Better Investing for Beginners

November 11, 2020 &• 10 min read by Comments 0 Comments

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Are you new to investing? Not sure where to start? Investing for beginners can be overwhelming. There are so many moving parts. With that said, we hope the process we’ll show you today will make it easier for you to get started.

What follows are ten steps you can take to become a successful investor. Let’s get started.

1. Work from a Budget

I put your budget first for a reason. It should be obvious. If you don’t know where your money is going, it will be challenging to save and invest consistently. I’m not suggesting you need to be inflexible with your budget—quite the contrary.

However, you need to know where your money is going every month to know to analyze areas where you might reduce expenses and increase the amount available to save and invest.

You’ll need to know how much you have left after paying all the bills, funding your emergency fund, and taking care of things like food, clothing, cars, school supplies, and any other expenses you might incur.

What’s left after taking care of all of these things is your discretionary income. That’s where you’ll get the money to invest. That’s where you can determine how much you can put toward funding your various investment objectives (See #2 below).

Tip: You can boost your discretionary income with money making apps and cash back sites like Swagbucks, Honey, and Rakuten.

2. Know Your Why

Before starting any investing, you must know why you’re investing. How will the money invested eventually be spent? When? Will it be withdrawn in a lump sum? Over a period of time?

If you are investing for retirement, what are the best accounts to use? 401(k)? Traditional  or Roth IRA?

If you’re a beginner, perhaps you’re saving to buy your first home. If that’s the case, you shouldn’t invest that money in the same way you’re investing your retirement dollars.

Maybe you’re saving for your kids’ college education. Once again, that money will be invested differently than money for a house or retirement.

Before you put any money to work in investments, know how and when the money will eventually be used.

3. Build Your Emergency Fund

Before you start investing, make sure you have built up an emergency fund. The money you put into your emergency fund should be a part of your budget until you get it to the desired amount.

Like many things in personal finances, how much one should keep in an emergency fund is subjective. At a minimum, you should have three to six months of your monthly expenses set aside in this fund.

If you’re a more conservative person, you might be more comfortable with a one-year cushion in your fund. I know others who have as much as three years set aside in their fund. Managing your monthly expenses by reducing or eliminating unnecessary expenses means you can have a smaller emergency fund.

The reason is simple: if your fund’s size is based on a multiple of your monthly expenses, the smaller your expenses, the smaller your fund. Another way to look at it—if you lower your monthly expenses, whatever amount you have in your emergency fund will last longer.

Either way, be sure to think about how many months you want to be covered and keep that amount or more in this fund.

One last thing on this. Do not invest your emergency fund money in anything that has a risk of loss. Look for an FDIC-insured interest-bearing savings or money market account.

4. Have a Plan

Once you’ve decided why you’re investing your money, it’s time to develop a plan to invest it.

For example, let’s say one of your goals is to invest for retirement. I brought up some questions above about what type of retirement accounts would be best. Here are some other basic questions to answer:

  • When do I want to retire?
  • How much income do I want in today’s dollars?
  • What will my expenses be?
  • What sources of income will I have (Social Security, pension, inheritance, etc.)?
  • How long will the money need to last, or how long do I expect to live?

Once you have that last number, you can work backward to calculate how much you need to save each year based on a given growth rate. If you have 30 years until retirement, need $1 million, and earn 5% on your investments each year, you’d need to save roughly $15,000 every year. Viewed monthly, you’d set aside $1,250. Use a compound interest calculator to figure out what you need for your plan.

If you have a company retirement plan, the bulk of that investment might go into that account. Remember, most employer plans have a matching contribution. Many companies will match your contributions 100% up to 3%, 5%, or more. That’s free money and reduces the amount you need to contribute to reach your $1 million goals.

Use this same calculation method for each goal you’re trying to achieve.

5. Follow Your Plan

I know it seems unnecessary to say this, but many people seem to get distracted, discouraged, or convinced that there is a better way.

If you’ve done the work to calculate how much money you need to fund your goals, how much you need to save, and the kind of return that will get you there, that’s really all that matters. Don’t worry about what others are doing. That’s not to say you shouldn’t listen to others. However, just because someone is doing well for themselves doesn’t mean how they’re doing it is good for you.

Stay focused on the plan you’ve created for yourself. If your circumstances change (job loss, income reduction, health issue, etc.), see how that affects your plan. If need be, make adjustments along the way.

Be sure to calculate how these changes affect your goals and adjust accordingly. Doing this will help keep you on track.

6. Invest Wisely

There are many differing opinions on how to invest your money. There will always be someone who tells you they’re getting a much better return on their investments than you are. Don’t be swayed. No one wants to appear to be stupid. Some need to toot their own horn to make themselves feel better.

It doesn’t matter what someone else is earning on their money at the end of the day. It has nothing to do with what you’re trying to do with your money.

You’ll also hear a lot of noise from the financial and mainstream media. Ignore it for the same reason.

Figure out how much you need to earn to have the amount of money you need when you plan to use it. Apply a conservative return percentage to calculate the annual investment needed. Keep in mind that investment returns are not fixed or linear. They will fluctuate, sometimes pretty dramatically.

Here’s an article that will introduce you to some of the investment options available in 2020 and beyond to help you choose.

7. Be Flexible

We covered this briefly in the section on following your plan. Being flexible means being open to adjusting your plans. Any change in life circumstances should be the reason for any changes you make.

Being flexible doesn’t mean popping in and out of investment funds to chase returns. Chasing returns or timing the market doesn’t work over the long term. Once in a while, people get lucky. But I know of no one, individual, professional, or otherwise, who has had long-term success trading or timing the market.

If your returns lag what you calculated, you can adjust by doing one of two things:

  1. Increase the amount of money you’re contributing to your investments.
  2. Move more of your money into riskier investments with higher expected returns.

There are some caveats to discuss with option #2. No one should take more investment risk than they are willing, able, and need to. Any increase in risk should be incremental. For example, if you have 50% of your money in stocks, adding another 5%­–10% more in stocks may offer the additional return needed without substantially increasing your risk.

That brings us to the next important step in the process.

8. Invest for the Long Term

When we say have a plan, follow a plan, and invest wisely, we are talking about doing that for the long term. Investment success comes over time. 

If you’ve made your plan, determined how much you need to save and invest, and determined how much you need to earn to get there, you’ve done the bulk of the work. Markets reward investors over the long term.

Develop your portfolio based on all of these things, be sure it’s diversified across many asset classes, and stay with it until you reach your goals. It really is that simple.

I said simple, not easy. There will be many distractions along the way that may make you think you need to change your plans or portfolio. Be very careful!

If you’ve done your homework and know what you need to get where you want to go, stick with the plan and tune out all the noise.

9. Monitor Your Investments

Monitoring your investments does not mean changing them all the time. Nor does it mean looking at them every day, week, or month and fretting over what the market is doing. Markets over the short term are very volatile.

Any changes you make should be incremental. Let’s say you want 50% in stocks and 50% in bonds. If you look at your portfolio at the end of the year and see you now have 60% in stocks and 40% in bonds, consider making some adjustments.

Called rebalancing, this means you would sell 10% of your stocks and invest that money into your bonds to keep your allocation at 50/50 stocks/bonds. After all, that’s how you determined you needed to invest your money to accomplish your goals.

Rebalancing keeps you on track. You needn’t rebalance more than once, maybe twice, a year. Market fluctuations often help rebalance the portfolio back to where you need it to be. In other words, the market swings both up and down pretty regularly. When people sell stocks, they often buy bonds. These fluctuations can bring your portfolio back into the balance you want.

10. Have Patience

Patience is one of the hardest principles to keep when investing. That is especially true in volatile times. We’ve had days in 2020 when the market dropped 9% in one day, only to bounce back over the next day or two to erase that one-day drop.

It can be unnerving and make you want to get out of the market. Resist the temptation. Investors who sold out of the market in the financial crises of 2000–2002 and 2008 damaged themselves badly. If they had stayed invested and, better yet, invested more in the market, they likely would have been way ahead.

Rebalance. These market drops are a great way to take advantage of lower prices in either stocks or bonds. If you are not comfortable with these kinds of price swings, you probably shouldn’t be invested in the markets.

The markets reward long-term investors and, more often than not, punish short-term investors. Hang in there. Be patient. Don’t listen to the advice of well-meaning friends, family, neighbors, or coworkers. Turn off the news.

Final Thoughts

I don’t know about you, but I tend to overcomplicate many things. It’s not a good idea when it comes to investing. Please keep it simple. Follow a process, whether it’s these ten steps or something else. Stick with it. Be patient, and do your best to ignore the noise.

People who appear smarter than you often aren’t. Don’t sell yourself short. The plan you set is yours, not anyone else’s. Remember that when other well-meaning people tell you how well they’re doing and how much better you should be doing.

Play the long game. Don’t follow the crowd. They are often wrong. Turn off the noise. That’s a recipe for both investment success and success in life.

Michael Dinich is a personal finance expert, podcaster, YouTuber, and journalist. Michael is the founder of Your Money Geek, a rapidly growing personal finance and pop culture website. Michael has appeared as a guest on numerous personal finance podcasts and blogs. He is passionate about helping others, side hustles, and all things geeky.  

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2021 Conforming loan limits range from $548K to over $1 million

Conforming loan limits increase to $548,250 for most areas

Conforming loan limits are on the rise.

Home buyers in most of the U.S. can now get a conforming loan up to $548,250 with just 3% down.

And the single-family loan limit is over $822,000 in high-cost areas.

Multifamily home buyers get a nice increase in
buying power, too, with limits for 2-4-unit properties topping $1 million in
some areas.

On top of this, we’re seeing ultra-low interest rates carry over from 2020 into 2021.

Put all it together, and you get incredible
purchase and refinance opportunities for home buyers and homeowners alike.

Check today’s conforming mortgage rates (Jan 17th, 2021)

In this article (Skip to…)

Freddie Mac and
Fannie Mae loan limits for 2021

Lending limits for conventional loans got a nice boost this year.

The Federal Housing Finance Agency (FHFA) determined home prices are up 7.42% on average across the nation.

It raised
conforming loan limits by the same percentage — a dollar increase of almost
$38,000 for the standard one-unit home. Multi-unit
properties got a similar boost.

Baseline conforming loan limits

Standard loan limits for 2021, which apply in most of the United States, are as follows:

  • 1-unit homes: $548,250
  • 2-unit homes: $702,000
  • 3-unit homes: $848,500
  • 4-unit homes: $1,054,500

in mind that these are only “standard” limits. In areas with high-cost real estate, buyers get significantly higher mortgage limits.

Maximum conforming loan limits

conforming loan limits vary by county. They can fall within the following

  • 1-unit homes: $548,250­–$822,375
  • 2-unit homes: $702,000–$1,053,000
  • 3-unit homes: $848,500–$1,272,750
  • 4-unit homes: $1,054,500–$1,581,750

such as Alameda County, California, Arlington, Virginia, and Jackson, Wyoming enjoy the maximum conforming loan limits, while cities like Seattle, Washington and
Baltimore, Maryland fall between the “floor” and the “ceiling.”

Alaska, Hawaii, Guam, and the U.S. Virgin Islands — which follow their own loan
limit rules — the baseline loan limit for 2021 is $822,375 for a one-unit

Verify your home buying eligibility (Jan 17th, 2021)

loan limits by county for 2021

What is a
mortgage loan limit?

A loan
limit is the maximum amount you can borrow
under certain mortgage programs.

is not just one loan limit, but many. Conventional mortgages adhere to one set
of loan limits, and FHA another.
VA loans did away with limits altogether in 2020.

In the world of conforming loans, Fannie Mae and Freddie
Mac limit “borrowable” amounts to keep their nationwide programs available to
those who need them.

For instance, Fannie Mae doesn’t want a $10 million loan
going through its system. That’s a lot of risk wrapped up in one
transaction, and the agency would rather issue many smaller loans to more home

loan limits are on the rise in 2021 to reflect rising
home prices across the country.

is a conforming loan?

A conforming loan is any mortgage that:

  1. Has a loan amount within local conforming loan limits
  2. Meets lending guidelines set by Fannie Mae and Freddie Mac

Mortgages within conforming loan limits are eligible to be backed by Fannie Mae and Freddie Mac, as long as the borrower meets basic criteria for credit score, income, down payment, and debt levels.

Conforming loans typically require:

  • A credit score of at least 620
  • A debt-to-income ratio below 43%
  • A down payment of at least 3%
  • Two-year history of stable employment and income

Exact conforming loan requirements
can vary by lender, but they all have to meet the minimum guidelines set by
Fannie and Freddie.

standards give lenders and investors more
confidence in these loans.

As a result, conforming loans are available with ultra-low mortgage rates and just 3% down payment.

Check today’s conforming mortgage rates (Jan 17th, 2021)

What if my
loan is over the conforming limit?

that the conforming loan limit applies to the loan amount, not the home price.

instance, say a buyer is purchasing a 1-unit home in Boulder, Colorado where
the limit is $654,350. The home price is $1 million, and the buyer is
putting $450,000 down.

buyer is eligible for a conforming loan. The final loan amount is
$550,000 — well within limits for the area.

many applicants will need financing above their local loan limit. For
them, a number of solutions exist.

Jumbo loans

simplest method is to use a jumbo loan. Jumbo mortgages describe any home loan
above local conforming limits.

the example above, let’s say the Boulder, CO home buyer puts down $200,000 on a
$1 million home. In this case, their loan amount would be $800,000 — far above
the local conforming loan limit of $654,350. This buyer would need to finance
their home purchase with a jumbo loan.

You might think jumbo mortgages would have higher interest rates, but that’s not always the case.

Jumbo loan rates are often near or even below conventional mortgage rates.

catch? It’s harder to qualify for jumbo financing. You’ll likely need a credit
score above 700 and a down payment of at least 10-20%.

you put down less than 20% on a jumbo home purchase, you’ll also have to pay
for private mortgage insurance (PMI). This would increase your monthly payments
and overall loan cost.

next method helps you avoid PMI when buying above conforming loan limits.

Verify your jumbo loan eligibility (Jan 17th, 2021)

Piggyback financing for high-priced homes

Perhaps the most cost-effective method is to choose a piggyback loan. The piggyback or “80/10/10” loan is a type of financing in which a first and second mortgage are opened at the same time.

Typically, this structure is used to avoid private mortgage insurance.

A buyer can get an 80 percent first mortgage, 10 percent second mortgage (typically a home equity line of credit), and put 10 percent down.

these loans are also available for those putting 20 percent down or more. Here’s how
it would work.

  • Home price: $700,000
  • Down payment: $140,000 (20%)
  • Financing needed: $560,000
  • Local conforming limit: $548,250

buyer could structure his or her loan as follows.

  • Down payment: $140,000
  • 1st mortgage: $548,000
  • 2nd mortgage: $12,000

home is purchased with a conforming loan and a small second mortgage. The first
mortgage may come with better terms than a jumbo loan, and the second mortgage
offers a great rate, too.

Verify your piggyback loan eligibility (Jan 17th, 2021)

What’s the jumbo loan limit for 2021?

Technically there’s no jumbo loan limit for 2021.

Since jumbo mortgages are above the conforming loan limit,
they’re considered “non-conforming” and are not eligible for lenders to assign
to Fannie Mae or Freddie Mac upon closing.

That means the lenders offering jumbo loans are free to set
their own criteria, including loan limits.

For example, one lender might set its jumbo loan limit at $2
million, while another might set no limit at all and be willing to finance
homes worth tens of millions.

But the amount you can borrow via a jumbo or
non-conforming loan is limited by your finances.

You need enough income to make the monthly mortgage payments on your new home. And your debt-to-income ratio (including your future mortgage payment) can’t exceed the lender’s maximum.

You can use a mortgagecalculator to estimate the maximum home price you can likely afford. Or contact a mortgage lender to get a more accurate number.

What if I’m
getting an FHA loan?

FHA loans come with their own loan limits. Standard FHA limits for 2021 are as listed below.

  • 1-unit homes: $356,362
  • 2-unit homes: $456,275
  • 3-unit homes: $551,500
  • 4-unit homes: $685,400

might notice that FHA’s limits are considerably lower than conforming limits.
That’s by design.

The FHA program, backed by the Federal Housing Administration, is meant for home buyers with moderate incomes and credit scores.

the FHA also suits home buyers in expensive counties. Single-family FHA loan limits reach $822,375
in high-cost areas within the continental U.S. and a
surprising $1,233,550 for a 1-unit home in Alaska, Hawaii, Guam, or the Virgin Islands.

What are
today’s mortgage rates for these loan limits?

rates for conforming loans are stellar, which is why so many buyers consider a
conforming loan before using jumbo financing.

a rate quote for your standard or extended-limit conforming loan. Compare to
jumbo rates and piggyback mortgage rates to make sure you’re getting the best

Verify your new rate (Jan 17th, 2021)


What Should My Mortgage Credit Score Be?

September 3, 2019 &• 4 min read by Chris Birk Comments 6 Comments

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You don’t have a separate rating called a mortgage credit score, but lenders do look at your score, credit history and several other factors when deciding whether to approve you for a home loan. Contrary to what some people think, though, you don’t necessarily need an excellent or good credit score to get a home loan. How high your score is depends on your current financial situation, down payment and other factors.

What Does My Credit Score Need to Be for a Mortgage?

The short answer is that it depends. Mortgage lenders will do a hard inquiry on your credit to see the score and the details behind it. Your credit score is typically a good first impression on how risky of an investment you are. Mortgage lenders don’t want to be left holding the keys to your home if you don’t or can’t make regular monthly payments, or if you make late payments, on your home loan.

Factors that can impact whether your credit score is high enough to be approved for a mortgage include:

  • What type of home loan you’re seeking
  • How much other debt you have
  • The details of your credit history, such as positive and negative items reported to the credit bureaus
  • The size of your down payment

FHA mortgage loans may be among the easiest loans to get in terms of credit score requirements. Individuals who qualify as first-time home buyers under FHA (Federal Housing Administration) backed lending programs may be able to qualify for mortgage approval with a credit score as low as 580 and a low down payment of only 3.5%. In cases where buyers can put forward 10% or more for a down payment, some lenders may approve individuals with FICO scores as low as 500.

For more conventional loans—those that meet the underwriting standards put forth by Freddie Mac or Fannie Mac—approval usually requires a good credit score. At minimum, these types of loans usually require a FICO score of around 620, but that assumes other factors are in your favor. A lower down payment or higher credit utilization, among other things, could mean you need a higher credit score to secure mortgage approval.

What Is a Decent Credit Score for a Mortgage?

The answer is probably 620 or higher. You do want to minimize any surprises during the mortgage application and home buying process. Take the following steps to avoid this risk.

  • Get a look at your credit score and report. If you have bad credit, consider taking steps to improve your credit score.
  • Dispute or work with a credit repair company to fix any inaccuracies on the report before you apply for a mortgage.
  • Evaluate whether your credit history and score positions you to achieve your homeownership goals now or if you should take time to improve your score organically first.
  • Research the mortgage process so you understand how it works.
  • Consider working with a mortgage broker if you’re uncomfortable with the entire process. These pros can often help you understand which type of mortgage is right for you and how to qualify for it.

Can You Buy a House with a Credit Score of 590?

You may be able to qualify for an FHA or nontraditional home loan with a low credit score. Your chances of doing so are higher if you can tie your low score to a single issue and you otherwise have a strong credit history. You can also increase your chances by lowering your credit utilization rate, having a low debt-to-income ratio and saving up to put a large percent down when you buy the home.

Should You Get a Mortgage with Your Current Credit Score?

Ask yourself this important question: Are you so preoccupied with whether you can get approved for a mortgage with your current credit score that you forgot to ask yourself whether you should?

Your credit score impacts more than whether or not a lender approves you for a home loan. It also impacts your loan and term options, which can impact the overall cost of the home. One of the most important parts of the mortgage that may be tied directly to your credit score is the interest rate.

A good or bad credit score can mean a shift up or down for your mortgage interest rate. And even a fraction of a percent in either direction can drastically change how much you pay for your home. Consider the examples below, which are applied to a $200,000 home loan for a term of 30 years.

  • An interest rate of 3.92% equals payments of $946 per month and a total home cost of $340,427 over 30 years.
  • An interest rate of 4.42% equals payments of $1,004 per month and a total home cost of $361,399 over 30 years.
  • An interest rate of 4.92% equals payments of $1,064 per month and a total home cost of $382,999 over 30 years.

Just a difference of 1% can result in savings (or losses) of more than $40,000 over the life of your mortgage. Use to check credit score and credit report card to make sure your credit score is as high as possible before you start the mortgage application process.

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Most Livable Cities in the U.S. – 2020 Edition

Most Livable Cities – 2020 Edition – SmartAsset

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your financial details.

People choose where to live based on many factors – availability of jobs, location of family, and the weather all come into play for most folks. Something some Americans may not remember to take into consideration, though, is the livability of a city. While this can be hard to quantify, SmartAsset has tried to do just that, comparing cities across the country to find the most livable places to live in 2020.

We ran the numbers on 100 of the largest cities in the U.S. to see how they stacked up across the following metrics: walk score, violent crime rate, property crime rate, unemployment, housing costs as percentage of income, and the rate of housing cost-burden. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

This is SmartAsset’s second study on the most livable cities in the U.S. Check out last year’s edition here.

Key Findings

  • The living’s grand in the Grand Canyon State. While cities from all over the country crack the top of the list, four of the top 10 cities are in Arizona – Gilbert, Chandler, Scottsdale and Mesa. Incidentally, these four cities are also in the top 10 of our study on the most affordable cities for an early retirement. They all rank within the top 25 of the study for relatively low housing costs as a percentage of income, low rates of residents being housing cost-burdened and low violent and property crime rates.
  • Consistency at the top. Arlington, Virginia ranks as SmartAsset’s most livable city for the fourth year running. It has perennially maintained low unemployment and crime rates. Additionally, two other cities have cracked the top 10 every year since we began this study in 2016: Plano, Texas and Madison, Wisconsin.

1. Arlington, VA

Arlington, Virginia, located right outside of Washington, D.C., is the most livable city in America in this year’s edition of our study. Arlington has been our most livable city since 2017. It has the second-lowest property crime rate (1,298 incidents per 100,000 residents) and the fourth-lowest violent crime rate (138 incidents per 100,000 residents) in our study. It also has a September 2020 unemployment rate of just 4.5%, the fourth-lowest rate in the study.

2. Boise, ID

Boise, Idaho saw just 283 incidents of violent crime per 100,000 residents in 2019, the 13th-lowest rate for this metric in the study. It comes in seventh for property crime, at just 1,595 per 100,000 residents. Only 28.0% of residents of Boise are burdened by their housing cost, making it the seventh-least housing cost-burdened city we analyzed.

3. Lincoln, NE

Lincoln, Nebraska had the lowest unemployment rate in our study for September 2020, at just 3.2%. Lincoln also ranks fourth for both of the housing costs metrics we tested, with housing costs representing 18.96% of income and 27.0% of residents being housing cost-burdened. That said, it isn’t the easiest place to access all your needs by foot, as it ranks in the middle of the study in terms of walk score.

4. Gilbert, AZ

Gilbert is the first of four Arizona locales to make the top 10 of this study. It has the lowest number of property crimes across all 100 cities we examined (1,200 per 100,000 residents) and the second-fewest number of violent crimes (96 per 100,000 residents). On the downside, the city ranks in the bottom 10 of the study for walkability, but Gilbert is relatively affordable, coming in first for both housing costs as a percentage of income (18.75%) and the percentage of residents who are housing cost-burdened (22.0%).

5. Plano, TX

Housing costs in Plano, Texas represent 20.02% of income, ranking eighth-lowest in this study. It also scores in the top 10 for its low rates in both of the crime statistics we considered. In 2019, there were 151 violent crime incidents (fifth-lowest) and 1,717 property crime incidents (10th-lowest) in the city per 100,000 residents.

6. Chandler, AZ

Chandler is the second city in Arizona to make the top 10 of this study. Like some of the other Arizona cities in the top 10, Chandler does not fare very well for walkability, ranking in the bottom quartile. However, it has the third-lowest percentage of housing cost-burdened residents among the 100 cities we analyzed, 26.0%. Furthermore, housing costs make up 19.87% of income on average, the seventh-lowest percentage in this study.

7. Madison, WI

Madison, Wisconsin had an unemployment rate of 3.8% in September 2020, the second-lowest in this study. Madison also finished in the top third of the 100 cities on this list for every other metric but one (housing costs as a percentage of income, for which it ranked 41st). It had the 21st-lowest number of violent crime incidents overall (362 per 100,000 residents in 2019) and the 28th-lowest rate of housing-cost burden, at 31.7%.

8. Scottsdale, AZ

The third Arizona city to place in the top 10 is Scottsdale, where there were just 161 incidents of violent crime per 100,000 residents in 2019, the sixth-lowest rate of the cities we analyzed. Scottsdale also finishes 13th for both of the housing cost metrics we measured: Housing costs represent 20.54% of income, and 29.4% of residents are housing cost-burdened.

9. Raleigh, NC

Raleigh finishes in the top 15 for both safety metrics: It had 257 incidents of violent crime per 100,000 residents (12th-fewest in this study) and 1,795 incidents of property crime per 100,000 residents (14th-fewest in this study). Raleigh finishes 17th for its relatively low September 2020 unemployment rate (6.1%) and housing costs as a percentage of income (21.01%).

10. Mesa, AZ

The final city in the top 10 is the fourth Arizona city to make the list, Mesa. Mesa finishes in the top quartile of cities in every metric except one – walk score, for which it comes in 73rd place. The top quartile rankings, though, include a 13th-place finish for its low rate of housing cost-burden, at 29.4%, and its 15th-place finish in terms of property crime rate, at just 1,869 per 100,000 residents for 2019.

Data and Methodology

To find the most livable cities in the U.S., we analyzed data on 100 of the largest cities in the country. We examined each city according to the following seven metrics:

  • Walkability. This is calculated on a 0 to 100 scale. A lower number means the city is less walkable while a higher number means it is more walkable. Data comes from
  • Violent crime rate. This is the violent crime rate per 100,000 residents. Data comes from the 2019 FBI Uniform Crime Reporting Database for all reporting cities. For non-reporting cities, data comes from
  • Property crime rate. This is the property crime rate per 100,000 residents. Data comes from the 2019 FBI Uniform Crime Reporting Database for all reporting cities. For non-reporting cities, data comes from
  • Unemployment rate. September 2020 data comes from the Bureau of Labor Statistics (BLS) and is reported at the county level.
  • Housing costs as a percentage of income. This is the median housing costs divided by median household income. Data comes from the Census Bureau’s 2019 1-year American Community Survey.
  • Housing cost-burdened rate. This is the percentage of households spending 30% or more of their income on housing. Data comes from the Census Bureau’s 2019 1-year American Community Survey.

First, we ranked each city in every metric. We then found each city’s average ranking, giving each metric a full weight. We used this average ranking to determine a final score. The city with the best average ranking received a score of 100 and the city with the lowest received a score of 0.

Tips for Finding Somewhere to Live

  • Get expert financial support. If you want to move to one of these cities, consider working with a financial advisor. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Rent or buy? Not sure if you’re ready to put down permanent roots down yet? Use SmartAsset’s rent or buy calculator to see which makes more financial sense.
  • Save up. Make a budget using SmartAsset’s free budget tool so you can start putting away money to buy a home in your dream location some day.

Questions about our study? Contact

Photo credit: ©

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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What’s the Average Monthly Mortgage Payment in the U.S.?

If you think that this is the year to purchase that new home, chances are you’re wondering whether that mortgage payment will fit into your budget. Many factors go into determining what your payment will look like at the end of the day, including the cost of the home, your interest rate, local taxes, and home insurance monthly cost. Understanding that variance, here’s the breakdown of the average American’s monthly mortgage:

What is the average American’s monthly mortgage?

The median monthly housing cost for owner-occupied properties with a mortgage, based on the latest data from the U.S. Census Bureau, is $1,609 per month. The U.S. Census Bureau’s latest American Community Survey uses the median monthly housing cost to show what the average American homeowner can expect to pay. The best representation of the average house payment isn’t the average at all. 

That’s because, when averaging mortgage payments, expensive homes tend to inflate the numbers so that it looks like most American homeowners are paying more than they actually are for housing.

Using the median value — the monthly mortgage payment in the exact center of the market — provides a more accurate view of what you can expect to pay. That’s how much the average American homeowner can expect to pay per month for housing. This obviously varies based on one’s location and property type, but it’s an important initial reference point to help homebuyers evaluate the cost of their potential purchase. 

To show how monthly mortgage payments cluster around this median value, here’s a breakdown of the percentage of homeowners within each payment range:

Monthly Mortgage Payment Percentage of Homeowners
Less than $599 2.8%
$600 to $999 15.4%
$1,000 to $1,499 26.8%
$1,500 to $1,999 20.9%
$2,000 to $2,499 13.2%
$2,500 to $2,999 8.1%
$3,000 or more 12.9%

How location affects mortgage payments

Location affects housing inventory and property values, which in turn affects mortgage payments. Coastal cities and metropolitan centers are especially prone to higher home values due to their limited space and high demand. New York, California, New Jersey, Massachusetts, Hawaii, Connecticut, and California all have average monthly housing costs for mortgaged properties that reach over $2,000.

 In the Southeast and Midwest, where there’s more space and fewer population centers, average monthly mortgages are often just over $1,000. Accessible housing is reason enough for many people to relocate, and it might just be that the perfect house for your budget is in another area code. 

Monthly mortgage payment based on age

Buyers in the 22-54 age range usually have larger mortgage payments for several reasons. Younger buyers tend to have fewer savings, which means they put less money down upon purchasing a home. About half of buyers aged 22-39 put less than 10% down on their homes; while half of homeowners between the ages of 65-73 submitted a down payment of at least 25%. 

This leads to larger monthly mortgage payments for younger generations. Younger and middle-aged buyers also tend to buy larger, more expensive homes for their families, which drives up their average mortgage payment. 

Older buyers generally purchase smaller homes, offer larger down payments, and are less concerned about the investment potential of their property. All of these factors contribute to relatively lower mortgages for home buyers over the age of 54. For example, while members of Gen X (ages 40-55) have a medium mortgage of $2,206, Baby Boomers enjoy a medium monthly payment of only $1,739.

Breaking down the average monthly mortgage payment

A loan’s principal is the base amount you borrow from a lender to cover what’s left after your down payment. Lenders make money by charging interest on that principal, which you’ll pay off as you make monthly mortgage payments. These two elements — the principal and the interest— usually command the largest chunk of your mortgage payment. The following chart illustrates how that chunk of the monthly mortgage correlates with home value and down payment.

Monthly mortgage payment

*Homeowners Insurance and Property Taxes not included

Home Price 10% Down Payment 20% Down Payment
$100,000 $429 $381
$200,000 $858 $762
$300,000 $1,287 $1,144
$400,000 $1,716 $1,525
$500,000 $2,145 $1,907

*All values computed based on a 3.99% interest rate on a 30-year fixed-rate mortgage.

Many first-time home buyers are under the impression that principal and interest are the only elements of a mortgage. However, many monthly mortgage payments aren’t complete until they include property taxes.

Property taxes

Property tax rates vary widely based on location, which means you’ll have to research what you’ll be expected to pay. For example, many states in the Northeast have effective tax rates over 2%, while some states in the Southeast offer rates well below 1%. This percentage may not seem like a huge disparity, but it adds up, especially since many areas with the highest property values also have the highest property tax rates. 

Home insurance

Homeowners insurance is another aspect of housing costs that depends heavily upon location and home values. Nationally, the average annual cost of homeowners insurance is around $1,211 but states that face many natural disasters often require much more. Louisiana, for instance, can attribute its average annual homeowners insurance premium of around $2,000 — the highest in the country — to its relatively high risk of hurricanes. Wherever you live, though, homeowners insurance is still a necessity. Together with principal, interest, and property tax payments, it forms the basic portfolio of housing costs.

All of the above figures change regularly, some of them daily. So while the average mortgage in the United States is about $1,600, your situation will almost certainly be different given your location, the size of your loan and the interest rate you’re able to get. Stay up to date on all of the latest facts, figures, and tips or use our handy refinance calculator to get a better idea of what your mortgage will end up being today. 

We welcome your feedback on this article. Contact us at with comments or questions.

Image Credit: flammulated/Getty Images


5 Rampant Mortgage Myths You’ll Hear These Days—Completely Debunked

These days, things are changing so fast, it’s tough to keep up. That’s especially true in the mortgage industry, where interest rates and the overall home loan landscape are shifting with such head-spinning speed, it’s easy for outdated information to circulate, leading home buyers and homeowners astray.

You may have heard, for instance, that everyone can score a record-low interest rate, or that refinancing is a no-brainer, or that mortgage forbearance means you don’t have to pay back your loan, ever. Sorry, but none of these rumors is true—and falling for them could cost you dearly.

To help home buyers and homeowners separate fact from fiction, we asked experts to highlight some rampant mortgage mistruths out there today. Whether you’re looking to buy or refinance, these are some reality checks you’ll be glad to know.

Myth No. 1: Everyone qualifies for low interest rates

There’s a lot of buzz about record-low mortgage interest rates lately. Most recently, a 30-year fixed-rate mortgage dropped to 2.88% for the week of Aug. 6, according to Freddie Mac.

This is great news for borrowers, but here’s the rub: “Not everyone will qualify for the lowest rates,” explains Danielle Hale, chief economist at®.

So who stands to get the best rates? Namely, borrowers with a good credit score, Hale says. Most lenders require a minimum credit score of about 620. Some lenders might require an even higher threshold (more on that later).

Your credit score isn’t the only factor affecting what interest rate you get. It also depends on the size of your down payment, type of home, type of loan, and much more. So, keep your expectations in check, and make sure to shop around to increase the odds you’ll get a good rate.

Myth No. 2: Getting a mortgage today is easy

Many assume today’s low interest rates mean that getting a mortgage will be a breeze. On the contrary, these low rates mean just about everyone is trying to get a mortgage, or refinance the one they have. This glut of applicants, combined with the uncertain economy, means some lenders may actually tighten loan requirements.

In fact, a analysis found that 5% to 20% of potential borrowers may struggle to get a mortgage because of these stricter standards. And getting a mortgage could become even tougher if the recession gets worse.

For example, some lenders may also require higher minimum credit scores and larger down payments. In April, JPMorgan Chase began requiring a 700 minimum credit score and 20% down payment.

Jason Lee, executive vice president and director of capital markets at Flagstar Bank, says some lenders aren’t offering the loans that are considered riskier—such as jumbo loans, which exceed the conforming loan limit (for 2020, that max is $510,400).

“There aren’t as many loan products available,” Lee says.

And even if you do manage to get a loan, it may take longer than you’d typically expect.

“Based on low rates and a high volume of refinances, loans are taking longer to complete from application to closing,” says Staci Titsworth, a regional mortgage manager for PNC Bank.

As such, borrowers should ask their lender how long the process will take to close, and make sure they’re aware of the expiration date on the interest rate they’ve locked in—since with rates this low, they could go up.

“Most lenders are locking in the customer’s interest rate so it’s protected from market fluctuations,” Titsworth adds.

Myth No. 3: Everyone should refinance their mortgage

“With mortgage rates hovering near record lows, a refinance can make sense and can help free up monthly cash flow,” Hale says.

Still, not everyone should refinance. Homeowners should make sure to take a good hard look at their situation to see whether it makes sense for them.

For one, it will depend on your current interest rate. If it’s low already, it may not be worth the trouble—particularly since refinancing comes with fees amounting to around 2% to 6% of your loan amount.

Given these upfront costs, refinancing often makes sense only if you plan to remain in your house for a while.

In general, “refinancing is a good idea for homeowners who plan to live in the same home for several years, because they will reap the monthly savings over a longer time period,” Hale explains.

Myth No. 4: You can apply for a mortgage after you’ve found a home

Many people assume that you can find your dream home first, then apply for the mortgage. But that’s backward—now more than ever. Today, your first stop when shopping for a house should be a mortgage lender or broker, who can get you pre-approved for a home loan.

For “a buyer in a competitive market, it’s typically essential to have pre-approval done in order to submit an offer, so getting it done before you even look at homes is a smart move that will enable a buyer to move fast to put an offer in on the right home,” Hale says.

Mortgage pre-approval is all the more essential in the era of the coronavirus pandemic. Why? Because many home sellers, leery of letting just anyone tour their home, want to know a buyer is serious—and has the cash and financing to make a firm offer. As such, some real estate agents and sellers require a pre-approval letter before a potential buyer can view a home in person.

Nonetheless, according to a survey conducted in June of over 2,000 active home shoppers who plan to purchase a home in the next 12 months, only 52% obtained a pre-approval letter before beginning their home search, which means nearly half of home buyers are missing this crucial piece of paperwork.

Aside from getting their foot in the door of homes they want to see, home buyers benefit from pre-approval in other ways. Since pre-approval lets you know exactly how much money a lender will loan you, it also helps you target the right homes within your budget.

After all, as Lee points out, “You don’t want to get your heart set on a home only to find out you can’t afford it.”

Myth No. 5: Mortgage forbearance means you don’t have to pay back your loan

The record unemployment caused by the COVID-19 pandemic means millions of Americans have struggled to pay their mortgages. To get some relief, many have been granted mortgage forbearance.

Nearly 8% of mortgages, or 3.8 million homeowners, were in forbearance as of July 26, according to the Mortgage Bankers Association.

The problem? Many mistakenly assume that mortgage forbearance means you won’t have to pay your loan, period. But forbearance means different things for different homeowners, depending on the terms of the mortgage and what type of arrangement was worked out with the lender.

“Forbearance is not forgiveness,” Lee says. “Rather, it’s a timeout from having to make a mortgage payment where your servicer—the company you send your mortgage payments to—will ensure that negative impacts to your credit report and late fees will not occur. However, because forbearance is not forgiveness, you will need to reach some sort of resolution with your loan servicer about the missed payments.”

The paused payments may be added to the back end of the loan or repaid over time.

“It does not forgive the payments, meaning the borrower still owes the money,” Hale says. “The specifics of when payments need to be made up will vary from borrower to borrower.”

For more smart financial news and advice, head over to MarketWatch.


FHA loan limits increase for single-family and multifamily loans

2021 FHA loan limits range from
$350K to over $1.5 million

FHA loan limits just increased for all home buyers
and refinancing homeowners.

The new baseline FHA loan limit is $356,362 for single-family homes.

Multifamily loan limits now go up to $685,400 for a 4-unit property.

And that’s just the “floor.” In high-cost areas, the FHA loan limit “ceiling” goes all the way up to $822,375 for a single-family home and over $1.5 million for a 4-unit property.

Though loan limits have increased, FHA mortgages are still available with a credit score starting at 580 and 3.5% down.

And, FHA mortgage rates are still sitting at historic lows.

Verify your FHA loan eligibility (Jan 16th, 2021)

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FHA loan limits by county for

In order to get approved for an FHA loan, your mortgage must be within the maximum loan amount the FHA will insure. Known as “FHA
loan limits”, these maximums vary by county.

This year the Department of Housing and Urban
Development (HUD) is increasing FHA loan limits in almost every county (3,100)
while just 125 counties will remain the same.

There are four different pricing tiers for FHA loan
limits: a standard tier, a mid-range
tier, a high-cost tier, and a special exception tier.

In low-cost counties, FHA loan limits are now capped at $356,362 for a single-family home loan.

In high-cost counties, FHA’s single-family loan limit is $822,375.

However, many counties fall in the ‘mid-range’ category with limits somewhere between the floor and ceiling.

Single-family (one-unit) FHA loan limits

Low-Cost Area $356,362
Mid-Range Area $356,363–$822,374
High-Cost Area $822,375
AK, HI, Guam, & Virgin Islands $1,233,550

According to FHA’s guidelines, a low-cost area is
one where you can multiply the
median home price by 115% and the product is less than $356,362.

Similarly, a high-cost area is one where the median home price
multiplied by 115% is greater than $822,375.
There are just 65 U.S. counties
with home prices high enough to qualify for FHA’s maximum loan limit.

There are also ‘special exception’ loan limits in
Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In these areas, FHA caps
single-family home loans at a surprising $1,233,550.

FHA says the higher
loan limits in Alaska, Hawaii, Guam, and the Virgin Islands are meant to “account for higher costs of construction.”

You can look up your local FHA loan limits using this search tool.

Verify your FHA loan eligibility (Jan 16th, 2021)

FHA multifamily loan limits

The Federal Housing Administration also backs
mortgages on 2-, 3-, and 4-unit properties. These types of homes have higher
loan limits than single-family residences.

FHA multifamily loan limits

  2-Unit Property 3-Unit Property 4-Unit Property
Low-Cost Area $456,275 $551,500 $685,400
Mid-Range Area $456,276–$1,052,999 $551,501–$1,272,749 $685,401–$1,581,749
High-Cost Area $1,053,000 $1,272,750 $1,581,750
AK, HI, Guam, & Virgin Islands $1,579,500 $1,909,125 $2,372,625

Although FHA allows multifamily home loans, the
property must still be considered a ‘primary residence.’ That means the
homebuyer needs to live in one of the units full time.

In other words, an FHA loan cannot be used to
purchase an investment property. However, you can use an FHA mortgage to
purchase a 2-4 unit property, live in one unit, and rent out the others.

In this way it’s possible to get a multifamily loan
up to $1.5 million with a low-rate FHA loan and just 3.5% down payment.

What is an
FHA loan?

It can be confusing, but the Federal Housing Administration is not actually a mortgage lender. Rather, it’s a
mortgage loan insurer

The FHA provides insurance for banks and lenders that make FHA loans.

Payment for this insurance is known as the FHA ‘mortgage insurance
premium’ (MIP). It’s paid by homeowners but protects FHA mortgage lenders against
losses from loan defaults or foreclosure.

The main benefit of FHA-backed loans is that they’re often easier to qualify for than conforming mortgages.

FHA loan requirements
tend to be more lenient for first-time, low-credit, and lower-income borrowers.

As a few examples of the FHA’s buyer-friendly rules:

  • FHA mortgages require a down payment of just 3.5 percent
  • FHA loan down payment monies can be gifted from a family member
  • The minimum credit score requirement for an FHA loan is 580 in most cases

There are other FHA loan perks, too.

For example, FHA loans are assumable. This means that a
future buyer of your home can “assume” its existing mortgage at whatever
the mortgage rate happens to be.

If today’s mortgage rates are 3% and rates are 10% when
you sell, instead of applying for a new loan, your buyer can assume your
existing 3% FHA mortgage rate instead. This can make your home much easier
to sell in the future.

Another FHA loan perk is that FHA mortgage rates don’t change
with low credit scores or property type. FHA mortgage rates are the same, no
matter whether your score is a 740 or a 580; or, whether you live in a
single-family home or a 4-unit.

All FHA borrowers get access to the same, below market mortgage
rates that make FHA financing so attractive.

Check today’s FHA loan rates (Jan 16th, 2021)

FHA vs. conforming loan limits

FHA mortgage limits are closely tied to conforming loan limits.

Every year, the Federal Housing Finance Agency
(FHFA) updates its home price index. This is used to set both conforming loan
limits and FHA loan limits. But the two are calculated differently. 

Conforming loans — which follow guidelines set by
Fannie Mae and Freddie Mac — have higher loan limits than FHA mortgages.

For example, look at the standard, single-family loan limits for 2021.

  • FHA’s loan
    limit “floor” is $356,362
  • The
    conforming loan “floor” is $548,250 — a full $190K higher

However, not everyone can qualify for higher loan amounts via a conventional mortgage.

Fannie Mae and Freddie Mac require a minimum credit
score of 620 for a conforming loan. And for borrowers with credit on the lower
end of the spectrum, they charge higher rates and expensive private mortgage
insurance (PMI).

FHA loans are more attractive for borrowers with
fair credit despite having lower loan limits.

It’s possible to qualify for FHA financing with a
credit score as low as 580, and a low score won’t force you into a high
interest rate.

The FHA does charge its own mortgage insurance premium.
But this is often more affordable than conventional loan PMI for borrowers with
low credit and a small down payment.

Streamline Refinance loan limits

One perk of having an FHA loan is that you can refinance using the FHA Streamline Refinance program.

The FHA Streamline is a low-doc loan that gives homeowners the ability to
refinance without having to verify income, credit, or employment.

When you refinance via the FHA Streamline program, your new loan
must be within local FHA loan limits. But this will not be an issue.

Since the FHA Streamline can only be used on an existing FHA loan —
and no cash-out is allowed — you won’t be able to increase your loan balance
above current FHA mortgage limits.  

Other requirements for the FHA Streamline Refinance include:

  • You
    must be making your current mortgage payments on time. The FHA wants to see
    that your last 3 mortgage payments have been paid on time, and that you’ve been
    late on payments no more than one time in the last 12 months
  • Your
    current FHA mortgage must be at least 6 months old. The FHA will verify that
    you’ve made at least six payments on your current mortgage before allowing you
    to use the FHA Streamline Refinance program
  • The
    agency will verify that there’s a “benefit” to your refinance. Known as the Net
    Tangible Benefit clause, your “combined rate” must drop by at least 0.5%. You
    can achieve this portion of FHA eligibility by dropping your interest rate,
    mortgage insurance rate, or a combination of both

If you meet these guidelines, the FHA Streamline is a great way to
refinance into today’s ultra-low mortgage rates and lower your monthly payment.

Today’s FHA loan rates

FHA mortgages are riding the low-interest-rate
wave. With mortgage rates at historic lows, and loan limits on the rise, it’s
an excellent time to consider FHA financing.

Check with a lender to see how much home you can
afford thanks to 2021 FHA loan limits.

Verify your new rate (Jan 16th, 2021)


How Bad Credit Can Make Your Mortgage More Expensive

February 28, 2019 &• min read by Scott Sheldon Comments 4 Comments

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Borrowers who come to the table with lower credit scores can find that their mortgage loan costs more because of their bad credit scores.  This is true for first-time buyers as well as people buying second or third homes. A loan costs someone with a bad credit score more because of higher interest rates and the resulting higher monthly mortgage payments imposed on those with less-than-perfect credit.

Here’s a rundown of why and what your options might be if your credit score is less than ideal.

What Is a Conventional Mortgage Loan?

A conventional fixed-rate mortgage is a home loan originated by a bank, lender or mortgage broker and sold on the primary mortgage market to Fannie Mae and Freddie Mac. Conventional loans are not guaranteed to a government agency where some loans are, such as FHA and VA loan. And the interest rate and terms are almost always fixed for the life of the loan. The majority of home loans are conventional loans.

A conventional loan’s terms and interest rate are determined using what mortgage lenders call “risk-based pricing.” That means that the costs are based on the apparent risk of the consumer’s financial situation. It also means that different people get different terms and interest rates based on how risky their financial situation makes them to the lender as far as paying back the loan and making payments on time.

If you have a lower credit score—from bad to poor or fair—lenders see you as a higher risk and, if they’ll approve you for a conventional mortgage loan, they’ll charge you a higher interest rate that will result in higher monthly payments and a higher cost for the total loan in the end.

The Added Cost of Bad Credit for a Conventional Mortgage

With a conventional mortgage loan, your credit score is the biggest driver of your costs.

If your credit score is between 620 and 679, you can expect to see higher costs when:

  • You don’t have at least a 20% down payment (or 20% equity if you’re refinancing)
  • Your loan size is more than $417,000-or whatever your county’s conforming loan limit is
  • You’re refinancing to reduce your monthly payment

Other factors that affect the price and rate of a mortgage include occupancy, property type, loan-to-value ratio and loan program.

Let’s say your home buying scenario looks like this:

  • Primary home
  • Single family residence
  • Conventional fixed-rate loan
  • 5% down payment
  • 630 credit score
  • $417,000 loan size

Due to your lower credit score, it’s not uncommon that you’d be expected to pay an interest rate that’s 0.375% higher than the average 30-year primary mortgage rate and higher than someone with a credit score above 800. If the 30-year primary mortgage rate is 3.875%, someone with good credit would pay 4.125% in interest (.25% above the primary rate) and you’d pay 4.5%.

Your monthly payment would be $2,112.88 compared to 2,029.99—that’s 82.99 more each month and $29,876.40 more over the 30-year life of the loan. Ouch!

Also, when you have less than a 20% down payment—so you’re financing 80% or more of the home price—your lender will require that pay a mortgage insurance premium. That private mortgage insurance (PMI) premium might be 110% of the loan amount on an annualized basis.

Here again, your creditworthiness factors into the PMI amount for a conventional loan—the lower your score, the more you’ll pay in mortgage insurance. For someone with a 630 credit score, that might be $4,587 per year or $382 per month. Another ouch!

For someone with a 700 credit score, the mortgage insurance premium would be approximately $3,127 per year or $260 per month—a $122 savings compared to your rate or $1,464 annually.

The Bottom Line

It pays to have a good credit score when applying for a conventional loan. If you expect to buy a home in the next year, now’s the time to check your credit scores and credit reports and get yourself on a plan to build your credit. A lender can guide you on the best steps to take, too.

Get your free credit score and credit report card on Your score will be updated every 14 days, so you can track your progress. And your report card will include tips on how to improve each of the five key factors that go into your credit score—payment history, debt usage, credit age, account mix and credit inquiries.

Don’t fear though. If you need to get a home loan now, you might be able to get one with poorer credit and improve your score after the fact and then refinance to get a better interest rate and monthly payment. There are also other loan options available to those with poorer credit scores.

How to Reduce Your Mortgage Costs If You Have Bad Credit

You may be able to raise your credit score simply by paying down credit card debt. Use the credit card payoff calculator to see how long it might take to pay off your credit card debt. Paying down debt decreases your debt-to-income ratio and makes you look less risky to lenders.

Know too that your overall credit history will affect how quickly paying off debts now will affect your score. If you have a long history of late payments, it will take longer for making payments on time now to improve your score.

Generally, a good rule of financial thumb is to keep your credit card balances at no more than 30% of the credit limits per credit card—this is also known as your credit utilization ratio which accounts for a significant portion of your credit score.

In addition to paying down debts, ask your mortgage professional if they offer a complimentary credit analysis. In addition to checking your score and getting your free credit report card on, a mortgage-specific credit analysis can help you see just what factors are affecting your mortgage interest rate. You can then focus on improving those factors first.

Most mortgage brokers and direct lenders offer a credit analysis service. By having the mortgage company run the analysis, you can see how much more your credit score could increase by taking specific actions.

You may also want to consider putting more money down when buying a home to help offset a lower credit score, if that’s possible, of course.

Or, you may want to change gears and go with a different mortgage loan program. An FHA loan is another viable route in keeping your monthly mortgage costs affordable. It may also be easier for you to qualify for an FHA loan with a lower credit score.

The Federal Housing Administration or FHA grants FHA loans. It doesn’t weigh credit scores as heavily as private lenders who give conventional loans do. There is no sliding scale based on your credit score like there is with a conventional loan.

An FHA loan does charge an upfront mortgage insurance premium of 1.75% usually financed in the loan, but the effect of the payment isn’t a lot, which can make an FHA loan a lower cost monthly alternative to a conventional loan for someone with a lower credit score.

Other FHA loan tidbits:

  • FHA loans are not limited to first-time home buyers—they’re open to everyone
  • FHA loans can be used for the purchase of a home or to refinance an existing FHA home loan.

If you’re in the market for a mortgage and are trying to purchase or refinance a home, consider working with your loan officer to qualify on as many loan programs as possible upfront. This approach gives you the opportunity to cherry-pick which loan is most suitable for you considering your payment, cash flow, loan objectives and budget.

More on Mortgages and Home Buying:

This article was last published May 27, 2015, and has since been updated by another author.

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8 Types of Home Loans Available for Homebuyers

Many people mistakenly believe they can’t afford to buy a home because they don’t really know what their options are. Fortunately, home loans are not one-size-fits-all. There are a variety of different mortgages available to suit your budget and preferences.

family in new home

So before you start visiting open houses, take some time to familiarize yourself with the different home loans that are available. Going into the home buying process informed could help you save a lot of money on your down payment, interest, and fees.

The 8 Types of Mortgage Loans Available

Understanding the different types of mortgage loans will help you choose the option that’s best suited for you. Let’s look at a brief overview of the eight types of mortgages available in 2021.

1. Conventional Loans

A conventional loan is a mortgage that’s not issued by the federal government. There are two different types of conventional loans you can choose from: conforming and non-conforming loans.

A conforming loan falls within the guidelines laid out by Frannie Mae and Freddie Mac. You’ll take out a conforming loan through a private lender like a bank, credit union, or mortgage company. Since the government doesn’t guarantee the loan, conventional loans typically come with more stringent lending requirements.

According to the CFPB, the maximum loan amount for a conventional loan is $484,350. However, it may be as high as $726,525 in counties with a high cost of living. You’ll have to take out primary mortgage insurance (PMI) if you don’t have a 20% down payment.

Conventional loans are fixed-rate mortgages which means your monthly payment remains the same throughout the entire life of the loan. The terms typically range from 10 to 30 years:

  • 30-year fixed-rate mortgage
  • 20-year fixed-rate mortgage
  • 15-year fixed-rate mortgage
  • 10-year fixed rate mortgage


  • Can be used to purchase a primary home or an investment property
  • Tends to cost less than other types of loans
  • You can cancel your PMI once you reach 20% equity in your home


  • Must have a minimum FICO score of 620 or higher
  • Harder to qualify for than government-backed loans
  • You’ll need to have a low debt-to-income ratio to qualify

2. Conventional 97 Mortgage

A conventional 97 mortgage is similar to a conventional loan in that it’s widely available to a variety of borrowers. The main difference is that with this type of home loan, you only have to pay a 3% down payment.

The program is available for first-time and repeat home buyers. However, it must be your primary place of residence, and the maximum loan amount is $510,400.


  • Widely available to most borrowers
  • Only requires a 3% down payment
  • Available for first-time and repeat homebuyers


  • Cannot be used to purchase investment properties
  • The maximum loan amount is $510,400
  • Requires a minimum FICO score of 660 or higher

3. FHA Loans

FHA loans are backed by the Federal Housing Administration and are a popular option for first-time home buyers. To qualify, you need to have a 3.5% down payment and a minimum credit score of 580.

If you have a credit score of 500 or higher, you can qualify for an FHA loan with a 10% down payment. These flexible requirements make FHA loans a good option for borrowers with bad credit.

To qualify for an FHA home loan, you must have a debt-to-income ratio of 43% or less. These loans can’t be used to purchase investment properties, and your home must meet the FHA’s lending limits.

These limits vary by state, so you’ll need to check the FHA’s website to see what the guidelines are for your area.


  • Loans come with low down payment options
  • A good option for borrowers with bad credit
  • Available for first-time and repeat homeowners


  • Loans can’t be taken out for investment properties
  • If your credit score is below 580 a 10% down payment is required
  • You must have a debt-to-income ratio below 43%

4. FHA 203(k) Rehab Loans

An FHA 203(k) rehab loan is sometimes referred to as a renovation loan. It allows home buyers to finance the purchase of their home and any necessary renovations with a single loan.

Many people purchase older homes to fix them up. Instead of taking out a mortgage and then applying for a home renovation loan, you can accomplish both within a single mortgage.

A rehab loan is similar to an FHA loan in that you’ll need a 3.5% down payment. However, the credit requirements are stricter, and you’ll need a minimum credit score of 640 to qualify.


  • Allows you to buy a home and finance the remodel within one mortgage
  • Requires a minimum 3.5% down payment
  • Easier to qualify since the FHA backs your loan


  • Credit requirements are more stringent than typical FHA loans
  • You must hire approved contractors and cannot DIY the renovations
  • The closing process takes longer than other types of mortgages

5. VA Loans

The Department of Veteran Affairs guarantees VA loans. These loans are designed to make it easier for veterans and service members to qualify for affordable mortgages.

One of the biggest advantages of taking out a VA loan is that it doesn’t require a down payment and no private mortgage insurance. And there are no listed credit requirements, though the lender can set their own minimum credit requirements. VA loans typically come with a lower interest rate than FHA and conventional loans.

To qualify for a VA loan, you must either be active duty military, a veteran or honorably discharged. You’ll need to apply for your mortgage through an approved VA lender.


  • No down payment required
  • No PMI required
  • Flexible credit requirements


  • Must be a veteran to qualify
  • Some sellers will not want to deal with a VA loan

6. USDA Loans

A USDA loan is a type of mortgage that’s available for rural and suburban home buyers. It’s a good option for borrowers that are having a hard time qualifying for a traditional mortgage.

USDA loans are backed by the U.S. Department of Agriculture, and they help low-income borrowers find housing in rural areas. USDA loans to not require a down payment, but you will need a minimum credit score of 640 to qualify.

You will need to meet the USDA’s eligibility requirements to qualify for the loan. But according to the department’s property eligibility map, over 95% of the U.S. is eligible.


  • No down payment required
  • A good option for low-income borrowers
  • Available to first-time and repeat home buyers


  • A minimum credit score of 640 is required
  • Housing is limited to rural and suburban areas

7. Jumbo Loans

A jumbo loan is a mortgage that exceeds the financing guidelines laid out by the Federal Housing Finance Agency. These loans are unable to be purchased or guaranteed by Fannie Mae or Freddie Mac.

A jumbo loan is financing for luxury homes in competitive real estate markets, and the limits vary by state. In 2021, the FHFA raised the limits for a one-unit property to $548,250, increasing from $510,400 in 2020.

If you’re hoping to buy a home that costs more than $1 million, you’ll need to take out a super jumbo loan. These loans provide up to $3 million to purchase your home. Both jumbo and super jumbo loans can be difficult to qualify for and require excellent credit.


  • These loans make it possible to purchase large homes in expensive areas
  • Typically comes with flexible loan terms


  • Jumbo loans and super jumbo loans come with higher interest rates
  • You’ll need a good credit history to qualify

8. Adjustable Rate Mortgages (ARMs)

Unlike a fixed-rate mortgage, where the interest rate is set for the life of the loan, an adjustable-rate mortgage (ARM) comes with interest rates that fluctuate. Your interest rate depends on the current market conditions.

When you first take out an ARM, you will typically start with a fixed rate for a set period of time. Once that introductory period is up, your interest rate will adjust on a monthly or annual basis.

An ARM can be a good option for some borrowers because your interest rate will likely be low for the first couple of years you own the home. But you need to be comfortable with a certain level of risk.

And if you choose to go this route, you should look for an ARM that caps the amount of interest you pay. That way, you won’t find yourself unable to afford your monthly payments when the interest rates reset.

4 Types of ARMs

There are 4 different types of adjustable-rate mortgages typically offered:

  • One Year ARM – The one-year adjustable-rate mortgage interest rate changes every year on the anniversary of the loan.
  • 10/1 ARM – The 10/1 ARM has an initial fixed interest rate for the first ten years of the mortgage. After 10 years is up, the rate then adjusts each year for the remainder of the mortgage. 
  • 5/5 and 5/1 ARMs – ARMs that have an initial fixed rate for the first five years of the mortgage. After 5 years is up, for the 5/5 ARM, the interest rate changes every 5 years. For the 5/1 ARM, the interest changes every year.
  • 3/3 and 3/1 ARMs – Similar to the 5/5 and 5/1 ARMs, except the initial fixed-rate changes after 3 years. For the 3/3 ARM, the interest rate changes every 3 years and for the 3/1 ARM, it changes every year.


  • Interest rates will likely be low in the beginning
  • If you pay the loan off quickly, you could pay a lot less money in interest


  • Your monthly mortgage payments will fluctuate
  • Many borrowers have gotten into financial trouble after taking out an ARM

Bottom Line

As you can see, there are many different home loans for you to choose from. The type of mortgage that’s best for you will depend on your current income and financial situation.

If you’re not sure where to start, consider working with a qualified loan officer. They can assess your situation and recommend the option that will be best for you.


Home Equity Loan vs Line of Credit

If you need a quick cash injection and own sizeable equity in your home, equity loans can help. Home equity loans and home equity lines of credit are low-interest rate loans taken out against your home. Also known as second mortgages, they allow homeowners to tap into their equity, and offer a plethora of benefits, as well as a few downsides.

But which option is best for you and your needs, how do they differ, and what can they be used for?

Home Equity Loan vs Home Equity Line of Credit

Home equity loans and lines of credit are types of second mortgages, which means they often exist in addition to your primary mortgage. They are secured against the equity that you own, and the size of that equity will dictate how much you’re offered and what sort of rate you’re provided with.

A home equity loan gives you a lump-sum payment in exchange for securing your equity. A home equity line of equity, also known simply as a HELOC, is a line of credit that works a lot like a credit card.

In both cases, you are not selling your home or any part of it. You’ll still technically own all the equity that you secure against the loan, but if you ever default on it then the lender may seek to initiate foreclosure.

Of course, because they are second mortgages, the primary lender will take priority in the event of a complete mortgage default, but once they have secured their share then the second mortgage lender will take theirs.

Home Equity Loan Details

  • Payment Type: Cash paid upfront 
  • Interest Rate: Fixed-rate of interest 
  • Interest Charges: Pay interest on the entire balance
  • Closing Costs and Fees: Closing costs and fees charged
  • Repayment: Fixed monthly payments that never change

Home Equity Line of Credit Details (HELOC)

  • Payment Type: Money paid as a line of credit during a draw period
  • Interest Rate: Variable interest rate.
  • Interest Charges: Only pay on what you withdraw from the credit line
  • Closing Costs and Fees: Closing costs and fees tend to be lower
  • Repayment: Interest-only payments possible

When to Consider a Home Equity Loan

Towards the end of this article, we’ll discuss some of the ways you can use a home equity loan or HELOC, covering both the positive and the negative. But for now, it’s important to understand which of these options is best for you based on your current situation.

A home equity loan may be the better option if:

You Need A Lot of Money Now

The main reason to opt for a home equity loan is if you need a lot of money and you need it sooner rather than later. This is generally the better option is you have a specific amount in mind, such as if you have a vacation planned or medical bills to pay and have been given a specific quote.

That way, you know how much to borrow and can use the money straightaway, before focusing on making repayments.

It gives you some clarity and certainty, as you’ll be told how big your monthly payments will be, how long they will last, and how much money you’ll get in return for your home’s equity.

It’s important to take a little as possible, but to make sure you have more than you need. That seems like a contradictory statement, but for example, if you are planning a cruise around the Mediterranean and have been quoted $15,000 for you and your family, you should consider taking $20,000 instead. 

That way, you’ll be covered for spending money and unforeseen expenses and won’t need to resort to taking out personal loans, cashing savings or putting everything on your credit card when you realize you’re short.

You Want a Fixed Interest Rate

A home equity loan will typically cost you much less than a HELOC over the life of the loan. It also charges a fixed monthly amount, one that doesn’t change regardless of the prime rate and your accumulated equity.

Understanding how much you will be expected to pay over the loan term can help you to prepare and keep nasty surprises at bay.

You Have Debt to Repay

One of the best uses of a home equity loan is debt consolidation, whereby you use the loan to pay off your current debt. If you have a lot of debt tied up in credit card balances and personal loans, chances are you’re paying a much higher rate of interest than with a home equity loan.

Therefore, by swapping one big secured, low-interest debt for lots of small, unsecured, high-interest debts, you could pay much less interest over the loan term. 

Calculate how much debt you have; how much it is costing you every month (and over the term) and make sure you consider prepayment penalties as well. You can then calculate the same projected costs for a home equity loan and will likely discover that the latter will save you thousands when used to clear your debt.

Of course, for this to work, the home equity loan needs to provide you with a sufficient amount of money to cover all of your existing debts, which is reliant on your home’s value and your loan-to-value ratio.

When to Consider a HELOC

On the surface, a HELOC can seem like a better option. The loan amount isn’t as high and the money is released over a period of time, as opposed to a single lump-sum. But that could provide some huge benefits for certain types of homeowners.

You Don’t Know How Much You Will Need

If you have a couple of big events coming up, such as a wedding and honeymoon, and you don’t know how much money will be needed, a HELOC may be the better option. With a HELOC, you can draw money as you need it, paying interest only on the amount that you draw.

You will typically be charged a higher interest rate for this type of loan, but it means you can use the money to make staggered payments, such as a debt clearance this month, a wedding in a few months, and a vacation at the end of the year.

Your Income Rises and Falls

If you’re self-employed and don’t have a consistent or reliable income, a HELOC may be better than a home equity loan. With a lump-sum loan, the money typically goes quickly and then, if you encounter a slow period at work or you’re hit with a major bill, you don’t have many options for repayment.

But if you have a HELOC, you also have a line of credit waiting for you, one that can get you out of trouble when you need it.

Pros and Cons of a Home Equity Loan

  • Pro = Large cash lump-sum (based on home value) to spend as you please.
  • Pro = A fixed interest rate is charged.
  • Pro = The repayment period and the monthly payment is fixed and remain the same.
  • Cons = Interest payments may be higher than your first mortgage.
  • Cons = Your home equity is at risk.

Pros and Cons of a Home Equity Line of Credit

  • Pro = Interest is only charged on the amount you withdraw.
  • Pro = Borrow money as and when you need it during the draw period.
  • Pro = Can be used to make multiple small payments.
  • Pro = Large credit limit, depending on the value of your home and the size of your equity.
  • Cons = Only offered by credit unions and traditional banks.
  • Cons = Your home equity is at risk.
  • Cons = Interest rate is variable, and the loan is open ended, making it difficult to judge how much you will pay over the life of the loan.

How to Use Home Equity Home Loans 

There are many reasons you may want to consider a home equity loan or a HELOC, some more preferable to others, but all viable and all allowed. In fact, as long as you have the equity and meet your payments on time, the lender won’t care how you spend the money.


College tuition is expensive and student loans don’t always cover everything that you need, especially if you’re studying for an advanced degree or you’re a mature student.

You need to think about living expenses as well as college tuition fees and equipment, and a HELOC or revolving line of credit can provide you with more options, more variety, and potentially a lower rate.

Major Expense

Major expenses like funerals and medical bills can arise unexpectedly and hit you hard, taking savings or leaving you with few options. If you have a significant share in your own home, however, then a home equity loan could help.

These loans can give you a cash sum to be used on everything from weddings to funerals and medical bills, helping you to dig yourself out of trouble.


Spending your home equity loans or credit on a vacation is risky, as you’re using a secured expense tied to your most important asset to purchase something that is fleeting and won’t give you any tangible assets. 

However, we all need to live a little and while vacations can’t pay you interest or dividends and won’t appreciate in time, they will give you memories that last for a lifetime and allow you to place one extra tick on your bucket list.

Home Improvements

One of the most common uses for equity loans is to remodel, renovate or complete a major home improvement project. The costs of this project may be tax-deductible and could help to significantly boost the market value of your home.

Debt Consolidation

As discussed already, this is probably the best way that you can use a home equity loan as it’s one of the few options (along with home renovation) that may actually result in you saving/gaining money over the long term due to the lower interest rate offered by these loans when compared to unsecured debts.

Bottom Line

Home equity loans are ideal if you have some equity in your home and need some fast and easy cash. However, simply having a house isn’t enough to get these types of loans.

Your debt-to-income ratio and credit score will both be considered to make sure you can afford to meet the repayment schedule. And even if you do qualify, they may not be the best options available to you.

You can also look into a cash-out refinance, which gives you a larger mortgage than you need and lets you collect the remaining cash, or a reverse mortgage, which is only available to older homeowners who control a large equity stake.

In any case, the more of your house that you own, the more loan options you have and the better the rates and fees will become. So, if you get rejected, keep building that equity and try again in a few years.