep prices high,” Lael Brainard, director of the National Economic Council, said on the Monday call with Chopra.
The force is part of the administration’s efforts to lower the cost of groceries, prescription drugs and health care, banking, housing, airfare and basic utilities. It’ll be jointly led by the Federal Trade Commission and the Department of Justice.
In conjunction with those efforts, the Federal Communications Commission will also tackle “bulk billing,” in which people living or working in a building are charged by landlords or building owners for internet, cable or satellite service, whether they want the service or not.
The new functionality, added to the quality control process, “gives mortgage lenders the opportunity to address loan defect concerns earlier in the review process,” Scott Olson, executive director of the Community Home Lenders of America (CHLA), said in a statement.
“We hope it will lead to fewer costly and economically inefficient repurchase demands,” Olson added.
The benefit of providing more time for lender feedback was also noticed by the Mortgage Bankers Association (MBA). President and CEO Bob Broeksmit expressed his appreciation with the agency’s move, which aligns with recommendations made by the MBA.
“But there is further work Fannie Mae can undertake — including exploring a similar pilot program to Freddie Mac‘s — to improve the loan repurchase process and substantially reduce or eliminate repurchases on performing loans,” Broeksmit said.
Broeksmit‘s reference is to a fee-based repurchase program for performing loans announced in November 2023 by Freddie Mac. The goal of the alternative pilot program is to improve the quality of performing loans through a potential replacement of its current repurchase policy by defective performing loans.
Olson said the GSEs’ steps represent “real progress” in addressing the repurchase issue.
“These developments represent a more constructive approach to the dual objectives of maintaining GSE loan quality while not disincentivizing loans for underserved borrowers or eliminating borrower loss mitigation rights under repurchase demands,” Olson said.
Broeksmit added, “We will remain engaged with the GSEs and FHFA to ensure high-quality underwriting and an appropriate rep and warranty framework.”
In October, FHFA Director Sandra Thompson said the regulator expects originators to deliver loans consistent with GSE guidelines. But she added that the enterprises must implement a fair, consistent and predictable process for identifying loan defects and the appropriate remedies.
“After multiple years of record-high loan volume, we have seen an increase in the absolute number of repurchase requests — which is to be expected,” Thompson said at the MBA Annual conference in October 2023.
“The good news is that there has been a large decrease in repurchase requests since their peak in early 2022, as the enterprises have worked through loans originated during the refinance boom.”
Sterling ‘Steelo’ Brim, the charismatic co-host and producer of MTV’s hit show Ridiculousness, known for his quick wit and infectious laughter, has found his slice of paradise in L.A.’s family-friendly Encino neighborhood.
Dropping a cool $4.150 million back in 2020 for the then-newly built manse, Brim’s move into the celeb-favored enclave added another star to Encino’s glittering firmament.
Fast forward two years and Brim proudly showcased his stunning home on a segment of the revamped MTV Cribs, giving fans a personal tour of his lavish lifestyle and impeccable taste. And we’re here to fill you in on all the details that didn’t make their way into the video tour.
Especially since we’re intimately familiar with the Encino residence, which we covered extensively when it first came to market back in November 2019. Maya Librush at The Agency held the listing.
He paid $4,150,000 for the stylish new build
Ridiculousness host Steelo Brim lives in a 6,000-square-foot home that was built just two years before he purchased it in October 2020 for $4,150,000.
The modern farmhouse-inspired abode has five bedrooms, seven baths, and an array of jaw-dropping amenities that blend seamlessly with the California lifestyle.
Fun fact: Brim’s Encino house sits on the same street as Cher’s house in ‘Clueless’ (that’s right, while said to be in Beverly Hills, the 1995 cult movie featured a San Fernando Valley house as the Horowitz residence).
Key numbers & facts
Location: Encino, Los Angeles CA
Bedrooms: 5
Bathrooms: 7
Square footage: 6,000
Year built: 2018
Lot size: 0.27 acres
Amenities: a recreation/billiards room, wet bar and kitchenette, a walk-in wine room, a home gym, home theater, a basketball court, putting green, and a backyard with a resort-style swim-up bar in the grand pool
Other structures: pool house
Purchase price: $4,150,000 (October 2020)
Seeing that Brim purchased the home at the height of the pandemic house-buying craze, well before interest rates shot up, he had to pay a little over the asking price to land the property, which was listed for $3,985,000.
But he definitely got his money’s worth, as we’re about to see.
A look inside Steelo Brim’s house & its many amenities
Walking past the short white wall and through the gates of Brim’s transitional-style abode, you’re greeted by a sleek exterior of smooth white stucco accented with jet-black trim—an early hint at the elegance that lies within.
Boasting a modern farmhouse-inspired design — a common architectural style for the area, which has proven to attract star power to the neighborhood, as Michael B. Jordan’s stylish farmhouse shows — Steelo Brim’s house blends modern architecture with classic elegance.
Step through the pivoting wooden door, and you enter a world where contemporary design meets homely warmth. You’re welcomed by a grand entryway with unique water features, a floating walkway, and vaulted ceilings.
The great room—a harmonious blend of the living room, dining area, and kitchen—sets the tone with its vaulted ceilings, pale hardwood floors, and a linear fireplace that demands attention, all basking in the glow of natural light.
The kitchen, a marvel in its own right, boasts Calacatta marble countertops that echo the home’s refined aesthetic, complemented by a contemporary chandelier in the dining area that adds a touch of modern sophistication.
It also has state-of-the-art Thermador appliances and an oversized island.
Ascend to the master bedroom, and you’re met with a cozy fireplace, a vast window flooding the space with light, and a private patio that offers a serene overlook of the backyard oasis.
The en-suite bathroom, with its clawfoot soaking tub, vanity area, and walk-in steam shower, is a spa-like retreat promising relaxation and luxury.
Additionally, there’s also a huge walk-in closet and dressing room, masterfully designed bathrooms, and stunning fireplaces in the living room, the master bedroom, and the outdoor lounging area.
The backyard is an entertainer’s dream, featuring a large rectangular pool and spa, a sunken BBQ area, and an ultra-luxe pool house—ensuring that every day feels like a vacation.
More outdoor amenities that add to the charm (and fun) are a basketball court, a putting green, and a resort-style swim-up bar in the grand pool.
There’s also a sanctuary seating area with serene views, an oversized steam shower, and an 18K gold applique fireplace, just for opulence’s sake.
And for those rare chilly L.A. evenings, the estate’s indoor perks like a movie theater, a wine cellar with a tasting area, and a game room with a wet bar ensure the entertainment never ends.
It’s clear that this Ridiculousness star, who reportedly rakes in around $140,000 per episode, has invested not just in a property, but in creating a haven that reflects his success and personality. And we couldn’t be happier for him, especially knowing that he made his fortunes by making us laugh.
If you want to see more or tour the house alongside Steelo Brim himself, here’s the full MTV Cribs episode, which will also take you through Macy Gray’s LA home and pro snowboarder Nick Baumgartner’s Michigan space.
More stories
Danny McBride’s sleek penthouse at The Broadway Hollywood is up for grabs
Dwayne ‘The Rock’ Johnson’s house is a striking $27.8M mansion
Pete Davidson lives in a penthouse loft in Brooklyn, is no longer ‘The King of Staten Island’
The VA home loan: Unbeatable benefits for veterans
For many who qualify, VA home loans are some of the best mortgages available.
Verify your VA loan eligibility. Start here
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at an affordable cost.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
In this article (Skip to…)
Top 10 VA loan benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Verify your VA loan eligibility. Start here
Rather than paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%.
This insurance — which is known as private mortgage insurance (PMI) for a conventional loan and a mortgage insurance premium (MIP) for an FHA loan — would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
There’s a reason why the VA loan comes with such favorable terms.
The federal government guarantees these loans — meaning a portion of the loan amount will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
VA loans are neither originated nor funded by the VA. They are not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
Instead, VA loans are offered by U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders — each of which sets its own VA loan rates and fees.
This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
5. VA loans don’t allow a prepayment penalty
A VA loan won’t restrict your right to sell the property partway through your loan term.
There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Furthermore, there are no restrictions regarding a refinance of your VA loan.
You can refinance your existing VA loan into another VA loan via the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
6. VA mortgages come in many varieties
A VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used for refinancing your existing mortgage, making repairs or improvements to your home, or making your home more energy-efficient.
The choice is yours. A VA-approved lender can help you decide.
Verify your VA loan eligibility. Start here
7. It’s easier to qualify for VA loans
Like all mortgage types, VA loans require specific documentation, an acceptable credit history, and sufficient income to make your monthly payments.
But, compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guarantee.
The Department of Veterans Affairs genuinely wants to make the loan process easier for military members, veterans, and qualifying military spouses to buy or refinance a home.
8. VA loan closing costs are lower
The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans.
Money saved on closing costs can be used for furniture, moving costs, home improvements, or anything else.
9. The VA offers funding fee flexibility
VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, and other factors.
Funding fees don’t need to be paid in cash, though. The VA allows the fee to be financed with the loan, so nothing is due at closing.
And, not all VA borrowers will pay it. VA funding fees are normally waived for veterans who receive VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
10. VA loans are assumable
Most VA loans are “assumable,” which means you can transfer your VA loan to a future home buyer if that person is also VA-eligible.
Assumable loans can be a huge benefit when you sell your home — especially in a rising mortgage rate environment.
If your home loan has today’s low rate and market rates rise in the future, the assumption features of your VA become even more valuable.
VA loan rates
The VA loan is viewed as one of the lowest-risk mortgage types available on the market.
Verify your VA loan eligibility. Start here
This safety allows banks to lend to veteran borrowers at lower interest rates.
Today’s VA loan rates*
Loan Type
Current Mortgage Rate
VA 30-year FRM
% (% APR)
Conventional 30-year FRM
% (% APR)
VA 15-year FRM
% (% APR)
Conventional 15-year FRM
% (% APR)
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points (0.25%) lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
VA mortgage calculator
Eligibility
Am I eligible for a VA home loan?
Contrary to popular belief, VA loans are available not only to veterans, but also to other classes of military members.
Find and lock a low VA loan rate today. Start here
The list of eligible VA borrowers includes:
Active-duty service members
Members of the National Guard
Reservists
Surviving spouses of veterans
Cadets at the U.S. Military, Air Force or Coast Guard Academy
Midshipmen at the U.S. Naval Academy
Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
Minimum service required for a VA mortgage
VA home loans are available to active-duty service members, veterans (unless dishonorably discharged), and in some cases, surviving family members.
To be eligible, you need to meet one of these service requirements:
You’ve served 181 days of active duty during peacetime
You’ve served 90 days of active duty during wartime
You’ve served six years in the Reserves or National Guard
Your spouse was killed in the line of duty and you have not remarried
Your eligibility for the VA home loan program never expires.
Veterans who earned their VA entitlement long ago are still using their benefit to buy homes.
The VA loan Certificate of Eligibility (COE)
What is a COE?
In order to show a mortgage company you are VA-eligible, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of seconds.
Verify your VA home loan eligibility. Start here
How to get your COE (Certificate of Eligibility)
Getting a Certificate of Eligibility (COE) is very easy in most cases. Simply have your lender order the COE through the VA’s automated system. Any VA-approved lender can do this.
Alternatively, you can order your certificate yourself through the VA benefits portal.
If the online system is unable to issue your COE, you’ll need to provide your DD-214 form to your lender or the VA.
Does a COE mean you are guaranteed a VA loan?
No, having a Certificate of Eligibility (COE) doesn’t guarantee a VA loan approval.
Your COE shows the lender you’re eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VA’s promise to the lender of repayment if the borrower defaults.
Qualifying for a VA mortgage
VA loan eligibility vs. qualification
Being eligible for VA home loan benefits based on your military status or affiliation doesn’t necessarily mean you’ll qualify for a VA loan.
You still have to qualify for a VA mortgage based on your credit, debt, and income.
Verify your VA loan eligibility. Start here
Minimum credit score for a VA loan
The VA has established no minimum credit score for a VA mortgage.
However, many VA mortgage lenders require minimum FICO scores of 620 or higher — so apply with many lenders if your credit score might be an issue.
Even VA lenders that allow lower credit scores don’t accept subprime credit.
VA underwriting guidelines state that applicants must have paid their obligations on time for at least the most recent 12 months to be considered satisfactory credit risks.
In addition, the VA usually requires a two-year waiting period following a Chapter 7 bankruptcy or foreclosure before it will insure a loan.
Borrowers in Chapter 13 must have made at least 12 on-time payments and secure the approval of the bankruptcy court.
Verify your VA loan home buying eligibility. Start here
VA loan debt-to-income ratios
The relationship of your debts and your income is called your debt-to-income ratio, or DTI.
VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) income to come up with your debt-to-income ratio.
For instance:
If your gross income is $4,000 per month
And your total monthly debt is $1,500 (including the new mortgage, property taxes and homeowners insurance, plus other debt payments)
Then your DTI is 37.5% (1500/4000=0.375)
A DTI over 41% means the lender has to apply additional formulas to see if you qualify under residual income guidelines.
VA residual income rules
VA underwriters perform additional calculations that can affect your mortgage approval.
Factoring in your estimated monthly utilities, your estimated taxes on income, and the area of the country in which you live, the VA arrives at a figure which represents your “true” costs of living.
It then subtracts that figure from your income to find your residual income (e.g. your money “left over” each month).
Think of the residual income calculation as a real-world simulation of your living expenses.
It is the VA’s best effort to ensure that military families have a stress-free homeownership experience.
Here is an example of how residual income works, assuming a family of four which is purchasing a 2,000 square-foot home on a $5,000 monthly income.
Future house payment, plus other debt payments: $2,500
Monthly estimated income taxes: $1,000
Monthly estimated utilities at $0.14 per square foot: $280
This leaves a residual income calculation of $1,220.
Now, compare that residual income to for a family of four:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,117
The borrower in our example exceeds VA’s residual income standards in all parts of the country.
Therefore, despite the borrower’s debt-to-income ratio of 50%, the borrower could get approved for a VA loan.
Verify your VA loan eligibility. Start here
Qualifying for a VA loan with part-time income
You can qualify for this type of financing even if you have a part-time job or multiple jobs.
You must show a 2-year history of making consistent part-time income, and stability in the number of hours worked. The lender will make sure any income received appears stable. See our complete guide to getting a mortgage when you’re self-employed or work part-time.
VA funding fees and loan limits
About the VA funding fee
The VA charges an upfront fee to defray the costs of the program and make it sustainable for the future.
Veterans pay a lump sum that varies depending on the loan purpose and down payment amount.
The fee is normally wrapped into the loan. It does not add to the cash needed to close the loan.
Find out if you qualify for a VA loan. Start here
VA home purchase funding fees
Type of Military Service
Down Payment
Fee for First-Time Use
Fee for Subsequent Use
Active Duty, Reserves, and National Guard
None
2.3%
3.6%
5% or more
1.65%
1.65%
10% or more
1.4%
1.4%
VA cash-out refinance funding fees
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
2.3%
3.6%
VA streamline refinances (IRRRL) & assumptions
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
0.5%
0.5%
Manufactured home loans not permanently affixed
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
1.0%
1.0%
VA loan limits in 2024
VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019.
There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned.
However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.
Verify your VA loan eligibility. Start here
Eligible property types
Houses you can buy with a VA loan
VA mortgages are flexible about what types of property you can and can’t purchase. A VA loan can be used to buy a:
Detached house
Condo
New-built home
Manufactured home
Duplex, triplex or four-unit property
Find out if you qualify for a VA loan. Start here
You can also use a VA mortgage to refinance an existing loan for any of those types of properties.
VA loans and second homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to “primary residences” only.
However, “primary residence” is defined as the home in which you live “most of the year.”
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether it’s your vacation home or retirement property, becomes your official “primary residence.”
For this reason, VA loans are popular among aging military borrowers.
Buying a multi-unit home with a VA loan
VA loans allow you to buy a duplex, triplex, or four-plex with 100% financing. You must live in one of the units.
Buying a home with more than one unit can be challenging.
Mortgage lenders consider these properties riskier to finance than traditional, single-family residences, so you’ll need to be a stronger borrower.
VA underwriters must make sure you will have enough emergency savings, or cash reserves, after closing on your house. That’s to ensure you’ll have money to pay your mortgage even if a tenant fails to pay rent or moves out.
The minimum cash reserves needed after closing is six months of mortgage payments (covering principal, interest, taxes, and insurance – PITI).
Your lender will also want to know about previous landlord experience you’ve had, or any experience with property maintenance or renting.
If you don’t have any, you may be able to sidestep that issue by hiring a property management company. But that’s up to the individual lender.
Your lender will look at the income (or potential income) of the rental units, using either existing rental agreements or an appraiser’s opinion of what the units should fetch.
They’ll usually take 75% of that amount to offset your mortgage payment when calculating your monthly expenses.
VA loans and rental properties
You cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence.
If the property is a duplex, triplex, or four-unit apartment building, you must occupy one of the units yourself. Then you can rent out the other units.
The exception to this rule is the VA’s Interest Rate Reduction Refinance Loan (IRRRL).
This loan, also known as the VA Streamline Refinance, can be used for refinancing an existing VA loan on a home where you currently live or where you used to live, but no longer do.
Check your VA IRRRL eligibility. Start here
Buying a condo with a VA loan
The VA maintains a list of approved condo projects within which you may purchase a unit with a VA loan.
At VA’s website, you can search for the thousands of approved condominium complexes across the U.S.
If you are VA-eligible and in the market for a condo, make sure the unit you’re interested in is approved.
As a buyer, you are probably not able to get the complex VA-approved. That’s up to the management company or homeowner’s association.
If a condo you like is not approved, you must use other financing like an FHA or conventional loan or find another property.
Note that the condo must meet FHA or conventional guidelines if you want to use those types of financing.
Veteran mortgage relief with the VA loan
The U.S. Department of Veterans Affairs, or VA, provides home retention assistance. The VA intervenes when a veteran is having trouble making home loan payments.
The VA works with loan servicers to offer loan options to the veteran, other than foreclosure.
Find out if you qualify for a VA loan. Start here
In fiscal year 2019, the VA made over 400,000 contact actions to reach borrowers and loan servicers. The intent was to work out a mutually agreeable repayment option for both parties.
More than 100,000 veteran homeowners avoided foreclosure in 2019 alone thanks to this effort.
The initiative has saved the taxpayer an estimated $2.6 billion. More importantly, vast numbers of veterans and military families got another chance at homeownership.
When NOT to use a VA loan
If you have good credit and 20% down
A primary advantage to VA home loans is the lack of mortgage insurance.
However, the VA guarantee does not come free of charge. Borrowers pay an upfront funding fee, which they usually choose to add to their loan amount.
The fee ranges from 1.4% to 3.6%, depending on the down payment percentage and whether the home buyer has previously used his or her VA mortgage eligibility. The most common fee is 2.3%.
Find out if you qualify for a VA loan. Start here
On a $200,000 purchase, a 2.3% fee equals $4,600.
However, buyers who choose a conventional mortgage and put 20% down get to avoid mortgage insurance and the upfront fee. For these military home buyers, the VA funding fee might be an unnecessary expense.
The exception: Mortgage applicants whose credit rating or income meets VA guidelines but not those of conventional mortgages may still opt for VA.
If you’re on the “CAIVRS” list
To qualify for a VA loan, you must prove you have made good on previous government-backed debts and that you have paid taxes.
The Credit Alert Verification Reporting System, or “CAIVRS,” is a database of consumers who have defaulted on government obligations. These individuals are not eligible for the VA home loan program.
If you have a non-veteran co-borrower
Veterans often apply to buy a home with a non-veteran who is not their spouse.
This is okay. However, it might not be their best choice.
As the veteran, your income must cover your half of the loan payment. The non-veteran’s income cannot be used to compensate for the veteran’s insufficient income.
Plus, when a non-veteran owns half the loan, the VA guarantees only half that amount. The lender will require a 12.5% down payment for the non-guaranteed portion.
The Conventional 97 mortgage, on the other hand, allows down payments as low as 3%.
Another low-down-payment mortgage option is the FHA home loan, for which 3.5% down is acceptable.
The USDA home loan also requires zero down payment and offers similar rates to VA loans. However, the property must be within USDA-eligible areas.
If you plan to borrow with a non-veteran, one of these loan types might be your better choice.
Explore your mortgage options. Start here
If you apply with a credit-challenged spouse
In states with community property laws, VA lenders must consider the credit rating and financial obligations of your spouse. This rule applies even if he or she will not be on the home’s title or even on the mortgage.
Such states are as follows.
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
A spouse with less-than-perfect credit or who owes alimony, child support, or other maintenance can make your VA approval more challenging.
Apply for a conventional loan if you qualify for the mortgage by yourself. The spouse’s financial history and status need not be considered if he or she is not on the loan application.
Verify your VA loan home buying eligibility. Start here
If you want to buy a vacation home or investment property
The purpose of VA financing is to help veterans and active-duty service members buy and live in their own home. This loan is not meant to build real estate portfolios.
These loans are for primary residences only, so if you want a ski cabin or rental, you’ll have to get a conventional loan.
If you want to purchase a high-end home
Starting January 2020, there are no limits to the size of mortgage a lender can approve.
However, lenders may establish their own limits for VA loans, so check with your lender before applying for a large VA loan.
Spouses and the VA mortgage program
What spouses are eligible for a VA loan?
What if the service member passes away before he or she uses the benefit? Eligibility passes to an unremarried spouse, in many cases.
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For the surviving spouse to be eligible, the deceased service member must have:
Died in the line of duty
Passed away as a result of a service-connected disability
Been missing in action, or a prisoner of war, for at least 90 days
Been a totally disabled veteran for at least 10 years prior to death, and died from any cause
Also eligible are remarried spouses who married after the age of 57, on or after December 16, 2003.
In these cases, the surviving spouse can use VA loan eligibility to buy a home with zero down payment, just as the veteran would have.
VA loan benefits for surviving spouses
Surviving spouses have an additional VA loan benefit, however. They are exempt from the VA funding fee. As a result, their loan balance and monthly payment will be lower.
Surviving spouses are also eligible for a VA streamline refinance when they meet the following guidelines.
The surviving spouse was married to the veteran at the time of death
The surviving spouse was on the original VA loan
VA streamline refinancing is typically not available when the deceased veteran was the only applicant on the original VA loan, even if he or she got married after buying the home.
In this case, the surviving spouse would need to qualify for a non-VA refinance, or a VA cash-out loan.
A cash-out mortgage through VA requires the military spouse to meet home purchase eligibility requirements.
If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose, or even pay off an FHA or conventional loan to eliminate mortgage insurance.
Qualifying if you receive (or pay) child support or alimony
Buying a home after a divorce is no easy task.
If, prior to your divorce, you lived in a two-income household, you now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet both the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines and the VA residual income requirement for your area.
Receiving alimony or child support can counteract a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement’s alimony or child support terms, but if you’re willing to disclose, it can count toward qualifying for a home loan.
Different VA-approved lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.
If you are the payor of alimony and child support payments, your debt-to-income ratio can be harmed.
Not only might you be losing the second income of your dual-income households, but you’re making additional payments that count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
You can still get approved for a VA loan while making such payments — it’s just more difficult to show sufficient monthly income.
VA loan assumption
What is VA loan assumption?
One benefit for home buyers is that VA loans are assumable. When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Verify your VA loan home buying eligibility. Start here
That could be a big advantage if mortgage rates have risen since the original owner purchased the home. The buyer would be able to acquire a low-rate, affordable loan — and it could make it easier for the seller to find a willing buyer in a tough market.
VA loan assumption savings
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
For example:
Say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25% on a 30-year fixed loan
Using this scenario, their principal and interest payment would be $898 per month
Let’s assume current 30-year fixed rates averaged 4.10%
If you financed $200,000 at 4.10% for a 30-year loan term, your monthly principal and interest payment would be $966 per month
Additionally, because the seller has already paid four years into the loan term, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
How to assume (take on) a VA loan
There are currently two ways to assume a VA loan.
The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller
The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This loan process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner who assumes the property meets both VA and lender requirements.
VA loan assumption requirements
For a VA mortgage assumption to take place, the following conditions must be met:
The existing loan must be current. If not, any past due amounts must be paid at or before closing
The buyer must qualify based on VA credit and income standards
The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default
The original owner or new owner must pay a funding fee of 0.5% of the existing principal loan balance
A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report
Find out if you qualify for a VA loan. Start here
Finding assumable VA loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers.
This applies to home buyers specifically searching for assumable VA loans as well.
How do I apply for a VA loan?
You can easily and quickly have a lender pull your certificate of eligibility (COE) to make sure you’re able to get a VA loan.
Most mortgage lenders offer VA home loans. So you’re free to shop and compare rates with just about any company that catches your eye.
Getting a VA loan for your new home is similar in many ways to securing any other purchase loan. Once you find an ideal home in your price range, you make a purchase offer, and then undergo VA appraisal and underwriting.
VA appraisal ensures that the home meets its minimum property requirements (MPRs) and is structurally sound and safe for occupancy.
What’s more, VA-specific mortgage lenders are actually some of the highest-rated (and lowest-priced) on the market. Here are a few we’d recommend checking out.
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Roughly 24 hours after filing an objection to the U.S. government’s motion to stop the gathering of evidence in a case against Ginnie Mae, Texas Capital Bank (TCB) responded to the government’s attempt to dismiss the entirety of the bank’s complaint.
The case stems from Ginnie Mae’s extinguishment of Reverse Mortgage Funding (RMF) from its reverse mortgage-backed securities program.
TCB claims that it dealt with Ginnie Mae in good faith, having lent “millions of dollars in much-needed financing to help the collapsing [RMF] continue making payments to senior citizens as part of a mortgage program critical to the federal government.”
TCB’s “protection for those loans was a lien on certain collateral,” its attorneys state, and “Ginnie Mae — up to and including Ginnie Mae President Alanna McCargo — assured TCB that the collateral would be a source for repayment.”
‘Impermissible and wrong’
In its filing, TCB recognizes that Ginnie Mae was within its rights to “extinguish RMF’s mortgage servicing rights” but claims that Ginnie Mae did not specify the impact such a move would have on the liens that the bank had a vested interest in, its attorneys said.
“But months later, Ginnie Mae took the radical step of announcing that its extinguishment of RMF’s servicing rights had also purportedly extinguished TCB’s lien — a striking collateral grab unsupported by the statute and contrary to Ginnie Mae’s prior dealings with TCB, basic fairness, and common sense,” the filing reads.
TCB also claims that the FHA Commissioner “has stated that Ginnie Mae’s brazen action is impermissible and wrong.” As stated in their original complaint, they allege that Ginnie Mae’s actions are in violation of the Administrative Procedures Act (APA), “creates liability for promissory estoppel given the agency’s stark breach of its word” and also “constitutes tortious interference with property rights.”
The bank’s attorneys go on to claim that the government’s motion to entirely dismiss the complaint “does not come close” to establishing that TCB’s claims “fail on the face of the complaint,” and that “the Government’s motion focuses almost entirely on Ginnie Mae’s authority to extinguish RMF’s interests in the mortgage-servicing rights pursuant to a contract between Ginnie Mae and RMF.”
Alleged promises by Ginnie Mae
That contention, however, does “nothing to undermine TCB’s claim that Ginnie Mae lacked statutory authority to extinguish TCB’s interest in its collateral, which was not only separate from the servicing rights but also subject to no contract between TCB and Ginnie Mae,” the filing reads.
In other words, the government motion only addresses Ginnie Mae’s authority to act against a participant in its reverse mortgage securities program, and not against the separate interest that the bank maintained over the lender’s collateral.
The bank also claims that the government’s motion does not adequately address promises made by Ginnie Mae officials and the impact those promises had on the operations of the bank, attorneys said.
“At minimum, factual disputes on critical questions, from the nature of TCB’s property interest to the commitments exchanged by the parties, preclude dismissal on the pleadings alone,” the filing reads. “The Government’s motion should accordingly be denied.”
Recounting history
TCB began its relationship with RMF in 2015 by “financing […] to enable RMF to fund and operate its business — including funding for RMF’s operations involving tails,” the filing states.
“Ginnie Mae was involved in and expressly consented to various transactions between TCB and RMF,” and “also contracted with other RMF lenders, including Leadenhall Life Insurance Linked Investments Fund PLC (“LCP”). But Ginnie Mae has never sought to contract with TCB itself regarding TCB’s transactions with RMF.”
Shortly after RMF declared bankruptcy in November 2022, the lender failed to make required payments to its borrowers, resulting in Ginnie Mae reaching out to TCB, the filing reads.
“Ginnie Mae was deeply concerned about the impact of these non-payments on senior-citizen borrowers,” TCB attorneys stated. “Ginnie Mae accordingly implored TCB to lend money to RMF. But TCB was hesitant to lend money to a bankrupt company. Specifically, TCB was concerned that if Ginnie Mae seized RMF’s [mortgage servicing rights], TCB would face delays in being repaid.”
In the end, “the most senior representatives of Ginnie Mae and FHA provided commitments to TCB that the Government would provide TCB with adequate support to ensure TCB was repaid if the Government seized RMF’s MSRs.” The defendants restated assurances given by Ginnie Mae President Alanna McCargo, FHA Commissioner Julia Gordon and Ginnie Mae chief operating officer Sam Valverde, which are supported by a sworn declaration from the bank’s president of mortgage finance.
In March 2023, months after Ginnie Mae had seized control of RMF’s servicing portfolio, the company “suddenly and without warning expressed the startling position that its seizure of RMF’s servicing rights in certain mortgages months earlier had, unbeknownst to anyone at the time, resulted in the extinguishment of TCB’s security interest in the tails,” TCB attorneys state.
“TCB repeatedly reached out to the Government in an effort to resolve the foregoing issues without the need for litigation, but the Government summarily rejected all of those efforts and refused even to schedule a meeting to discuss them. TCB was thus left with no alternative but to file this action,” the bank concluded.
Ginnie Mae’s position
In its January filing responding to the TCB complaint, government attorneys claimed that by Ginnie Mae exercising its authority to extinguish RMF’s interest, the company “necessarily eliminated TCB’s interest as well,” attorneys for the government explained in its court filing. “By law, the mortgages were the ‘absolute property’ of GNMA.”
Government attorneys went on to say that TCB “ignores that each of the relevant authorities” underpinning the core elements of the dispute corroborate that Ginnie Mae “had a right in the event of default to extinguish the issuer’s interest in the mortgages and related interests,” including Ginnie Mae’s charter statute, implementing regulations, RMF’s contracts with both Ginnie Mae and TCB, and bankruptcy court orders.
A magistrate judge overseeing the case has set a series of pretrial deadlines that extend into 2025. Because of that, it is possible that government officials currently in leadership positions at Ginnie Mae and the U.S. Department of Housing and Urban Development (HUD) may not be in office should the suit progress to trial sometime next year.
November’s presidential election could bring a new administration in January 2025, and thus new decision-makers at these agencies by the time the deadlines arrive.
Mortgage servicers, regulators and economists are closely watching the delinquency rates for Federal Housing Administration (FHA) loans following a spike in the fourth quarter of 2023.
Industry experts say that although there’s a correlation between unemployment and delinquency rates, some homeownership costs — including insurance — have increased significantly over the past two or three years, which has had a strong financial impact on homeowners. But experts also say the situation is not as bad as the one experienced during the COVID-19 pandemic.
The sources spoke about these issues during this week’s Mortgage Bankers Association (MBA) Servicing Solutions Conference & Expo in Orlando.
The latest MBA data shows that the delinquency rate for one- to four-unit properties rose to 3.88% at the end of 2023, compared to 3.62% in the third quarter, but still below the historic average of 5.25%. Meanwhile, the FHA-insured loan delinquency rate recorded a larger jump during the same period to 10.81%, up from 9.5%, the highest level since Q3 2021.
“We are seeing a bit of a pickup for two quarters in a row, but it’s very important to keep in mind that we were at the absolute lowest point in delinquencies in the third quarter of 2023,” Marina Walsh, MBA vice president of industry analysis, research and economics, said in a market outlook session.
According to Walsh, the delinquency rate for FHA loans increased by 130 basis points from the third to fourth quarters, but the current level is “certainly not nearly where it was at the height of COVID-19.”
In addition, she said that foreclosures are not picking up, so borrowers are either paying off their loans before entering the severe delinquency stage, or if they are in the serious delinquency stage, they are entering a workout.
“The question I posed to all of you is, ‘Is this a blip or a bigger trend?’” Walsh said, adding that based on data MBA has received from the industry, she believes the delinquency rate could come down a bit in first-quarter 2024 following the end of the busy holiday shopping season.
“All these increases in costs impact people’s ability to pay, without question,” Steven R. Bailey, senior managing director and chief servicing officer at PennyMac Financial Services, said in an executives’ perspective session. “But we still see the strongest correlation is between unemployment and delinquency.”
Bailey said that although increases in delinquencies are not a trend that servicers want to see, “I don’t look at it with the same fear that I used to look like.”
Homeowners insurance
According to industry experts, one of the costs affecting homeowners is their insurance, which can lead to increases in delinquencies. California and Florida are among the states where the situation is more evident.
Seven of the 12 largest insurers in California have either paused or restricted new policies over the past 18 months, including State Farm and Allstate. In September, the state’s top insurance regulator announced that new rules are in the works to persuade insurers to remain.
In Florida, the departure of many insurers and reinsurers has resulted in homeowners paying an average of nearly $4,000 a year, almost three times the U.S. average, according to estimates from the Insurance Information Institute. In some instances, homeowners have seen their insurance costs more than triple, but a new bill seeks to help them.
“That’s a combination of both rates from a carrier perspective, as well as just the increase in home values,” Patrick A. Sullivan, vice president of industry relations and compliance at Assurant, said in a session about homeowners insurance.
Sullivan said reinsurance is another factor weighing on homeowners insurance costs, a function of the global capital markets. He added that reinsurance costs have more than tripled over the past three years.
“Homeowners insurance is certainly a problem we need to tackle together,” John Bell, executive director of loan guaranty service at the U.S. Department of Veteran Affairs (VA), said during a regulatory session.
“I hope that there are others on this panel and others out there that want to work together to try to solve some of those rising prices that our homeowners just can’t absorb, and at some point in time, it’s going to hurt the market.”
Bell said that if a home costs $800 per month more than last year, the industry needs to figure out how to solve it. Bell and the VA are working to move forward with options to help veterans avoid foreclosure, including a partial claim solution.
FHA Commissioner Julia Gordon, who announced the agency’s new payment supplement partial claim during the conference, added that the issue of homeowners insurance will take a village to tackle.
“And that’s going to take real work in the states also, which is hard, and we just have to do it if we want people to be protected,” Gordon said.
A plan by the Department of Veterans Affairs to introduce a low-interest refinancing option for veterans with VA-backed loans facing foreclosure drew ire from a House lawmaker who complained some homeowners might choose to default for lower monthly payments. (Stars and Stripes)
WASHINGTON — A plan by the Department of Veterans Affairs to introduce a low-interest refinancing option for veterans with VA-backed loans facing foreclosure drew ire of a House lawmaker who complained some homeowners might choose to default for lower monthly payments.
Rep. Merrick Van Orden, R-Wis., chairman of the House Committee on Veterans’ Affairs subpanel on economic opportunity, on Thursday questioned whether the new VA Servicing Purchase program — also known as VASP — will cause some homeowners to forgo paying back home loans to qualify for VA refinancing at the lower rate of 2.5% offered by the program.
The average interest rate now for a 30-year fixed mortgage is 7.24%, according to Bankrate, a consumer financial services company that surveys major lenders weekly.
“It is essential that we support the dream of home ownership for veterans who served our country,” said Van Orden, a Navy veteran who used a traditional VA home loan to buy his house. “I have used this program myself, and it is awesome.”
But he also said he has “grave reservations” that the new VASP program would result in unintended consequences that could destroy the VA home loan program.
The refinancing option is expected to be rolled out in spring, according to the VA.
Under the program, the VA would purchase the loan from the servicer to hold it in its own portfolio. Qualifying veterans would be allowed to refinance their mortgages under the VASP rate of 2.5% after falling behind on at least two mortgage payments.
“I am concerned that this program poses a moral hazard and will encourage veterans to become delinquent on their loans to let VA take over the servicing of their payments,” Van Orden said at a House hearing about the home loan program.
He said if the VA then experienced high delinquency rates under the VASP program, it could end up being responsible for thousands of home loans it serviced.
Van Orden questioned whether the VA should be in the business of servicing loans and expressed concern that the VA would force veterans out of their homes if they failed to pay down their mortgages.
Given that veterans are 50% more likely to be homeless than others, Van Orden said he could not imagine “the VA would go so far as to be kicking people out of their homes — default or no default.”
Under those circumstances, Van Orden speculated the federal government would end up owning mortgage-delinquent properties and letting the veterans stay in their homes.
“It is no longer private property. It is public property with private citizens living in public property. That was tried in the Soviet Union. I am not signing up for that,” he said.
Van Orden said the House subcommittee has received little information on how the VASP program will operate, its costs and its overall effect on the mortgage markets.
“All of this is a cause for concern,” he said. “We need answers on VASP.”
The VA announced the VASP program in November 2023 in the Federal Register that stated “VA is initiating an expanded program using existing refund provisions. Under this program, VA will exercise its statutory option to purchase the loan from the servicer and VA will hold the loan in VA’s own loan portfolio.”
VA-guaranteed loans comprise more than 10% of the mortgage market, according to the VA.
The VA worked to assist thousands of veterans during the coronavirus pandemic who fell behind on mortgage payments, said Rep. Mike Levin of California, the top Democrat on the subcommittee. He said many financial relief measures implemented during the pandemic have ended.
Levin said the VA in December 2023 paused foreclosures on VA home loans through May 31. The measure allows veterans who have defaulted on their loans to stay in their homes.
Under the foreclosure pause, the VA extended its coronavirus refund modification program that allowed the VA to purchase past due payments — along with additional principal amounts as necessary — and give veterans a second mortgage with no interest.
Lenders meanwhile are encouraged by the VA to work with delinquent homeowners to modify payments with plans that are more affordable. Last year, the VA helped more than 145,000 veterans and their families stay in their homes through various programs, the agency said.
“I understand that the VA cannot prevent every foreclosure. But I expect it to exhaust every option,” Levin said, in reference to VASP and other VA assistance programs.
VASP would provide refinancing at an interest rate lower than the current market rate, which would continue over the life span of the loan, said John Bell, executive director of the VA Home Loan Guaranty Program.
The VA estimates under a VASP Program loan — with a 2.5% fixed interest rate for 30 or 40 years — there would be an average payment reduction of 20%, in principal and interest, for homeowners.
“It is so important that we get this right,” said Levin, who urged the VA to let Congress know what additional tools it might need to assist borrowers in default and ensure that foreclosures occur only “in the most extreme circumstances.”
Bell said job loss, divorce and catastrophic illness can impact financial stability for homeowners.
The VA home loan program — established in 1944 during World War II for soldiers returning home — helps veterans, active-duty personnel, members of the reserves and National Guard, as well as their family members, buy homes, refinance loans and pay for home improvements.
VA has guaranteed more than 28 million loans, valued at nearly $4 trillion, since the program’s inception, Bell said.
One of the attractions of the VA home loan program is the offer of 100% financing without requiring a down payment. A veteran purchasing a home at $386,000 — the median rate now — could avoid a traditional 20% down payment of $77,000, he said.
In fiscal 2023, the VA received 860,000 calls from veterans seeking information and assistance with their home loans. He said 65,000 borrowers are at least 90 days late on their VA home loans.
Bell doubted homeowners would default on home loan payments, damage their credit and face foreclosure to secure a 2.5% interest rate through the VASP program.
“The VASP program is simply a more sustainable option for veterans who cannot afford other available loss mitigation options, such as repayment plans, special forbearances and traditional loan modifications,” he said.
But Van Orden disagreed.
“My focus is to ensure that veterans remain in their homes whenever possible,” he said. “But I am concerned that this program could evolve into a financial burden of billions of dollars in bailouts that fall on the shoulders of taxpayers.
Medical debt is an unfortunate reality for millions of Americans. As healthcare costs continue to rise, it becomes increasingly important to understand the financial implications of medical debt and its impact on your credit score.
This article will delve into the world of medical debt and provide you with strategies to manage and minimize its effects on your credit score.
How Medical Bills Affect Credit Scores
Unpaid medical debt can have a significant impact on your credit scores, especially when it becomes delinquent or goes to collections. Here are some key points to consider:
The role of medical debt in credit score calculations: Medical bills, like other types of debt, factor into your credit score calculations. Late or missed payments and unpaid bills can lower your credit scores, making it more challenging to obtain loans, credit cards, or favorable interest rates.
Late payments and unpaid medical bills: Late payments on medical bills can be reported to the three major credit bureaus, which may negatively affect your credit scores. If unpaid, medical bills can eventually be sent to collections, further damaging your credit.
Impact of medical debt on different credit scoring models: Unpaid medical debt can affect your credit score differently, depending on the credit scoring model being used. For example, newer credit scoring models like FICO Score 9 and VantageScore 4.0 give less weight to medical debt compared to other types of debt, while older models treat medical debt more harshly.
The Medical Debt Collection Process
Understanding the medical debt collection process can help you take control of the situation and potentially minimize its impact on your credit scores.
How medical debt becomes a collection account: When a medical bill remains unpaid for an extended period, the medical provider may sell the debt to a collection agency. The collection agency then reports the debt to credit bureaus, which can cause a significant drop in your credit scores.
The role of collection agencies: Collection agencies are responsible for recovering unpaid medical debts. They may contact you through phone calls, letters, or even legal actions to collect the outstanding balance.
Statute of limitations on medical debt: The statute of limitations for medical debt varies by state, ranging from three to ten years. This is the time frame within which a collector can sue you for the unpaid debt. It’s important to know the statute of limitations in your state, as it can help you strategize your approach to dealing with unpaid medical debt.
Medical Bills Grace Period and Reporting
A grace period can provide some relief when dealing with medical bills, but it’s crucial to understand its impact on credit reporting.
How grace periods work with medical bills: Some medical providers may offer a grace period, typically 30 to 180 days, during which they will not report late or missed payments to credit bureaus. This gives you time to resolve any disputes, work with your health insurance company, or make arrangements to pay the bill.
Impact of grace periods on credit reporting: Even if your medical provider offers a grace period, it’s essential to pay your medical bills promptly. Once the grace period ends, late payments can be reported to credit bureaus, negatively impacting your credit.
Changes in medical debt reporting rules: Recent changes to credit reporting rules have made it more difficult for medical debt to impact your credit scores. These changes include a 180-day waiting period before medical debt can be reported to credit bureaus and the removal of medical collections paid or settled by insurance.
Can medical bills be removed from my credit report?
If you believe a medical collection on your credit report is inaccurate or unfair, you are entitled to dispute it. To dispute a medical collection, you’ll need to contact the credit bureau reporting the debt and provide supporting documentation to prove that the collection is inaccurate or unjust.
First, you’ll need to gather all relevant documents, such as medical bills, insurance Explanation of Benefits (EOB), payment records, and any correspondence with the medical provider or collection agency. This evidence will help you build a strong case when disputing the collection.
Then, once the credit bureau receives your dispute, they typically have 30 days to investigate the matter. If the dispute is resolved in your favor, the medical collection will be removed from your credit report, which may result in a boost to your credit score.
Does paying off medical collections improve my credit?
Paying off medical collections can have a positive impact on your credit, but the extent of the improvement depends on various factors.
The importance of paying medical debt: Paying off medical debt shows financial responsibility and can help prevent further damage to your credit.
How payment history affects credit scores: Your payment history makes up a significant portion of your credit score calculation. Settling medical debts can have a positive effect on your payment history, potentially improving your credit.
Settling medical debt for less than the full amount: In some cases, collection agencies may be willing to accept a lower amount to settle the debt. While this can help you save money, keep in mind that the partial payment may still be reported to credit bureaus, which could have a less favorable impact on your credit score compared to paying the debt in full.
Strategies for Managing Medical Bills
Effectively managing your medical bills can help prevent them from damaging your credit scores.
Negotiating medical bills with healthcare providers: Before a bill goes to collections, you may be able to negotiate with your healthcare provider to lower the cost, set up a payment plan, or request financial assistance.
Repayment plans and options: Many medical providers offer payment plans that allow you to pay your medical bills over time. This can make it more manageable to handle large medical expenses without hurting your credit scores.
Hiring a medical billing advocate: A medical billing advocate can help you review your medical bills for errors, negotiate with medical providers, and even guide you through the insurance claim process.
Seeking financial assistance and grants: Look for financial assistance programs, grants, or charities that may help cover the cost of your medical bills. Some hospitals and clinics also have programs for eligible patients.
Weighing the pros and cons of personal loans or credit cards: Using personal loans or credit cards to pay off medical debt can be an option, but consider the potential impact on your credit scores, as well as the interest rates and fees associated with these forms of borrowing.
What to do if You Can’t Pay Your Medical Bills
You have certain rights under the Fair Debt Collection Practices Act (FDCPA), which protects you from abusive or deceptive debt collection practices. Make sure you understand your rights and options when dealing with medical debt.
Keep an open line of communication with your medical provider and debt collectors. Discuss your financial situation, ask for assistance, or negotiate a payment plan to help manage your medical bills.
In extreme cases, bankruptcy may be a viable option to address overwhelming medical debt. However, it’s essential to consider the long-term implications, as bankruptcy can have a significant and lasting impact on your credit.
Preventing Medical Debt from Damaging Your Credit
Taking a proactive approach to managing medical expenses can help protect your credit score. Review your medical bill and insurance statement carefully for errors, and address any discrepancies promptly. Keep track of due dates and submit insurance claims as soon as possible to avoid late payments or collections.
Maintaining a record of your medical expenses can help you budget effectively and ensure you don’t miss any payments. Consider using financial management tools, apps, or a simple spreadsheet to stay organized.
You should also regularly review your credit report for any inaccuracies. By catching errors early, you can dispute them and potentially prevent damage to your credit score.
Keeping Your Credit Score Healthy
Some strategies for maintaining a healthy credit score include making timely payments on all your debts, keeping your credit utilization low, and diversifying your credit mix by using different types of credit responsibly.
Establishing a solid credit history takes time and consistent effort. By using credit responsibly, making timely payments, and avoiding high levels of debt, you can build a strong credit history that will serve you well in the long run.
Having a financial plan and an emergency fund can help you handle unexpected medical expenses without relying on credit, which could negatively impact your credit. Aim to save at least three to six months’ worth of living expenses in an emergency fund.
Conclusion
Unpaid medical debt can have a substantial impact on your credit, but understanding how it works and taking proactive steps to manage it can help you minimize its effects. Stay on top of your medical expenses, communicate with medical providers and debt collectors, and maintain a healthy credit score by following the strategies outlined in this article.
Remember, your financial health is just as important as your physical health, and taking control of your medical debt is a crucial step toward financial well-being.
Frequently Asked Questions
What happens when medical debt is sold to a collection agency?
When medical debt is sold to a collection agency, the agency becomes responsible for recovering the unpaid debt. They may contact you through phone calls, letters, or even legal actions to collect the outstanding balance. The collection agency also reports the debt to credit bureaus, which can cause a significant drop in your credit score.
What are the consequences of unpaid medical collections over $500?
Unpaid medical collection accounts over $500 can stay on your credit reports for up to seven years and have serious consequences, such as:
Significant damage to your credit score
Difficulty obtaining loans, credit cards, or favorable interest rates
Potential legal actions or wage garnishments
Increased stress and financial burden
It’s crucial to address unpaid medical debt promptly to minimize these consequences.
What should you do if you can’t pay a medical bill on time?
If you can’t pay a medical bill on time, consider the following options:
Communicate with your medical provider about your financial situation and ask for assistance or a payment plan.
Explore financial assistance programs, grants, or charities that may help cover the cost of your medical bill.
Negotiate with the medical provider to lower the cost or set up a payment plan.
Hire a medical billing advocate to help you review your bills and negotiate with the medical provider.
How can you negotiate medical bills?
To negotiate medical bills, follow these steps:
Review your bills and insurance statements for errors or discrepancies.
Research the average cost of the medical service in your area.
Prepare a case, explaining why you believe the bill should be reduced.
Contact your medical provider’s billing department and discuss your concerns.
Be prepared to provide documentation and evidence to support your case.
Remain polite and persistent throughout the negotiation process.
How can I get medical bills off my credit report?
To get medical bills off your credit report, the first step is to review your credit report for inaccuracies and verify the legitimacy of the medical collections listed. Inaccurate or unjust collections can be disputed, and if the dispute is resolved in your favor, the medical debt will be removed from your credit report.
To dispute a medical collection, contact the credit bureau reporting the debt and provide supporting documentation, such as insurance Explanation of Benefits (EOB), payment records, and any correspondence with the healthcare provider or collection agency. The credit bureau typically has 30 days to investigate the dispute, and if successful, the medical collection will be removed, potentially improving your credit score.
Another approach to getting medical debt off your credit report is by negotiating a “pay-for-delete” agreement with the collection agency. In a pay-for-delete agreement, you offer to pay the outstanding medical debt in exchange for the collection agency removing the collection from your credit report. This strategy, however, isn’t always successful, as collection agencies are not obligated to agree to such terms.
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Home » Credit » 6 Ways to Help Your Child Build Credit During College
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These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
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College students have a lot on their plate already, including the need to study to get good grades, participating in any number of on-campus activities and potentially working part-time to have some spending money.
That said, college students should also focus on their financial future, including steps they can take to build credit before they enter the workforce.
After all, having a credit history and a good credit score can mean being able to rent an apartment, finance a car or take out a loan, whereas having no credit at all can mean sitting on the sidelines until the situation changes.
Fortunately, there are all kinds of ways for young adults to build credit while they’re still in school. Some strategies require a little work on their part, but many are hands-off tasks that you only have to do once.
Teach Them Credit-Building Basics
Make sure your student knows the basic cornerstones of credit building, including the factors that are used to determine credit scores. While factors like new credit, length of credit history and credit mix will play a role in their credit later on, the two most important issues for credit newcomers to focus on include payment history and credit utilization.
Payment history makes up 35% of FICO scores and credit utilization ratio makes up 30% of scores.
Generally speaking, college students and everyone else can score well in these categories by making all bill payments on time and keeping debt levels low. How low?
Most experts recommend keeping credit utilization below 30% at a maximum and below 10% for the best possible results. This means trying to owe less than $300 for every $1,000 in available credit limits at a maximum, but preferably less than $100 for every $1,000 in credit limits.
Add Your Child as an Authorized User
One step you can personally take to help a child build credit is adding them to your credit card account as an authorized user. This means they will get a credit card in their name and access to your spending limit, but you are legally responsible for any charges they make. Obviously, this move works best when you have excellent credit and a strong history of on-time payments and you plan to continue using credit responsibly .
While this step can be risky if you’re worried your college student will use their card to overspend, you don’t actually have to give them their physical authorized user credit card.
In fact, they can get credit for your on-time payments whether they have access to a card or not. If you do decide to give them their credit card, you can do so with the agreement they can only use it for emergency expenses.
Encourage Them to Get a Secured Credit Card
Your child can build credit faster if they apply for a credit card and get approved for one on their own, yet this can be difficult for students who have no credit history. That said, secured credit cards require a refundable cash deposit as collateral are very easy to get approved for.
Some secured credit cards like the Ambition Card by College Ave even offer cash back1 on every purchase and don’t charge interest2. If your child opts to start building credit with a secured credit card, make sure they understand the best ways to build credit quickly — keeping credit utilization low and paying bills early or on time each month.
Opt for a Student Credit Card Instead
While secured credit cards are a good option for students with little to no credit get started on their journey to good credit, there are also credit cards specifically designed for college students. Student credit cards are unsecured cards, meaning they don’t require an upfront cash deposit as collateral, but charge interest on any purchases not paid in full each month.
Many student credit cards offer rewards for spending with no annual fee required as well, although these cards do tend to come with a high APR. The key to getting the most out of a student credit card is having your dependent use it only for purchases they can afford and paying off the balance in its entirety each billing cycle. After all, sky high interest rates don’t really matter when you never carry a balance from one month to the next.
Student Credit Cards…
“One of the safest ways for college student to build their credit by learning valuable money skills.”
Help Your Child Get Credit for Other Bill Payments
While secured cards and student credit cards help young adults build credit with each bill payment they make, other payments they’re making can also help.
In fact, using an app like Experian Boost can help them get credit for utility bills they’re paying, subscriptions they pay for and even rent payments they’re making. This app is also free to use, and you only have to set up most bill payments in the app once to have them reported to the credit bureaus.
There are also rent-specific apps and tools students can use to get credit for rent payments, although they come with fees. Examples include websites like Rental Kharma and RentReporters.
Make Interest-Only Payments On Student Loans
The Fair Isaac Corporation (FICO) also notes that students can start building credit with their student loans during school, even if they’re not officially required to make payments until six months after graduation with federal student loans.
Their advice is to make interest-only payments on federal student loans along with payments on any private student loans they have during college in order to start having those payments reported to the credit bureaus as soon as possible.
“Making interest-only payments as a student will not only positively affect your credit history but will also keep the interest from capitalizing and adding to your student loan balance,” the agency writes.
Of course, interest capitalization on loans would only be an issue with private student loans and Federal Direct Unsubsidized Loans since the U.S. Department of Education pays the interest on Direct Subsidized Loans while you’re in school at least half-time, for six months after you graduate and during periods of deferment.
The Bottom Line
College students don’t have to wait until they’re done with school to start building credit for the future, and it makes sense to start building positive credit habits early on regardless. Tools like a credit card can help students on their way, whether they opt for a secured credit card or a student card. Other steps like using credit-building apps can also help, and with little effort on the student’s part or on yours.
Either way, the best time to start building credit was a few years ago, and the second best time is now. You can give your student a leg up on the future by helping them build credit so it’s there when they need it.
20% APR. Account is subject to a monthly account fee of $2, account fee is waived for the initial six-monthly billing cycles.
College Ave is not a bank. Banking services provided by, and the College Ave Mastercard Charge Card is issued by Evolve Bank & Trust, Member FDIC pursuant to a license from Mastercard International Incorporated. Mastercard and the Mastercard Brand Mark are registered trademarks of Mastercard International Incorporated.
About the Author
Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion – educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.
Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University – Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® – Accredited Asset Management Specialist – and CRPC® – Chartered Retirement Planning Counselor.
While a practicing financial advisor, Jeff was named to Investopedia’s distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC’s Digital Advisory Council.
Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.
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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.