Blog Layout
How much does home insurance cost?
Ralph DiBugnara • November 7, 2024
By Ralph Dibugnara November 7, 2024
By Brian OConnell
Home insurance seems to be a low priority for new homeowners, but adopting that mindset could be a serious mistake. Why? Because of costs related to home insurance and the reasons homeowners need insurance in the first place. You're going to want to protect yourself and your assets.
Do you think you need home insurance? If so, you're going to want to evaluate your personal finances and determine how to budget for home insurance payments. Before you get out your wallet, here's what you need to know.
How much does home insurance cost?
Price-wise, new home buyers can expect to tack on $1,200 to the cost of a new home, in the form of proper home insurance.
That cost, however, depends on several key factors including:
Age and price of the home
Amount of cash put down via a down payment
State or municipality where the home is located
Since real estate is primarily about location, where you buy your new home largely dictates how deeply you’ll have to dig in your pocket for home insurance payments.
For example, homeowners in Louisiana face the highest home insurance rates in the U.S., at $1,958 (on average) per year. Compare that to $677 in Oregon or $692 in Utah.
RECORD-LOW MORTGAGE RATES WON'T LAST — REFINANCE BEFORE IT'S TOO LATE
What does a typical homeowners policy cover?
No matter where you live home insurance shares some basic commonalities.
"Good home insurance policies will mainly cover two types of liabilities - loss of personal property as well as liability for any other damages," said Ralph DiBugnara, president at Home Qualified, a digital platform for home buyers, sellers, and investors. "Yet every carrier has some common standards as well as items and scenarios that they deem to be high risk or low risk."
That’s why it’s important a shopper should get at least three quotes because costs and coverages will vary from carrier to carrier. The idea is for shoppers to compare different rates from different companies, and the best way to accomplish that is by going online.
To get the best home insurance policy at the best price, DiBugnara advised asking – and answering – three key questions before signing on the dotted line:
How much insurance coverage do you actually need?
What exactly does that coverage protect me from happening?
How much of a deductible should I take and still be safe?
"Answering these questions correctly can help you avoid major issues in case of disaster or damage to your home," he said.
HOW TO FIND THE BEST MORTGAGE RATES AND FASTEST CLOSINGS
What type of home insurance coverage do you need?
Some home insurance experts say homeowners put too much emphasis on monthly payments and not enough on getting the right coverage. In that scenario, costs escalate in the form of high out-of-pocket expenses when a disaster strikes and the house incurs major damage.
"Just like auto insurance, there can be great variance in the cost from one home insurance company to another," said Jeff Zander, founder of Zander Insurance, in Nashville, Tenn. "In many cases, people have paid less attention to their home insurance cost since it is often included in the escrow payment portion of the mortgage."
"For most people, a home is their greatest asset, but the bank is only concerned about getting them their money and not about any of their contents, personal property, or liability risks that arise from owning a home," Zander said.
Homeowners looking for quality home insurance at a decent price also need to make a distinction between covering select risks or covering all risks. Fortunately, home insurance policies have you covered.
"There are really two types of home insurance policies," Zander noted.
A "named perils" policy: This lists the perils that are covered. "If the peril is not listed, then it is not covered," he said.
An all-risk policy: "This is the most preferred homeowner insurance policy since it lists the exclusions," Zander added. "Basically, if it is not excluded then it is covered. An all-risk policy is a much broader policy form and includes better protection."
The takeaway on getting good home insurance for the best price? Think value and not cost.
"Don’t cut corners when purchasing home insurance," said Orlando Frasca, an insurance specialist at Rogers Insurance Services in Danville, Cal. "Consumers often look at the lowest price as opposed to what they are getting for that price, only to find out certain coverages they thought they have were not included on the policy."
SHARE ON
By Ralph Dibugnara By David McMillin March 24, 2025 Key takeaways Before you start looking for homes, take time to evaluate your finances and improve your credit score. There’s a big difference between meeting the minimum credit score requirement and showing your lender a credit score well above 750. Remember to account for the variable expenses of owning a home, which include insurance, property taxes, maintenance and repairs. While sellers still have the edge in most parts of the country due to limited inventory, buyers are gaining more bargaining power. Work with an expert real estate agent to develop a negotiation strategy and score a better deal on your first home. If you’re still renting your place, the thought of buying a home can feel pretty overwhelming. A recent TD Bank survey of first-time homebuyers found that 64 percent of people who have never owned a home are concerned about affordability due to high mortgage rates. Despite those worries, nearly half are working to save up for a down payment. If you’re one of them, read on for some money-smart moves that can put you on the path to successfully buying a home. House hunting tips for first-time homebuyers 1. Check your credit (and work on it) The higher your credit score, the better the interest rate on your mortgage. Pull your reports Thoroughly understand where your credit stands by pulling a free copy of your report at AnnualCreditReport.com. It’s not a one-and-done free ticket, either; the site lets you pull your report every week without paying anything. It’s important to note that your credit report may look different depending on the credit bureau. There are three main credit reporting bureaus in the U.S.: Experian Equifax TransUnion It’s wise to look at all of your reports because you never know which report a lender will analyze. “Look for any errors or past-due accounts that might have gone to collections,” says Ralph DiBugnara, president of New York City-based Home Qualified, an online resource for homebuyers. “These liabilities can create roadblocks when you apply for a home loan. If anything is amiss, contact the creditor to see if you can sort it out.” Fix and then monitor your credit In addition to contacting a bureau if you spot any mistakes, follow these steps to keep your credit in the best shape possible: Pay down your credit card balances: Most lenders like to see a credit utilization ratio of 30 percent or less, according to Lindsey Shores, business development manager with SchoolsFirst Federal Credit Union. “For many people, this number is something they have to plan for and work to pay down to achieve,” she says. If you’re over that number, try to pay down your balances. Pay your bills on time: Follow this step whether you’re trying to buy a house or not — you can make or break your credit by making your payments on time every month. Take advantage of free credit monitoring tools: Many banks have free credit monitoring tools built into their mobile apps, giving you the ability to check your credit score easily and more frequently. “You’ll get notified if your credit score changes, or if there’s suspicious activity on your report,” says DiBugnara. 2. Nail down your budget When you’re building a budget to narrow your search for properties, don’t just think about how much house you can afford, but how much in recurring costs you can handle once you’ve purchased your home. Consider these key items: Principal and interest: This will be the bulk of your monthly payment, and if you take out a fixed-rate mortgage, this chunk will never change over the course of the loan. Homeowners insurance: How much you’ll pay to protect the property can vary widely. If you’re buying in an area with higher risks for flood, wildfire or other severe weather, you’ll need to be prepared for higher, ever-increasing premiums. Property taxes: Your property taxes will look different depending on the location, and, in most cases, will increase as your home’s value increases and/or your local government needs to raise them for their budget. HOA fees: If you’re looking at condos or homes in a homeowners association, ask how much you’ll pay each month in HOA fees. If you’re looking at buildings with a gym, pool and other amenities, these can get very steep. In addition to these expected expenses, it’s a good idea to put aside some money regularly for maintenance and unexpected repairs. “As a rule of thumb, I tell clients to prepare to spend 1 percent to 3 percent of the value of their homes each year on house [expenses],” says Steve Sivak, a certified financial planner and managing partner of Innovate Wealth. You might need to set aside more if the home you end up buying is older, bigger or has maintenance-heavy amenities, such as a pool. 3. Consider your needs and wants Finding the ideal location and address can take more time than you expect, so begin scouting neighborhoods early in the process. “Drive and walk around that area at different times of the day and night,” says Bill Golden, a Realtor and associate broker with Keller Williams Realty Intown. “This will help you get a feel for what you like and don’t like.” Along with pinpointing the neighborhood, now is a good time to narrow down your preferences for the home itself by considering these essential questions: What type of house are you looking for? What can you compromise on? What are the dealbreakers? Are you willing to look at older properties that may require some updates, or do you want a move-in-ready property? Think about what you like and dislike about where you currently live — that can help inform your list of needs and wants. 4. Get finances in place Regardless of income level, you should be able to document to potential lenders that you have a stable source of earnings. “Your income and how much you earn monthly will be scrutinized by lenders, who will look for a two-year employment history and want to see consistent income — whether you’re receiving a salary, hourly pay or are self-employed,” says Tom Hecker, a loan officer with Cherry Creek Mortgage. If you’re self-employed, be ready for closer scrutiny than someone getting a salary or hourly wage. In terms of your liquid funds and overall financial health, in addition to reviewing your credit report, mortgage lenders typically look at your bank statements from the last two months when assessing your application. If you plan to make any deposits into your checking or savings accounts from other assets — such as a down payment gift — do it before that 60-day window. This gives the funds time to “season.” And it’s best to avoid opening new credit accounts or loans, or racking up more debt, at this stage, DiBugnara adds. All those activities could possibly ding your credit report. Learn more: How to save for a down payment Tips for finding the right mortgage 5. Comparison shop mortgage lenders At this point, you should know what monthly payment you’re comfortable with, what areas you can afford and how much you can put down. Now it’s time to shop for a mortgage. Consider these factors: Comparison shop: Compare mortgage rates from at least three different types of lenders, as well as different types of mortgages. What others have to say: Read customer reviews for lenders online to get a sense of what the experience is like with individual lenders. Interactions with the lender: Even “in this market, you can find competitive rates and service, but you want to pay close attention to lenders’ responsiveness and communication,” says DiBugnara. The mortgage terms: It’s also a good idea to focus on not just the rates lenders quote you but also all the mortgage terms. What are the late fees? What are the estimated closing costs? Is there a prepayment penalty? If you’re able to get a mortgage with the bank where you already have accounts, will you get a better deal? Sometimes, it makes sense to choose a loan with a slightly higher rate if the other terms are more favorable overall. Learn more: Different types of mortgage lenders 6. Get preapproved Once you settle on a lender, get preapproved for a mortgage. This will require documentation of your income and finances, and organizing your paperwork in advance can help the process run smoothly. It will also prepare you for mortgage underwriting, which will require similar documentation. Unlike prequalification, which is a projected loan size you’ll be able to get, a preapproval is an official letter from a lender stating exactly how much it will loan to you. A preapproval will put you in a much stronger position when you’re making an offer on a house, and it will ease the process once your offer has been accepted and you’re actually applying for your loan. Preapprovals usually expire after 90 days, says DiBugnara, so ask your lender how long yours will be good for. If you’re a first-time homebuyer with significant debt or so-so credit, you might want to apply for a preapproval as soon as possible to identify issues to fix. “Once you have a preapproval in place, keep sticking to your budget and savings plan and continue to pay all debts on time,” says Hecker. “Try not to make any extraordinary purchases or take on extra debt, either.” 7. Look for down payment assistance There are many first-time homebuyer and down payment assistance programs, including at the local, regional and national level, that can help cover your down payment or closing costs. These aren’t for everyone, though. To score some down payment assistance, be prepared for these eligibility requirements: Earn less than a specific amount per year, which typically varies by location and household size Purchase a home that does not exceed a maximum amount, which can vary based on targeted and non-targeted areas Take out a loan offered in conjunction with the state housing authority These programs are typically limited to borrowers with an income below a certain level (based on location), and can impose a cap on the home’s price, too. Keep in mind that many of these programs have terms that stipulate you must live in the home for a certain period of time to qualify for forgiving the loan and/or avoiding a recapture tax penalty that can come into play if you sell the property earlier than expected and earn a profit. Often, your loan officer can provide info on the available programs and what you might be able to pair with your mortgage. Tips for buying your first home 8. Work with a real estate agent After you have your financing squared away and a preapproval letter in hand, your next step as a first-time homebuyer is to hire a real estate agent or Realtor. An experienced real estate agent who knows the area you’re looking to buy in especially well can advise you on market conditions and whether homes you want to make offers on are priced properly. Your agent can also identify potential issues with a home or neighborhood you’re unaware of, and go to bat for you to negotiate pricing and terms. You can start by asking friends, relatives or co-workers for referrals. Interview several prospective agents to get a feel for who may be a solid match in terms of personality and expertise. “Don’t just pick [an agent] blindly — make sure it’s someone who works in the general area you’re looking in and whom you feel comfortable with,” says Golden. Offerings “come up every day, and a good Realtor will be on top of that and get you to see new listings as soon as they become available.” 9. Negotiate with the seller Even when you see the home of your dreams, don’t be afraid to negotiate the price with sellers. While it’s difficult in red-hot real estate markets, some areas of the country are beginning to see more homes sell for less than the asking price. As you work to get a good deal, consider these bargaining tactics: Use comps to justify a lower offer. A low offer can offend a seller, so work with your agent to look at comps that justify why a seller should consider your terms. Did a nearby property with an additional parking spot recently sell for the same amount? Are there other similar homes with nicer amenities listed for less? Back up your bargaining with evidence from the rest of the market. Ask for concessions based on the home inspection report. Is some of the electrical wiring incorrect? Does the furnace seem like it’s nearing the end of its lifespan? Are the windows going to need to be replaced soon? If your home inspector uncovers some minor issues with the home, don’t be afraid to ask for concessions that will require the seller to cover a chunk of your closing costs. And if the inspector uncovers some major issues, be aggressive in your negotiations — and don’t be afraid to walk away from the deal altogether. Request a different closing timeline. Negotiating your home purchase isn’t just about money; it’s also about time. Depending on your needs, you can ask the seller for a closing date that gives you more or less time to get the deal done. For example, if you really want to avoid paying another month of rent, don’t be afraid to request that the seller be prepared to move out earlier. 10. Draw up a contract When you find a home and prepare to make an offer, work with a real estate attorney to spell out any conditions or situations that will allow you to walk away from the deal. These are known as contingencies, and they often include: Major issues with a home inspection Mortgage application denial A lower appraisal than the offer price If these terms are spelled out in writing with deadlines, you’ll have an out if the transaction doesn’t go as planned — and get your earnest money deposit back, too. Bottom line For a first-timer, buying a home can feel overwhelming and endless. But breaking down the process into steps and tackling them one at a time can help you stay focused and get the job done. Doing your research in advance and working with a trusted real estate agent can help you stay on track throughout the process. Keeping your finances steady and limiting other big-ticket purchases can also help you qualify for a loan and get into your first home.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
By Ralph Dibugnara March 6, 2025 By: Paul Centopani February 26, 2025 https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional Mortgage rate forecast for next week (Feb. 24-28) Mortgage rates came down for the fifth straight week. The average 30-year fixed rate mortgage (FRM) declined to 6.85% on Feb. 20 from 6.87% on Feb. 13, according to Freddie Mac. “The 30-year fixed-rate mortgage has stayed just under 7% for five consecutive weeks and in that time has fluctuated less than 20 basis points. This stability continues to bode well for potential buyers and sellers as we approach the spring homebuying season,” said Sam Khater, chief economist at Freddie Mac. Will mortgage rates go down in March? “With consumer confidence plummeting and a great deal of uncertainty and volatility in the market as the Trump Administration continues to promise high tariffs and mass deportations, there’s been a flight to safety in the bonds market.” -Rick Sharga, CEO at CJ Patrick Company Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% and as high as 7.79%, according to Freddie Mac. That range narrowed in 2024, with a spread of 6.08% to 7.22%. Find your lowest mortgage rate. Start here (Feb 27th, 2025) With the economy possibly heading into a recession, we may have already seen the peak of this rate cycle. But if inflation rises, mortgage rates could uptrend. Of course, interest rates are driven by many factors and notoriously volatile, so they could change direction any given week. Experts from Realtor.com, First American, Home Qualified and CJ Patrick weigh in on whether 30-year mortgage rates will climb, fall, or level off in March. Expert mortgage rate predictions for March Ralph DiBugnara, president at Home Qualified Prediction: Rates will moderate “The market is starting to slowly but steadily see some small movement of mortgage rates coming down. I believe March will be around the same averages we have seen through February. Historically, we would see the greatest drop in mortgage rates come during the spring buying season. If inflation ticks down and consumer spending slows along with increased seasonal home buying, we should see a significant reduction in interest rates.” Hannah Jones, senior economic research analyst at Realtor.com Prediction: Rates will moderate “Mortgage rates are likely to remain high through March. We may see some volatility as markets weigh the implications of the Trump administration’s various economic proposals and policy actions. PCE inflation data could influence rates, especially if it comes in higher-than-expected. Overall, we expect both inflation and mortgage rates to be higher for longer than initially expected, but the path is not yet clear due to considerable policy uncertainty.” Rick Sharga, CEO at CJ Patrick Company Prediction: Rates will moderate “With consumer confidence plummeting and a great deal of uncertainty and volatility in the market as the Trump Administration continues to promise high tariffs and mass deportations, there’s been a flight to safety in the bonds market, driving down bond yields. Because of those lower yields, we’re seeing what is probably a temporary dip in mortgage rates, which could reverse course suddenly if the next inflation report comes in higher than expected. But for now, it looks like rates for a 30-year fixed-rate loan will rest somewhere between 6.75-7.0% for at least the next few weeks, while the market settles into its new reality.” Sam Williamson, senior economist at First American Prediction: Rates will moderate “With a strong U.S. labor market and inflation running hotter than anticipated, the Federal Reserve is likely to hold off on cutting interest rates at its upcoming March meeting. This limits downward pressure on 10-year Treasury notes, which mortgage rates tend to follow. Consequently, we expect mortgage rates to remain stable in March, fluctuating in the upper 6% range.”
By Ralph Dibugnara February 27, 2025 By Erik Martin February 4, 2025 Best Ways to Tap Home Equity for Home Improvements | Mortgages | U.S. News Using your home equity financing products may allow you to borrow more at a lower interest rate compared to credit cards or personal loans. Key Takeaways Tapping into home equity can provide substantial funds for home improvements at lower interest rates than personal loans or credit cards. Home equity loans, HELOCs, cash-out refinances and FHA 203(k) rehab loans have distinct advantages and drawbacks. While using home equity for renovations can enhance property value, it's crucial to consider closing costs, foreclosure risk and the impact of fluctuating property values. Thanks to strong home appreciation, Americans have accumulated $35 trillion in home equity, which can fund renovations and improvements that boost their home's appeal and resale value. There are several popular ways to liquidate home equity, including a home equity loan, home equity line of credit, cash-out refinance and FHA 203(k) rehab loan. Homeowners should consider each home improvement loan's pros and cons and determine which option will best meet their needs. You don't necessarily have to pull from your home equity to fund a major remodel or other home improvement goal. Other options include taking out a personal loan, using credit cards, or applying for a personal line of credit from a bank or lender. However, a home equity loan or line of credit is often a smarter move. Loans backed by home equity are less risky for lenders, so their interest rates are lower and terms are more favorable. Take a closer look at the advantages and disadvantages of using home equity to improve your property. SEE: Best Home Equity Loans Pros of Using Home Equity for Remodel You Can Borrow More If you have a lot of unused home equity, you may qualify to borrow a lot more than the limits imposed by non-home-equity financing options, like personal loans or credit cards. Consider that the average home renovation project budget in 2025 is more than $52,000, with typical expenses ranging from around $19,000 to more than $88,000 for most homeowners, according to digital marketplace HomeAdvisor. "You are borrowing against your home when you tap home equity, and right now people are sitting on a ton of equity," says John Horton, senior vice president of mortgage lending with A and N Mortgage Services Inc. "Over the last seven to eight years, the average increase in home equity has been between 9% and 10% per year." Interest Rates Are Lower Home equity financing products typically offer lower interest rates than credit cards or loans not backed by real estate. Paying a lower rate means potentially saving thousands over the life of your loan. A Flourish chart Enjoy Longer Repayment Terms Home equity repayment terms generally run between five and 30 years. Extending repayment reduces your payment and can make the loan more affordable. Most personal loan providers set their maximum term at five to seven years. Reap Tax Savings "You could be eligible for a tax deduction on the interest you pay for a home equity loan or HELOC if you use it for a home improvement project, although you'll need to consult with your tax advisor to see if you qualify," says Aaron Craig, vice president of mortgage and indirect sales for Georgia's Own Credit Union. Cons of Using Home Equity for Remodel You'll Pay Closing Costs Expect to pay 2% to 5% of the loan amount or credit limit at closing. Fees and interest rates can vary widely among lenders and products, so it's important to compare. Your Home Is at Risk Home equity financing is secured by your home. Missing home equity loan payments could lead to default and foreclosure, even if your first mortgage is in good standing. You May Pay More Interest Than You Think The longer repayment terms available with home equity financing are a double-edged sword. That's because extending the repayment period to lower what you pay each month increases your interest cost over the life of the loan. You can calculate the total interest expense by multiplying the monthly payment by the number of scheduled payments and then subtracting the loan amount. Interest Rates and Payments Can Increase Many HELOCs come with variable interest rates that can change your payment and costs significantly over the life of the loan. In addition, HELOC terms are divided into a drawing phase, typically five to 10 years, during which the borrower can make a minimum or interest-only payment. Once the drawing period ends, the entire balance must be repaid over the remaining loan term, and payments can rise sharply. Many borrowers are unprepared for this. Getting Approved Could Take Longer The lender must appraise the property in addition to evaluating your credit history, income and debts. "Since it is a loan secured on your home, home equity financing usually takes a little longer to fund than a consumer loan alternative, like an unsecured personal loan. But this isn't a big deal unless you are under a tight deadline and need the money quickly," Craig says. It Could Lead to Negative Equity Tapping a substantial portion of your home's equity can be risky if property values decline, leading to negative equity. This occurs when your outstanding loan balance surpasses your home's current market value, thereby limiting your ability to refinance or sell the property. Calculate: Use Our Free Mortgage Calculator to Estimate Your Monthly Payments. Best Home Improvement Loans Now that you have a better idea of the pluses and minuses of going the home equity financing route, which borrowing vehicle is best for you? HELOC A HELOC is a flexible line of credit that works similarly to a credit card. You can borrow as needed up to a preset limit and only pay interest on the amount you use. HELOC lenders generally allow total borrowing against 80% to 90% of the home's value. If your home is worth $100,000 and you owe $70,000 on your existing mortgage, you may be able to borrow an additional $10,000 to $20,000 with a HELOC. The interest rate on a HELOC is typically variable, meaning it can fluctuate depending on market conditions. Some lenders offer fixed-rate HELOCs or convertible HELOCs, which give the borrower more control over their interest rate and payment. A HELOC operates in two main stages: the draw period and the repayment period. During the draw period, you can borrow against the line of credit and are only required to make minimum or interest-only payments on your balance. The draw period typically lasts five to 10 years. Once the loan moves into the repayment phase, you can no longer access the credit line. The required payment will be adjusted to cover your interest and pay off your balance during the remaining loan term. "HELOCs are a great way to access home equity, acting almost like a credit card on your home," says Ralph DiBugnara, president of Home Qualified. "This is a line of credit that traditionally follows the prime borrowing rate, which historically is somewhere between 0.35% and 0.5% above the average 30-year mortgage interest rate. Right now, however, that is a disadvantage because it's providing a rate in the mid- to high-7% range." Even a HELOC with a variable interest rate won't necessarily cost you more than a fixed-rate home equity loan. "Your payments could actually decrease if interest rates fall. Interest rates are usually lower on a HELOC than on a home equity loan," Craig says. Home Equity Loan As with a HELOC, you can likely borrow against 80% to 90% of your property value with a home equity loan. You receive a lump sum when you close your loan, and you repay it with fixed monthly payments. Home equity loan terms typically run between usually five and 20 years, with some lenders offering up to 30 years. "It's a solid choice if you have a well-planned project and can comfortably manage the repayments," says Carl Holman, director of communication and content for A&D Mortgage. However, you could underestimate the project and end up needing more money than you agreed to borrow, "or you could overspend by borrowing more money up front than what the project ends up costing," cautions Craig. "You also have limited flexibility to borrow any more funds using your home equity if additional dollars are needed for the project. That means you'd have to secure an additional loan." Cash-Out Refinance A cash-out refinance involves replacing your existing mortgage with a new, larger loan, allowing you to take the difference in cash. Lenders typically approve cash-out refinances up to 80% of your home's appraised value. "A cash-out refi provides a large lump sum at closing and may come with a lower rate than a home equity loan or HELOC. Plus, the interest could be tax deductible," Holman says. "However, it reset your primary mortgage loan term, which could mean paying more interest over time." Also, closing costs – usually 2% to 5% of your loan amount – could be significant. Cash-out refinancing can be a good option if you're looking to tap into your equity and can secure a better rate for your primary mortgage. Craig adds that a cash-out refinance can be more budget-friendly because you only have one payment to make instead of a monthly bill for your mortgage and a separate bill for your HELOC or home equity loan. However, a cash-out refi can be quite costly if your refinance amount is large and the equity cash-out portion is relatively small. That's because the closing costs apply to the entire mortgage, not just the cashed-out equity. Read: Best Home Improvement Loans. FHA 203(k) Rehab Refi The FHA's 203(k) Rehabilitation Mortgage Insurance program enables homebuyers to finance both the purchase and renovation costs of a property with one loan. If you already own a home, you can also refinance your existing mortgage while incorporating the costs of necessary repairs or improvements into the refinance. This approach is particularly advantageous if you have little equity, as the refinance loan-to-value is based on the improved value of the property, not its current value. The limited 203(k) loan allows financing up to $75,000 for non-structural repairs and improvements, such as kitchen remodels or new carpeting. There is no minimum borrowing amount, and it's suitable for minor renovations. The rehabilitation period for this loan is nine months. The standard 203(k) loan covers more extensive renovations, including structural repairs, and has a minimum borrowing amount of $5,000. It mandates the involvement of a 203(k) consultant to oversee the project and has a rehabilitation period of 12 months. "These loans are accessible to borrowers with lower credit scores and smaller down payments and offer a streamlined option for smaller projects," Holman says. "However, it requires more paperwork, FHA inspections, and mortgage insurance premiums, and it's limited to primary residences. But it's a solid choice for buyers tackling major renovations." Which Is the Best Option for You? The right home equity financing choice for you depends on your needs, budget, timeline and other factors. A home equity loan is best for a borrower who currently has a very low interest rate on their first mortgage, can afford additional loan payments, has a pretty good idea of how much the home improvements are going to cost, and likes the stability of a fixed rate and fixed term. A HELOC is better for someone who isn't quite sure how much home improvements are going to cost and wants some flexibility but is OK with a variable interest rate. If you have a high interest rate on your first mortgage and can benefit from refinancing to a lower rate, a cash-out refinance could be a good option. A homeowner with low equity and limited funds available should consider an FHA 203(k) loan.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
By: Ralph DiBugnara February 6, 2025 Mia Taylor Michele Petry January 27, 2025 Key takeaways Late spring and early summer are typically considered peak homebuying season. However, the increased competition among buyers can lead to higher prices. Buyers hoping to score a deal may want to wait until fall or winter, when competition — and prices — typically ease. Historically, spring and summer have been the busiest times in the real estate market. But the traditional seasonality of homebuying and selling was upended by the pandemic: Home sales slowed significantly amid stay-at-home orders, then dramatically spiked, and the market remained volatile for quite some time. The good news is, things have since returned to something closer to normal. One positive sign: After years of a distinct lack of available homes for sale, which kept homebuyers at a disadvantage, Realtor.com is forecasting an 11.7 percent increase in existing housing inventory for 2025. This increase would bring more balance to the supply-and-demand metric — and also more leverage for buyers. In other words, seasonality may once again become the most important factor in determining the best time of year to buy a house. Here’s what to know about buying in high season versus buying in a more traditionally slow period. Buying a house in spring or summer Spring and early summer are the busiest and most competitive time of year for the real estate market. There’s usually more inventory listed for sale than other times of year, and home prices tend to be steeper to reflect the increased demand. Since 2011, the months of February through June have been the most lucrative time to sell, according to a 2024 study by ATTOM Data Solutions, with May in particular earning sellers an average premium of 13.1 percent above market value. The other months in the range all yielded premiums ranging from 12.2 percent to 12.8 percent. “Typically, sellers choose spring and summer as the time to list as the majority of buyers are out in the market,” says Ryan Jancula, principal and lead broker with Jancula Group at Compass in Los Angeles. “This is a double-edged sword for a buyer, as you will be met with more opportunities but [also] much more competition, which may lead to further increase in prices or less desirable sale terms.” If you’re hoping to save some money and your timeline is flexible, consider waiting until the rush is over and not starting your home search until mid- or late-summer. Keep in mind: The most expensive month of the year to purchase a home is May, when seller premiums are as high as 13.1 percent above market value, according to ATTOM data. Pros More listings: The increase in springtime and summertime listings means buyers have more options. “Spring is when the most inventory comes to market and there is likely more choice,” says Victoria Vinokur, a broker with Brown Harris Stevens in New York City. Better weather: During warmer months, buyers are more easily able to get out and about to see homes. Home exteriors are easier to see with no snow, and interiors look more inviting when there’s plenty of sunshine coming in. More convenient timing: “If buyers have school-age kids, this is the best time to purchase so it doesn’t break up the school year,” says Jane Katz, a New York City real estate agent with Coldwell Banker Warburg. “The transaction should close by [the end of] summer, so kids can start in their new school in September.” Cons Increased competition: This is often the peak time for the real estate industry, which means more buyers are on the hunt — so expect plenty of competition. Higher prices: With increased competition comes multiple bids and, likely, higher home prices. Sellers have the upper hand when demand is strong. Moving costs: Moving is expensive, and moving companies’ prices are also impacted by supply and demand. Come summer, when demand increases, so will the prices you’ll pay to hire pro movers. The same move will cost you less during winter. Buying a house in fall or winter Buying off-season has its benefits, though. The ATTOM study, which analyzed 59 million single-family home and condo sales between 2011 and 2023, showed that October is the month with the lowest seller premium by far at 8.8 percent, compared to May’s 13.1 percent. The next lowest were September and November, both at 9.5 percent. That means October is when homebuyers are likely to get the best deal. In fact, a recent Zillow report declared early fall to be “the next housing sweet spot.” Keep in mind: The least expensive month of the year to purchase a home is October, when seller premiums are at their lowest, according to ATTOM. “Late summer and winter tend to be quieter, with a better chance for a buyer to find less competition and a deal,” says Ralph DiBugnara, a vice president at New American Funding and founder of Home Qualified. Pros Less competition: Fewer buyers are looking for homes during the winter, which means there’s less competition to face for available listings. Less-intense competition also typically means more time to spend making a decision. More leverage: With fewer buyers, there’s more opportunity to negotiate the best deal possible. “In winter and especially around national holidays, sellers will see less buyer traffic and be more willing to negotiate,” says DiBugnara. Motivated sellers: During the quieter fall and winter months, when fewer prospective buyers are shopping, home sellers may be more willing to lower their prices, or offer concessions, to attract those prospective buyers who are still looking. Cons Less inventory: Fewer homes are typically listed on the market during winter, which means fewer choices for buyers. Weather issues: Depending on where in the country you live, winter weather can make viewing homes far more challenging. Closings may even be postponed due to adverse weather conditions. Home inspection difficulties: It can also be more difficult to inspect homes in cold weather. If there’s snow coating a roof, for example, it can be challenging for an inspector to assess its condition. Best time to buy a house: Prices and seasonality Just because spring is the industry’s prime time doesn’t automatically mean it’s the right time for you. You have to consider your personal circumstances as well as seasonality — for example, if you are getting married or having a baby in August, you may not be able to wait nearly a year for a larger home. “While spring is typically referred to as the homebuying season, that doesn’t necessarily guarantee that it is an optimal time to buy,” says Mark Hamrick, Bankrate’s senior economic analyst. In addition, if price is of concern to you, you may in fact be better off waiting out the rush. This chart illustrates median home prices since the start of the COVID-19 pandemic, using data from the National Association of Realtors. Once the chaos of the early pandemic died down, the highest price spikes were uniformly in June or July, and the lowest prices occurred in the dead of winter. Other factors to consider A number of other factors can impact when might be the best time to buy a house. Here are a few more things to consider. Mortgage rates: Mortgage interest rates are not seasonal, but they certainly fluctuate. Throughout 2023, rates spiked sharply. They then dropped, then rose again. And despite high hopes, the Fed cuts in 2024 did not provide much relief for mortgage rates, which remain elevated. “While mortgage rates have edged down from their highs, they are likely to remain above their pre- and early-pandemic levels, when 3 percent to 4 percent rates were common,” says Hamrick. Lack of inventory: The shortage of available homes that plagued the country for the past few years has begun to ease, but home prices remain stubbornly high. Realtor.com predicts prices will continue to inch upward throughout 2025, albeit somewhat more slowly than previous years. Recession fears: When consumers feel nervous about the economy, especially amid talk of a possible recession, they tend to back off of spending. This holds particularly true for big purchases like a home. If you worry about your income or job security should a recession happen, waiting to buy might be wise, regardless of season.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
By Ralph Dibugnara January 16, 2025 How to get a home equity loan with bad credit Linda Bell, Troy Segal January 8, 2025 Key takeaways A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. It does mean the loan will be more expensive, as you won’t get the lowest interest rate. It’s possible to get a home equity loan with a fair credit score — as low as 620 — as long as other requirements around debt, equity and income are met. Strategies for getting a loan despite your bad credit include taking on a co-signer, applying to a place where you currently bank, and writing a letter of explanation to the lender. Alternatives to a home equity loan include personal loans, cash-out refinances, reverse mortgages and shared equity agreements. Can you get a home equity loan with bad credit? Yes, you can. A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income. That’s not to say it’ll be easy: Lenders tend to be stringent with these loans even more so than they are with mortgages. Still, it’s not impossible. Here’s how to get a home equity loan (even) with bad credit. Requirements for home equity loans Not all home equity lenders have the exact same borrowing criteria, of course. Still, general guidelines do exist. Typical requirements for home equity loan applicants include: A minimum credit score of 640 At least 15 percent to 20 percent equity in your home A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases On-time mortgage payment history Stable employment and income To learn a specific lender’s requirements for a home equity loan, you’ll need to do some research online or contact a loan officer directly. If you aren’t ready to apply for the loan just yet, ask for a no-credit check prequalification to avoid having the loan inquiry affect your credit score. What are “good” and “bad” scores for home equity loans? First, let’s define our terms. Here’s how FICO — the most popular credit scoring model — categorizes different scores: Score Classification 300-579 Poor 580-669 Fair 670-739 Good 740-799 Very Good 800-850 Excellent Source: MyFico.com When it comes to home equity loans, lenders set a high bar for creditworthiness — higher, even, than mortgages. That’s because they are considered riskier than mortgages: You, the applicant, are already carrying a big debt load. Should you default and your home get seized, the home equity loan — as a “second lien” — only gets paid after the primary (the original) mortgage. Furthermore, home equity loans don’t have a robust secondary market they can be sold on, like most mortgages do. So the lender usually bears all the risk of originating and then keeping them. Bankrate insight In June 2024, government-sponsored enterprise Freddie Mac began a pilot program that involved purchasing certain single-family, closed-end second mortgages (aka home equity loans), creating a trial secondary market for them. As a result, home equity lenders set stricter criteria, demanding scores squarely in the “fair” range. A score in the 500s – good enough for an FHA mortgage — will have a tough time qualifying for a home equity loan. Some lenders have loosened their standards of late and are approving applicants with scores as low as 620. But a “good” score, preferably above 700, remains the threshold for many institutions. It can vary even within one lender, depending on factors like the loan amount or other loan terms. And of course — as with any loan — the lower your credit score, the less likely you will qualify for the best interest rates. How to apply for a bad credit home equity loan Before applying for a home equity loan, remember that it’s not just a question of getting the financing, but also how you can overcome a lower credit score to get the best possible rate. Here are some steps to take: 1. Check your credit report Check your credit reports at AnnualCreditReport.com to get a sense of where you stand. If there are any errors, like incorrect contact information, contact the credit bureau — Equifax, Experian or TransUnion — to get it updated as soon as possible. 2. Determine your equity level To qualify for a home equity loan, lenders typically require that you own at least 15 percent or 20 percent of the home outright. The amount of equity you have, your home’s appraised value and your combined loan-to-value (CLTV) ratio help determine how much you can borrow. Home equity loan calculator Bankrate’s home equity loan calculator can estimate your potential home equity loan amount. Visit the calculator Here’s a quick way to calculate your equity: Take the value of your home and subtract the balance left on your mortgage. While lenders will only consider the official appraised value of your home when determining how much you can borrow, you can get an idea of your home’s value through Bankrate or a real estate listing portal or brokerage. Let’s say your home is worth $420,000 and you have $250,000 to pay on your mortgage: $420,000 – $250,000 = $170,000 In this example, you’d have $170,000 in home equity. That doesn’t mean you can borrow $170,000, however. If the lender requires you to maintain at least 20 percent equity, you’d need to preserve $84,000 ($420,000 * 0.20). That leaves you with the potential to take out a home equity loan of up to $86,000 ($170,000 – $84,000). Remember: When taking out the loan, make sure your combined loan-to-value (CLTV) ratio — the total of all your home-based debt — is within the lender’s limit, typically 80 percent or lower. 3. Find out your DTI ratio The DTI ratio is a measure lenders use to determine whether you can reasonably afford to take on more debt. To calculate your DTI ratio, simply divide your monthly debt payments by your gross monthly income. For example, say you bring in $6,000 a month in income and have a $2,200 monthly mortgage payment and a $110 monthly student loan payment: $2,310 / $6,000 x 100 = 38.5% To make things even easier, you can use Bankrate’s DTI calculator. For a home equity loan, most lenders look for a DTI ratio of no more than 43 percent. 4. Consider a co-signer If your credit score is making it tough for you to get a home equity loan, taking on a co-signer with better credit might score you an approval. A co-signer is just as responsible for repaying the loan as the primary borrower, even if they don’t actually intend to make payments. If you fall behind on loan payments, their credit suffers along with yours. The extra guarantee they provide might get you over the hump if your credit is iffy. But you still have to basically qualify on your own. “A co-signer can help with credit and income issues for an applicant who has a lower credit score, but ultimately the main applicant or primary borrower will have to have at least the bare minimum credit score that is required based on the bank’s underwriting guidelines,” says Ralph DiBugnara, president of Home Qualified, a real estate platform for buyers, sellers and investors. 5. Try a lender you already work with If your bank, credit union or mortgage lender offers home equity products, it might be able to extend some flexibility, or at least help with your application, since you’re an existing customer. “A loan officer familiar with the details of an applicant’s situation can help them present it to an underwriter in the best possible way,” says DiBugnara. 6. Write a letter to the lender Write a letter of explanation describing why your credit score is low, especially if it has taken a recent hit. This letter should matter-of-factly explain credit issues — avoid catastrophizing — and include any relevant paperwork, like bankruptcy documentation. If your credit score was impacted by late payments due to job loss, for example, but you’re employed now, your lender can take this context into consideration. Lenders that offer home equity loans with bad credit There are home equity lenders that offer loans to borrowers with lower credit scores. (See FAQ, below). Here are some to consider, along with their requirements: Lender Bankrate Score (scale of 1-5) Loan types Credit score minimum Maximum CLTV Maximum DTI Figure 4.2 HELOC 640 75%-90% Undisclosed Rate 4.1 HELOC 620 90%-95% 50% Spring EQ 4.1 Home equity loan, HELOC 640 for home equity loans, 660 for HELOCs 90% 43% TD Bank 3.8 Home equity loan, HELOC 660 90% Undisclosed Connexus Credit Union 4.2 Home equity loan, HELOC 640 90% Undisclosed Discover 4.0 Home equity loan 660 90% 43% Learn more: Home equity lender reviews and ratings Pros and cons of getting a home equity loan with bad credit Getting a home equity loan with bad credit has its benefits and drawbacks. You can tap your equity to help with expenses, but it’s also risky. Pros Access to funds: A home equity loan gives you a significant amount of cash at your fingertips, which can help you pay for home improvement projects, consolidate high-interest debt and tackle big-ticket expenses. You’ll pay a fixed rate: Home equity loans are for a fixed sum at a fixed interest rate, so you’ll know exactly how much your payment is each month. This can help you budget for and reliably pay down debt, which can help boost your credit score. You could get out of costlier debt: If you have high-interest debt — like credit card debt — you could pay it off with a lower-rate home equity loan, then repay that loan, with one payment, for less. Cons You’re taking on more debt: If you’ve had trouble managing money in the past, it might not be wise to take on more debt with a home equity loan, even if you qualify. It’ll be more expensive: A lower credit score won’t qualify you for the best home equity loan rates, meaning you’ll pay more in interest. You could lose your home: If you fall behind on loan payments, you’ll further damage your credit. Even worse: If you’re eventually unable to pay back the loan, your home could go into foreclosure. Learn more: Pros and cons of home equity loans What to do if your home equity loan application is denied If your application for a home equity loan is rejected, don’t despair. First, ask the lender for specific reasons why your application was denied. The answer can help you address any issues before applying in the future. If your credit was one of the deciding factors, you can improve your score by making on-time payments and paying down any outstanding debt. If you don’t have enough equity in your home, wait until you’ve built a bigger stake (mainly by making your monthly mortgage payments) before submitting a new application. Both these approaches may take a half-year to a year to make a significant difference in your credit profile. If you’re in more of a hurry, consider applying to other lenders, as their criteria may differ. Just bear in mind that more lenient terms often mean higher interest rates or fees. And of course, you can consider other forms of financing. Home equity loan alternatives if you have bad credit If you need cash but have bad credit, a home equity loan is just one option. Here are some alternatives: Personal loans Personal loans can be easier to qualify for than a home equity product, and they aren’t tied to your home. Personal loans have higher interest rates, however, and shorter repayment terms. This translates to a more expensive monthly payment compared to what you might get with a home equity loan. Cash-out refinance In a cash-out refinance, you take out a brand-new mortgage for more than what you owe on your existing mortgage, pay off the existing loan and take the difference in cash. Most lenders require you to maintain at least 20 percent equity in your home in order to cash out. A caveat, however: A cash-out refi makes the most sense when you can qualify for a lower rate than your current mortgage’s, and if you can afford the closing costs. With bad credit, getting that lower rate might not be possible. Reverse mortgage Reverse mortgages allow homeowners over the age of 62 to tap their home’s equity as a source of tax-free income. These types of loans need to be repaid upon your death or when you move out or sell the home. You can use reverse mortgages for anything from medical expenses to home renovations, but you must meet some requirements to qualify. Shared equity agreement Home equity investment companies might work with you even if you have a lower credit score, often lower than what traditional lenders would accept. These companies offer shared equity agreements in which you receive a lump sum in exchange for an ownership percentage in your home and/or its appreciation. Unlike with home equity lines of credit (HELOCs) or home equity loans, you don’t make monthly repayments in a shared equity arrangement. Some companies wait until you sell your home, then collect what they’re owed; others have multi-year agreements in which you’ll pay the balance in full at the end of a stated period. Make sure you understand all the terms of this complex arrangement. Technically, you’re not borrowing money, you’re selling a stake in your home — to a financial professional who naturally wants to see a return on their investment. How to get a HELOC with bad credit Applying for a HELOC is pretty much the same as applying for a home equity loan, but if you have bad credit, a loan might have a slight edge over the line of credit. That’s because home equity loans have fixed interest rates and fixed payments, so you’ll know exactly what you need to repay each month. This predictability could help you better manage your budget and keep up with payments. A HELOC, on the other hand, has a variable rate, which can cause unexpected increases in your monthly payments. For this reason, lenders often have higher credit score criteria for HELOCs than home equity loans. Learn more: What is a HELOC (home equity line of credit)? Tips for improving your credit before getting a home equity loan To increase your chances of getting approved for a home equity loan, work on improving your credit score well before applying — at least several months. Here are three tips to help you rebuild your credit: Pay bills on time every month. At the very least, make the minimum payment, but try to pay the balance off completely, if possible — and don’t miss that due date. Don’t close credit cards after you pay them off. Either leave them open or charge just enough to have a small, recurring payment every month. Closing a card reduces your credit utilization ratio (CUR), which can decrease your score. The recommended CUR: no more than 30 percent. Be cautious with new credit. Getting a higher credit limit on a card or getting a new card can lower your credit utilization ratio — but not if you immediately max things out or blow through the bigger balance. Treat the newly available funds as sacred savings. FAQ on getting a home equity loan with bad credit Is it better to get a home equity loan or a HELOC if you have bad credit? In general, it’s better to get a home equity loan with bad credit. A home equity loan often has a lower credit score requirement compared to a HELOC, and it comes with a fixed interest rate, so your payment will be the same every month, making it easier to plan for. Can you get a better interest rate on a home equity loan with a higher credit score? Yes — in fact, this is the rule for any type of loan, including a home equity product. The higher your credit score, the lower your interest rate. Which banks give home equity loans with bad credit? When searching for a home equity loan with bad credit, check whether a lender indicates what its minimum credit score requirements are for applicants on its website – for any home equity loan, not just for the “as low as” rate (which will be reserved for high-scoring applicants). Often lenders require a minimum score of at least 620, but scores above 700 remain the standard for many institutions. It can also be a good idea to look for borrowing opportunities from non-qualified loan lenders. These types of loans come with more flexible income and credit requirements, but they also tend to have higher interest rates and fees. Many mortgage brokers work with non-QM wholesale lenders, or know of lenders specializing in applicants with iffy credit histories or scores. So a broker can be a good place to look, too.
let us connect you to
investors in real estate
Looking to build a home, buy a fixer upper
& repair or invest in a real estate project long term?
We can connect you to experts who have loan products.
