Student loans can have a positive impact on your credit scores if you pay them on time, or they can harm your credit if you miss payments or default.

But student loans affect more than just your payment history. They can also affect other factors  that credit scoring companies use to determine your credit scores, such as your credit mix, the length of your credit history and your recent credit activity.

Credit Karma provides free VantageScore® 3.0 credit scores, as well as free credit reports, from TransUnion and Equifax. If you’re interested in how your student loans influence your credit scores, you can start by viewing your TransUnion and Equifax credit reports for free through Credit Karma.

• How do student loans affect payment history?
• How do student loans affect other credit score factors?
• Can I remove student loans from my credit reports?
• Next steps: Monitor your credit
• FAQs about how student loans affect credit scores

How do student loans affect payment history?

Making monthly payments on your student loans by the due dates adds to your positive payment history, which is typically the most important factor to your credit scores. On the other hand, paying late or defaulting on a student loan can significantly harm your credit.

The federal government reports student loan payments as late once they are 90 days overdue. Private lenders may report late payments after only 30 days have gone by, so you have less leeway to fall behind on a private student loan.

If you’re having trouble making payments, consider contacting your servicer to discuss options like forbearance or deferment.

Will paying off my student loans help my credit?

Paying off student loans can help strengthen your credit in the long term, but the size of the impact depends on your financial history. You may see a larger improvement from paying off a loan if you had been behind on payments than if the loan was in good standing all along.

Your credit scores may drop a bit after you pay off a student loan because closing an account can alter your credit mix. But the effect would be temporary, and you can continue to build your credit by paying other accounts on time.

What Credit Karma data says about credit scores and student loan delinquency

A July 2026 analysis of Credit Karma’s 24.2 million members with student loan debt showed that the median VantageScore® 3.0 credit score of someone who is delinquent on at least one student loan is 543. Those making student loan payments with no delinquencies had a median score 139 points higher (682).

That doesn’t mean falling behind on a student loan will land anyone’s score in the lowest ranges. The impact can vary based on how behind you are on your student loan and how the rest of your credit profile looks. For example, a student loan delinquency may hit harder if your existing score is high, if you have a thin credit file, or if your report shows delinquencies on other debt, too.

Credit Karma data shows that members who are behind on student loan payments are nearly three times as likely to also be struggling with other debt (mostly from credit cards and personal loans) than those who are paying and fully current on their student loans.

Median credit scores, Credit Karma members with student loans

How do student loans affect other credit score factors?

Aside from payment history, student loans can affect other credit score factors positively or negatively, depending on when you opened your accounts and how they’ve been managed.

You have many credit scores, each backed by its own credit scoring model. These credit scores can vary depending on the model and credit report that’s being used.

Most credit scoring companies, like FICO and VantageScore, create credit scoring models with the same general credit factors in mind. In addition to payment history, those factors include credit utilization, length of credit history, credit mix and recent credit activity. Here’s how student loans can affect your credit scores through each of those factors:

• Credit utilization: Student loans don’t typically affect this credit score factor.  Credit utilization reflects how close you are to the limits on your revolving credit accounts like credit cards. Because student loans are installment loans, there’s no way to “max them out” like you would a credit card.
• Length of credit history: A longer credit history is often better for your credit. So, a student loan that you took out several years ago may have a positive impact by contributing to a longer average account age. A student loan that you took out this year might have a slightly negative effect since it could bring the average age of your accounts down. However, this effect will lessen as your account ages.
• Credit mix: Taking out a new student loan could diversify the types of credit accounts you have open and improve your credit mix. But if you already have student loans, a new student loan doesn’t contribute to this factor. While it’s generally better to have a variety of credit types on your credit reports, it’s not a necessity when it comes to building credit.
• Recent credit activity: When you apply for credit, lenders check your credit, and those checks can show up on your credit report as hard inquiries. Applications for most types of federal student loans do not result in hard credit inquiries. However, hard inquiries might occur if you apply for a GRAD PLUS loan, your parents apply for a Parent PLUS loan, or you or your parents apply for private loans. 

How long does it take to build credit?

How long it takes to build credit depends on many factors, including what’s on your credit reports, how you manage your accounts and what types of credit scores you’re using to track your progress. If you have little to no credit history, it can often take a year or more to build good-to-excellent credit.

If you have student loans and those accounts are already showing up on your credit reports, you’ve already begun the process of building credit history. To raise your credit scores into the good-to-excellent range, you’ll need to build upon that credit history with consistent on-time payments, as well as other good credit-building habits.

Late or missed payments on your student loans that have been reported to the credit bureaus will count as derogatory marks on your credit reports. If you have derogatory marks, it might take longer for you to build good credit.

Can I remove student loans from my credit reports?

You can’t typically remove information about your student loans from your credit reports unless the information is inaccurate in some way. The credit bureaus will remove accurate information themselves once enough time has passed.

Student loans that you paid on time remain on your credit reports for up to 10 years after the accounts closed. Negative information, such as data on missed payments or accounts that were sent to collections, stays on your reports for seven years.

If you spot a mistake about your student loans in a credit report, dispute the error with the credit bureau attached to the report. You can contact each of the three major credit bureaus online, by phone or by mail to start the dispute process.

Next steps: Monitor your credit

To make sure all the information about your student loans is correctly reported, keep an eye on your credit reports. It’s an especially good idea to check for errors when a new servicer takes over your student loans, since transfers between servicers have resulted in credit reporting mistakes in the past.

You can check your Equifax and TransUnion credit reports, as well as your VantageScore® 3.0 credit scores from those two bureaus, for free through Credit Karma.

If you find a mistake, contact the credit bureau attached to the report to dispute the error.

You can buy down the interest rate on your mortgage by paying money upfront in exchange for receiving a lower rate on your home loan. A temporary buydown lowers the interest rate on a home loan for a short time, typically one to three years. A permanent buydown uses mortgage point purchases to lower the rate for the life of the loan.

A mortgage rate buydown may be worth considering if you want lower monthly payments early on or a lower rate for the entirety of the loan term. Temporary buydowns are often paid by a seller, builder or lender as an incentive, while permanent buydowns are usually paid by the buyer. 

Whether a buydown makes sense financially comes down to who pays for it and how long you plan to stay in the home.

• What is a mortgage rate buydown?
• What are the types of temporary rate buydowns? 
• How to pay for an interest rate buydown
• Should I buy down my mortgage rate?
• What is the difference between a buydown and an ARM?
• What is the difference between a temporary buydown and buying discount points?
• FAQs about interest rate buydowns

What is a mortgage rate buydown?

A mortgage rate buydown is when someone pays money upfront to lower the interest rate on a home loan. There are two main types: a temporary rate buydown and a permanent rate buydown. 

What is a temporary mortgage rate buydown?

For a temporary mortgage rate buydown, someone who’s involved in a home sale (often a buyer, lender, seller or builder) pays money upfront to reduce the buyer’s interest rate early in the life of the mortgage. The money goes to an escrow account, and some of it is used to subsidize the mortgage payment each month that the buydown is in effect. 

A buydown gives the buyer a lower interest rate and lower mortgage payments for a set time period that generally lasts one to three years. After this period ends, the interest rate goes up to a higher rate for the remainder of the loan term. The mortgage payments also rise to a higher level.

What is a permanent mortgage rate buydown?

A permanent mortgage buydown lowers the interest rate for your entire loan term. You can do this by buying discount points. You’ll have to pay upfront for these points when you close on your home loan, but the cost savings over time may be worth it if you stay in your home long enough to reach your “break even” point.

According to the Consumer Financial Protection Bureau, one point typically equals 1% of your loan amount — so on a $400,000 loan, one point costs $4,000. You can also buy fractional points, such as 0.5.

But keep in mind that exactly how much your rate will go down for every point you buy depends on factors such as the lender, loan type and overall mortgage market.

What are the types of temporary rate buydowns?

There are a few types of temporary buydowns. All of them lower your interest rate temporarily, but they differ in how much they reduce the rate and how long the savings last.

1-0 buydown

A 1-0 buydown gives you an interest rate that’s lower by 1% than the rate you’ve agreed to pay for the remainder of the loan term, with the savings in effect for the first year. In the second year and onward, your interest rate returns to the rate specified in your mortgage note.

Here’s how a 1-0 buydown works for a 30-year fixed-rate mortgage with a $400,000 loan amount at a contract rate of 6.75% interest.

1-0 mortgage rate buydown example

2-1 buydown

A 2-1 buydown reduces the interest rate for the first two years of the loan. In the first year, the interest rate is 2% below the contract rate. The interest rate then rises and is 1% below the contract rate for the second year. In the third year and onward, the interest rate equals the contract rate.

Here’s an example of a 2-1 buydown for a 30-year fixed-rate mortgage with a $400,000 loan amount at a contract rate of 6.75% interest.

2-1 mortgage rate buydown example

3-2-1 buydown

A 3-2-1 buydown gives the borrower an interest rate that’s 3% lower than the contract rate in the first year, 2% lower than the contract rate in the second year and 1% lower than the contract rate in the third year. Starting with the fourth year, the borrower pays the contract interest rate.

A 3-2-1 buydown for a 30-year fixed-rate mortgage with a $400,000 loan amount at a contract rate of 6.75% interest works like this.

3-2-1 mortgage rate buydown example

How to pay for an interest rate buydown

There are a few different ways to cover the cost of an interest rate buydown.

Pay cash

If you have enough cash on hand to make a large upfront payment, you can pay for an interest rate buydown yourself. 

Paying for a temporary buydown yourself means paying some of your interest ahead of time. The amount you pay upfront equals your savings later, so you aren’t gaining anything by doing this.

Discount points, on the other hand, are typically paid by the buyer at closing — though a seller can contribute toward them as a concession. Either way, compare a buydown offer against a similar mortgage without one to see which costs less over the long term.

Ask the seller to pay

Sellers may agree to pay for a temporary buydown as a concession. A seller is more likely to say yes to a request like this if the housing market is sluggish and they’re struggling to find a buyer.

Check if your builder offers incentives

Some home builders will pay for temporary buydowns as an incentive when sales are slow.

Find a lender that funds buydowns

Lenders can use temporary buydowns to reduce your initial costs from a mortgage. But you should compare a buydown offer with a similar mortgage that doesn’t include a buydown to see which one costs more over the long term. 

Should I buy down my mortgage rate?

Paying for a temporary buydown yourself is a way to pay some interest for the first few years of the loan ahead of time. You might want to do this if you have cash to spare, you want to get a head start on paying interest and you don’t expect to stay in the home long enough to benefit from permanently buying down your rate.

If you have extra cash to spend at closing and you plan to remain in the home for several years, it might make more sense to buy points for a permanent rate decrease. If you buy points, you could ultimately save more money than you spend upfront if you stay in the home long enough.

Accepting a temporary buydown could be worth it if it’s paid for by the seller, builder or lender. You’ll want to compare your overall interest and fees with and without a buydown to make sure the buydown saves you money in the long term.

What is the difference between a buydown and an ARM?

An adjustable-rate mortgage, or ARM, is a home loan that has a fixed rate for a number of years at the beginning of the loan. This rate is usually lower than rates on fixed-rate loans. After the fixed period, the rate changes at regular intervals in line with changes in interest rates throughout the economy. The interest rate you pay during the adjustment period might be higher than the rate for the fixed period, even if overall rates in the economy don’t move around much.

An ARM can be risky because you don’t know in advance how high your interest rate and payments will be during the adjustment period. It could be hard to afford the payments after your interest rate rises. In contrast, if you get a fixed-rate mortgage with a temporary buydown, you know from the start exactly how much you’ll pay for the entire loan term.

On the other hand, ARMs have an advantage over temporary rate buydowns because the initial rate can apply for a longer period of time. The fixed period on an ARM can last between five and 10 years, while a buydown typically gives you a lower rate for just one to three years. This could make an ARM a better choice if you expect to sell your home by the end of the ARM’s fixed period.

What is the difference between a temporary buydown and buying discount points?

Buying discount points is a way to permanently lower the interest rate on a mortgage. While a temporary buydown typically reduces the rate on the mortgage for the first one, two or three years, buying discount points at the loan closing gives you a reduced rate for the entire life of the loan.

Temporary buydowns generally reduce the interest rate by standard amounts such as 1%, 2% or 3%, but the rate reduction from discount points varies by lender and depends on conditions in the mortgage market. Paying for discount points usually doesn’t lower the mortgage rate as sharply as a temporary buydown. For example, buying one discount point might trim 0.25% off the rate.

Next steps

Ask yourself some questions as you consider a rate buydown.

• How long do I plan to stay in the home? If you want to stay in your home longer than a few years, you’ll either need to refinance or face increased payments when your buydown ends.
• Is my income likely to change in the future? If you’re transitioning into a higher-paying career, you might feel more confident about making higher mortgage payments once the buydown ends. On the other hand, if you work in an industry that’s experiencing uncertainty or layoffs, you might not want to risk a jump in payments later.
• What are the alternatives? You could look into an ARM or buying a less expensive property. You might also want to consider other types of seller-paid incentives, like asking the seller to make repairs or upgrades to the home.

The credit score you need to buy a house depends on the type of home loan you’re considering. Many lenders require scores of at least 620 for conventional loans, but it’s possible to get government-backed loans like FHA loans with lower scores.

If you want to know where you stand before submitting a loan application, Credit Karma offers free VantageScore 3.0 credit scores and credit reports from two of the three main credit bureaus: Equifax and TransUnion.

Keep in mind that you have many credit scores, and each provides a slightly different snapshot of your financial health.

• What is the minimum credit score to buy a house?
• What credit score do you need for each type of home loan?
• How do your credit scores affect your mortgage rate?
• What credit score do first-time home buyers need?
• Can you buy a house with bad credit?
• What other factors do lenders consider besides your credit scores?
• What’s next: How can you improve your credit score before buying a house?
• FAQs about what credit scores you need to buy a house

What is the minimum credit score to buy a house?

You’ll need a 620 credit score for many conventional loans, but it’s possible to qualify for an FHA loan with a credit score of just 500 if you meet certain requirements.

The minimum credit score you need to buy a house varies by the type of mortgage loan you’re considering. It also depends on the lender, which may set its own requirements on top of the guidelines for the loan program.

And while credit scores are important, they aren’t the only factor that matters. Lenders also examine your income, debt, down payment and other details of your finances when they evaluate your application.

What is a good credit score?

As a rule of thumb, scores starting in the high 600s and up to the mid-700s (on a scale of 300 to 850) are typically considered “good.”

You’ll likely need a good credit score to qualify for the best mortgage rates. Generally, the lowest interest rates go to borrowers with credit scores in the mid-to-high 700s or above. Your down payment size also can affect your rate.

What scores are considered when I apply for a mortgage?

Historically, mortgage lenders used the classic FICO® score, but in 2026, Fannie Mae and Freddie Mac updated their guidelines to allow lenders to use the VantageScore 4.0 credit model and the future use of FICO® Score 10T. Both VantageScore 4.0 and FICO® Score 10T use trended data, meaning they look at how your financial picture changes over time to generate a score.

For loans that aren’t sold to Fannie Mae or Freddie Mac, lenders may use other scores. You can ask the lender which score it uses before you apply.

Lenders often review scores from the three major credit bureaus and use the middle score to evaluate your application.

What credit score do you need for each type of home loan?

Different home loans have different credit score requirements. You usually need a minimum 620 score for a conventional loan, and 500 is the minimum for an FHA loan. VA loans and USDA loans don’t specify minimum credit scores, but many lenders look for scores of at least 580 to 640.

Conventional loans

Conventional loans are home loans that aren’t part of a government mortgage program. They can be either conforming loans, meaning that they adhere to regulations from the Federal Housing Finance Agency and Fannie Mae or Freddie Mac, or they can be nonconforming loans.

In 2025, Fannie Mae dropped its minimum credit score requirement for loans approved by its automated underwriter. But it’s still common for lenders to require a 620 minimum score for conforming loans.

Credit score requirements for nonconforming loans are set by individual lenders. For jumbo loans, which are larger than the conforming loan limits set by the FHFA, lenders often require credit scores of 700 or higher.

FHA loans

FHA loans are federally insured and may be a good option for first-time homebuyers. They allow credit scores as low as 500 to 579, provided you make a down payment of at least 10%. The minimum down payment allowed for an FHA loan is 3.5%, which requires a credit score of 580 or higher.

VA loans

Eligible veterans and service members can apply for VA loans backed by the VA. The VA doesn’t set a minimum credit score, but lenders may have their own requirements. You’ll likely need a score of at least 580 to 640 to qualify.

USDA loans

The USDA backs home loans for borrowers in rural areas and some suburban areas. The USDA states that borrowers should demonstrate the ability to pay back debts, but it doesn’t require a minimum credit score. Lenders often require credit scores of at least 580 to 640.

How do your credit scores affect your mortgage rate?

Higher credit scores can help you qualify for lower interest rates. Lenders generally offer the best rates to applicants with scores in the mid-700s and above, while lower scores can mean higher interest rates and higher monthly payments.

It’s worth understanding your credit scores because small difference in rates can have a large impact on your monthly payment and total interest paid.

For example: If you buy a $400,000 home with a 5% down payment and take out a 30-year loan with a 6% interest rate, your monthly principal and interest payment would be $2,278. Your total interest would be $440,185 over the life of the loan.

But let’s say you make the same purchase with a 7% interest rate. In that case, your monthly payment would be $2,528 and you’d pay $530,133 in total interest.

What credit score do first-time homebuyers need?

First-time homebuyers often need a credit score of at least 580 to 620, though borrowers with lower scores may still qualify for an FHA loan.

Some loan programs are designed to help first-time homebuyers and have low down payment requirements. Examples include Fannie Mae’s HomeReady mortgage and Freddie Mac’s Home Possible® mortgage, which allow down payments as low as 3%. Fannie Mae and Freddie Mac don’t require minimum credit scores as long as their automated underwriters determine that an applicant’s credit is acceptable, but lenders often limit eligibility to borrowers with scores of at least 620.

First-time home buyers may also be able to get help from state and local down payment assistance programs. Some first-time homebuyer programs, such as California’s MyHome Assistance Program and New York City’s HomeFirst Down Payment Assistance Program, don’t specify minimum credit scores, though they set income limits and other eligibility requirements.

Other programs may restrict participation to borrowers with certain scores. For example, Florida’s down payment assistance programs are available only to home buyers who are borrowing through the state’s Single Family Homebuyer Loan Program, which requires a credit score of at least 640.

For first-time homebuyers with lower scores, an FHA loan may be the most straightforward path to homeownership. Borrowers can qualify with a 580 credit score if their down payment is at least 3.5%, and a credit score of 500 to 579 is acceptable with a 10% down payment.

Can you buy a house with bad credit?

Buying a house with bad credit may be possible if you qualify for an FHA loan or a nonqualified mortgage or turn to another tactics that may help you get approved.

What is a nonqualified mortgage?

In addition to FHA loans, another option is to apply for a nonqualified mortgage such as a credit event loan. These loans aren’t governed by the regulations that typically require lenders to confirm borrowers have the ability to repay the money they borrow, and they may be designed for borrowers with poor credit.

But they’re often more expensive than other loan types, and they may have features that increase the odds borrowers will default. Consider your options carefully before choosing a nonqualified mortgage.

Will a larger down payment help me get a mortgage with bad credit?

Lenders may view your application as less risky if you make a large down payment. If you put more money down, there’s less of a chance that your loan balance will be more than your home is worth.

Will adding a co-signer help me qualify for a home loan?

Another strategy to qualify for a home loan is to add a co-signer with a stronger credit profile. A co-signer is legally responsible for making payments if you don’t, and lenders may look more favorably on your application if someone is co-signing because there’s added assurance that they’ll receive payments on time. This can be a risky move though since late payments will hurt your credit and the co-signer’s credit. 

What are rent-to-own mortgages?

Some sellers offer to help you reach homeownership status while you work on your credit. Rent-to-own programs allow tenants to gradually contribute to a down payment over time using some of the rent they pay and give the option to buy the home at a later date.

These arrangements can come with upfront fees or other costs, and in some cases, they’re advertised by scammers who don’t actually own the properties they claim to. Do your research and consider seeking guidance from an attorney or certified credit counselor before agreeing to a rent-to-own plan.

What other factors do lenders consider besides your credit scores?

While credit scores provide lenders with information about your financial history, they can’t sum up everything about your finances on their own.

In addition to reviewing your credit scores, lenders look at your debt-to-income ratio, employment history, income and cash reserves. You may be able to compensate for a lower credit score if these other areas show evidence of financial stability.

• Debt-to-income ratio — This measure shows your monthly debt obligations as a percentage of your monthly income. The lower your DTI, the more room you may have in your budget for a mortgage payment. Lenders generally look for a ratio of 36% or lower.
• Employment history — Lenders want to see a record of steady employment over time to be confident that you won’t lose your income source.
• Down payment size — A larger down payment means you start out with more equity in the home, and lenders may view your loan as a safer bet.
• Cash reserves — Having money on hand that you could use to make your mortgage payment signals to lenders that you have a buffer in case of emergencies.

What’s next: How can you improve your credit score before buying a house?

If homeownership seems out of reach because of your credit history, it may make sense to spend some time improving your credit before buying a home. These credit score factors are important to consider.

• Pay your bills on time — This is the most significant factor for your credit scores.
• Lower your credit utilization — Experts recommend keeping this rate under 30%.
• Dispute errors — If you see mistakes on your credit reports, submitting a dispute with the credit bureaus can be one of the quickest ways to improve your scores.
• Keep old accounts open — This helps maintain the depth of your credit history and shows you can manage credit over time.
• Avoid multiple inquiries — Only apply for credit when you truly need it. Many credit inquiries in a short period of time can lower your scores and indicate financial stress to lenders.

Check your credit reports and credit scores regularly to track your progress. Credit Karma offers free credit monitoring as well as free access to VantageScore 3.0 scores from Equifax and TransUnion.

For both renters and homebuyers, knowing your rights under the Fair Housing Act can come in handy more often than you might think.

In 2023, people across the U.S. filed more than 30,000 complaints of discrimination and unfair treatment by landlords, insurers, mortgage lenders, city agencies, real estate companies and other housing providers, according to the National Fair Housing Alliance.

It’s estimated that millions more violations go unreported every year.

Let’s look at how the Fair Housing Act forbids discrimination based on race, religion, disabilities or other protected characteristics — and what you can do if you think you’ve experienced discrimination in a housing or home financing situation.

• Fair Housing Act: Basic facts
• What does housing discrimination look like?
• How to respond to housing discrimination
• Getting more help

Fair Housing Act: Basic facts

Here are the basics of the Fair Housing Act.

• The Fair Housing Act became law in 1968 as part of the Civil Rights Act.
• The law forbids discrimination in renting, mortgage lending and other housing-related activities based on these seven characteristics:
  • Race
  • Skin color
  • Religion
  • National origin (including language spoken)
  • Sex (including gender identity and sexual orientation)
  • Disabilities
  • Families with children
• The Fair Housing Act is federal law. There are also state or local fair housing laws in many states that may cover discrimination based on additional personal characteristics like your age and income source.

The Department of Justice’s Fair Housing Act page has details on the seven protected characteristics. The National Apartment Association’s Fair Housing Act page has an interactive map and links to individual state housing info and protections.

What does housing discrimination look like?

It’s impossible to list the countless scenarios or types of discrimination that can happen when you’re renting, looking for a place to buy or rent, or shopping for home financing.

But you can get some idea of the landscape from the U.S. Department of Housing and Urban Development’s examples of housing discrimination, which include …

• Landlords denying applicants based on race or religion
• A real estate broker’s “steering” of a buyer to a neighborhood based on the buyer’s race
• Sexual harassment of a Section 8 tenant
• A condominium with insufficient disability access
• A landlord’s refusal to send rent notices to the mother of an impaired tenant so the mother could help manage rent payments
• Discriminatory rules against children at an apartment complex
• A bank rejecting home financing because of an applicant’s pregnancy
• Many types of LGBTQ+ housing discrimination related to same-sex couples, transgender homebuyers and same-sex applicants with children, to name a few.

How to respond to fair housing violations

Reporting to HUD

There is no cost to file a fair housing complaint with HUD.

HUD encourages you to report discrimination to HUD as soon as you can after any incident. The time limit to file a complaint with HUD is one year from the last date of the alleged discrimination.

You can file three ways:

• Online in English, Spanish, Chinese, Vietnamese, Korean, Arabic, Russian, Khmer and Somali
• By phone at 1-800-669-9777
• By mail to your regional Fair Housing/Equal Opportunity office (FHEO)

Be prepared to provide …

1. Your name and address
2. The name and address of the person(s) or organization your allegation is against
3. The address or other identification of the housing or program involved
4. A short description of the event(s) that cause you to believe your rights were violated
5. The date(s) of the alleged violation

Reporting to your local fair housing agency

Another option for reporting discrimination is to contact your state’s Fair Housing Assistance Program agency, if your state has one.

What happens after you file a fair housing complaint?

According to HUD, the FHEO will begin investigating “shortly” after you file. Generally, from there …

• The FHEO will pursue the investigation or refer it to another agency.
• The FHEO may try to help the disputing parties reach an agreement.
• If it’s not resolved, the FHEO may issue findings from its investigation.
• If the law has been violated, HUD or the Department of Justice may take legal action.

You can get more detail on HUD’s site about the FHEO complaint investigation process.

Getting more help

Fighting for your rights in a housing or mortgage lending situation can be scary.

If you’re feeling overwhelmed or want to reach out for more help, HUD recommends contacting one of its Fair Housing Initiative Program organizations in your state. An advocate might be able to speak to a housing provider on your behalf, investigate the situation to help nail down any discrimination that may have happened, or give you more info or other help.

If you’re shopping for a home while interest rates are high, you might consider buying a property with an assumable mortgage.

An assumable mortgage is a mortgage that a seller can hand over to a buyer. Instead of applying for a new loan to finance their home purchase, the buyer can take responsibility for paying the seller’s mortgage if the seller and lender allow.

In this article, we’ll look at how an assumable mortgage works and discuss the different types of assumable mortgages. We’ll also go over some pros and cons.

• What is an assumable mortgage?
• What kinds of mortgages are assumable?
• How does an assumable loan work?
• Pros and cons of assumable mortgages
• Assuming a mortgage after death or divorce
• Costs to assume a mortgage

What is an assumable mortgage?

An assumable mortgage is a home loan that can be transferred from one borrower to another. The new borrower then makes the rest of the monthly payments on the mortgage, usually at the same interest rate and terms.

What kinds of mortgages are assumable?

Conventional loans usually aren’t assumable. But the following types of government-backed loans can be assumed under certain conditions.

FHA loans

FHA loans can be assumed. For loans that originated on Dec. 15, 1989, or later, lenders must assess the credit of the person who would be assuming the mortgage. If that person qualifies and formally assumes the loan, the lender must give the original borrower a release from liability.

VA loans

A VA loan can be assumed by a veteran or a non-veteran. If a veteran assumes a VA loan, they can use their VA entitlement benefit to buy the home, and the original borrower might be able to get the entitlement they used restored.

If a VA loan was approved on or after March 1, 1988, then a person who wants to assume the loan must apply to the lender and the VA for permission. The original borrower has to ask for a release from liability so that they’re not held responsible for repaying the loan going forward.

It’s possible to assume a VA loan that was approved before March 1, 1988, without the agreement of the lender and the VA. But it’s a good idea for the original borrower to contact the VA to get a liability release.

USDA loans

USDA loans are assumable, but the person assuming the loan typically gets a new interest rate and new terms that they qualify for themselves. To be eligible for the terms of the guaranteed loan program, your income can’t be higher than 115% of the median for the area, and you must be unable to qualify for a conventional loan without private mortgage insurance.

You’ll also need a front-end debt-to-income ratio of no more than 29% and a back-end debt-to-income ratio of no more than 41%. Your front-end ratio reveals how much of your pretax income would go toward a mortgage payment, while your back-end ratio shows how all of your debts — including your existing debts with a mortgage payment added in — compare to your pretax income.

In some specific cases, such as transferring property to a close relative or loan assumptions following death or divorce, the person assuming the loan doesn’t have to qualify based on income or credit history and can keep the original rates and terms.

How does an assumable loan work?

Before you can assume a loan, you generally have to apply to the lender that issued the loan and get that lender’s approval.

If the lender gives you the green light, you can close on the house. The seller gives you the title to the property and hands off the mortgage to you. In exchange, you pay the seller the purchase price of the house minus the remaining balance on the mortgage.

For example, if you’re buying a home for $400,000 and the mortgage balance is $320,000, you need to pay the seller $80,000. You can do this by making a large down payment in cash or by taking out a second mortgage.

Typically, the lender gives the seller a liability release, which is a document stating that the seller is no longer responsible for paying the loan.

Pros and cons of assumable mortgages

It makes the most sense to assume a loan when interest rates are currently high. If a seller has a lower mortgage rate than the prevailing rates, you might be better off taking over that loan than if you applied for a new mortgage.

At the same time, assuming a mortgage that the seller has been paying off for many years could cost a lot of money upfront. If the seller has gained a lot of equity in the home, the sale price could be well above the remaining balance on the mortgage. In that case, you’d have to make a very large down payment or make up the difference by taking out an additional loan at current rates.

Here are some of the potential benefits and disadvantages of assuming a mortgage:

Assuming a mortgage after death or divorce

If you become the new owner of a home because you inherited it or because of a divorce, it may be possible to take over the mortgage payments even if it’s not assumable. You might not even have to fill out a loan application. While lenders are generally required by law to look at a borrower’s finances and determine if they will likely be able to repay a loan, that typically doesn’t apply when the borrower has already gained the title to the property.

Costs to assume a mortgage

Closing costs to originate a mortgage are usually 2% to 5% of the loan amount, according to Freddie Mac. When you assume a mortgage, closing costs are often lower than average.

You do have to make a down payment, though, which could be quite large if the seller has a lot of equity in the home. Alternatively, you could take out a second mortgage, but that comes with its own costs that you’ll need to take into account.

What’s next?

Ask yourself these questions as you consider whether assuming a mortgage is right for you.

• How much would you save on interest? If you assume a mortgage that was approved when rates were much lower, you might see significant savings.
• Are you OK with accepting the mortgage terms as they are?
• How much of the home’s price does the mortgage cover? If the seller has only a small remaining balance on their mortgage, you might not actually save much by assuming it.
• If you plan to take out a second mortgage, how does the cost compare to getting a new home loan to cover the entire purchase? Look at how much you’ll pay for each option to see which is more affordable.

If you’re thinking about accessing your home equity, you might want to take out a reverse mortgage or a home equity loan.

Both reverse mortgages and home equity loans allow you to borrow against the value you own in your home, but they work very differently.

The most common reverse mortgage — a home equity conversion mortgage, or HECM — is available only to homeowners age 62 or older who have paid off their mortgage or have a low remaining balance. You don’t make monthly payments on this type of home loan, but the amount you owe grows over time. You pay it off when you move out of the home or when you die, and that usually means you or your heirs must sell the home once you’re no longer living there.

A home equity loan is available to borrowers of any age, and 20% equity in the home is generally required. You borrow money in a lump sum when you sign the loan, and you pay it back in monthly installments for a set number of years. If you don’t make these payments on time, you can lose your home.

In this article, we’ll discuss the differences between these two borrowing methods and go over when it makes sense to consider each of them. We’ll also review some other financing options that could serve as alternatives.

• What is the difference between a reverse mortgage and a home equity loan?
• When should you consider a reverse mortgage?
• When should you consider a home equity loan?
• Other financing options
• What’s next?

What is the difference between a reverse mortgage and a home equity loan?

A major difference between a reverse mortgage and a home equity loan is that the balance on a reverse mortgage increases over the course of the loan, and you must pay it off all at once when you leave your home. That generally means your home must be sold when you move out or die.

With a home equity loan, you make monthly payments that gradually reduce your balance until you’ve paid off the loan in full. If you pay it back on schedule, there’s no need to sell your home at the close of the loan term.

Other differences have to do with qualification requirements and how you receive the loan proceeds.

Differences between reverse mortgages and home equity loans

When should you consider a reverse mortgage?

If you’re retired and much of your net worth is the equity in your home, you might consider a reverse mortgage to turn that equity into cash. This option can make sense if you won’t otherwise have enough income to cover your living expenses and if you want to continue living in your home for the foreseeable future.

But you should think carefully before deciding on a reverse mortgage. As time goes on, the amount you owe on a reverse mortgage grows, so it can become difficult to get out of the loan without selling your house.

Because the Federal Housing Administration insures home equity conversion mortgages, you also need to make sure that you can abide by the terms of the loan, such as the requirements that you keep the home well maintained and that you pay your property taxes and homeowners insurance.

In addition to HECM loans, some lenders may offer proprietary reverse mortgages. These loans typically aren’t insured by the FHA. You may also be able to find single-purpose reverse mortgage loans offered by some nonprofits or state and local governments.

If you’re considering a reverse mortgage, be sure to shop around to compare options, terms and fees. Loan costs — which include origination fees, interest rates and closing costs among other things — vary among lenders.

You should also be aware of reverse mortgage scams. If anyone tells you to take out a reverse mortgage to buy an investment or to pay for home repairs they’re selling, it could be a scam.

What are some of the costs?

Reverse mortgages are usually more expensive than other methods of borrowing against your home equity.

Reverse mortgages come with upfront costs. These include origination fees that you owe to the lender. They also include closing costs such as appraisal fees and title search fees.

For reverse mortgages guaranteed by the FHA, you’ll pay an initial mortgage insurance premium. This insurance ensures that you get your expected loan proceeds.

You might be able to roll upfront costs into your loan so that you don’t have to pay them in cash at the loan closing, but you or your heirs will then have to pay them when your home is sold.

Ongoing costs for reverse mortgages include an annual mortgage insurance premium equal to 0.5% of your current loan balance. Remember, your loan balance goes up over the course of a reverse mortgage, so this premium will also increase over the life of the loan.

Other ongoing costs include interest, servicing fees, homeowners insurance premiums and property taxes. In some locations, you may have to pay for flood insurance.

You also have to pay for any repairs needed to keep your home in good shape.

How do you receive the money from your loan proceeds?

There are a few ways you can receive the money from a reverse mortgage.

You can take one lump sum payment when you close on the loan and pay a fixed interest rate on that amount. This is generally more expensive than the other choices, and the total amount you can borrow is often lower. You won’t be able to withdraw more later, so you should make sure that the lump sum will last for the remaining time in your home.

Alternatively, you can get a line of credit. With this option, you’re charged a variable interest rate. If you don’t withdraw all your available funds upfront, your borrowing limit can go up over time. You pay interest and fees only on the money you take out, so this choice can be less expensive than a lump sum payment.

Or, you can choose a monthly payment, which would continue either for a certain number of years or until you’ve borrowed as much as you’re eligible for. This costs less than a lump sum payment, and you may be able to supplement it with a line of credit.

Do you plan to remain in your home for a long time?

A reverse mortgage is more likely to be worthwhile if you expect to stay in your home for many years. If you’re going to move soon, you might want to choose a less expensive way to take money out of your home equity in the short term.

When should you consider a home equity loan?

While a reverse mortgage has very specific limitations on who can qualify, a home equity loan or second mortgage is available to people in a wider variety of situations. You don’t have to be a certain age, and you can have a fairly large outstanding balance on your first mortgage.

A home equity loan may be worth considering if you need to access a certain amount of cash to pay unexpected bills, cover medical expenses or make a big purchase. This type of loan gives you the proceeds upfront, so it makes sense to use it for a one-time purpose rather than for ongoing costs.

Before opting for a home equity loan, you’ll want to consider some of the following criteria.

Do you have enough equity in your home?

Typically, lenders will require you to have at least 20% equity in your home before taking out a home equity loan. And you’re usually capped at borrowing 80% of the equity you’ve built up. So this option makes sense only if you have enough equity available to use.

Can you qualify for a reasonable interest rate?

A home equity loan typically comes with a fixed interest rate, so you’ll pay the same rate for the life of the loan. You’ll want to try to find the best rate possible because even a slightly lower rate can save you a significant amount of money. You should compare annual percentage rates, or APRs, on different loans to find the least expensive one.

Will you be able to afford the monthly payments

Taking out a home equity loan puts your home on the line. If you aren’t able to keep up with your payments, your lender could foreclose on your home. You’d lose your home, and the equity you’ve worked for would be gone. Only consider a home equity loan if you’re confident that you can make the payments each month.

Other financing options

You may want to consider the following alternatives to a reverse mortgage or a home equity loan.

• A HELOC. A home equity line of credit is a form of revolving credit that uses your home equity as collateral. You can borrow money and pay it back repeatedly as long as you don’t go over your borrowing limit. After the borrowing period, you must repay your remaining balance, either with a lump sum payment or in monthly installments.
• A cash-out refinance allows you to take out a new mortgage that’s larger than the remaining balance on your existing mortgage. You use the new mortgage to pay off your existing mortgage, and you get the money that’s left over in cash. You then make monthly payments on the entire amount you owe.
• An unsecured personal loan. You borrow a lump sum upfront, then make fixed monthly payments for a set time. There’s no collateral, so your home is not at risk if you fail to repay the loan. But the interest rate will often be higher than what you’d pay if you borrowed against home equity.

What’s next?

Ask yourself these questions as you review your options.

• How much equity do I have? You’ll need at least 20% equity for a home equity loan, while you must have paid off almost all of your mortgage to qualify for a reverse mortgage.
• Do I have enough income to cover monthly payments? If you’re retired and on a fixed income, a reverse mortgage could allow you to borrow without repaying by installments. But if you can fit loan payments into your budget, you might be better off with a home equity loan because it doesn’t require giving up your home in the future.
• How long do I want to stay in my home? If you aren’t planning on staying in your home for many more years, a reverse mortgage may not be the best choice.
• Do I need to borrow a large amount of cash all at once, or smaller amounts multiple times? A home equity loan gives you the proceeds in a lump sum. If you need to borrow more frequently, you might prefer a reverse mortgage with disbursement through monthly installments or a line of credit.

Editors’ take: The insurer offers basic auto insurance coverage options and few discount opportunities. Other high-risk insurers exist and may be better options, so shop around.

FAQs about Acceptance car insurance

You won’t find car insurance without a deposit.

While you may hear the phrase “no-deposit” car insurance, it’s misleading. It’s not possible to take out an auto insurance policy without putting money down. But you might be able to save on your upfront costs if you find a company that charges a low monthly premium and will let you start coverage with just the first month’s premium payment instead of a larger deposit.

Since you can’t get an auto insurance policy without making a payment, major insurers won’t typically use the wording “no-deposit insurance” to advertise their products. And scammers might use this phrasing in an attempt to lure you in.

So to save money on your first insurance payment, it’s better to research the offerings of reputable insurance companies and compare quotes rather than searching specifically for a no-deposit policy.

• Can you get car insurance without a deposit?
• Is no-deposit car insurance a scam?
• How to find low-down-payment car insurance
• Tips on how to lower your car insurance premium
• FAQs about car insurance without a deposit

Can you get car insurance without a deposit?

It’s not possible to get car insurance with no money down. But some insurance companies don’t require an additional deposit on top of your first month’s premium, so you may be able to pay the same amount each month of the policy.

When you sign up for car insurance, you’re agreeing to pay the insurance company a premium. In exchange, the insurance company will pay you up to specific agreed-upon amounts if your car is stolen or damaged or in an accident.

Some car insurance companies offer discounts when you pay the entire premium upfront. Others require a large portion of the premium upfront, followed by smaller monthly payments.

Is no-deposit car insurance a scam?

When describing a car insurance policy paid for with equal monthly premiums, “no-deposit” car insurance is not a scam, provided a legitimate company sells it. Reputable insurers may offer customers policies that don’t call for a big upfront deposit.

One warning sign to watch out for is when an insurer promises to provide auto coverage with no money down or claims you can get the first month’s coverage for free.

Also, watch out for companies offering temporary car insurance. Reputable insurers will require you to buy coverage for at least six months. Legitimate insurers provide quotes for free. Don’t pay anyone to give you a quote.

How to find low-down-payment car insurance

Get several car insurance quotes and inquire about the down payment amount. You can often call insurers, visit their websites or go through an insurance agent. After you provide information such as your Social Security number, driver’s license number, occupation and make and model of your vehicle, you’ll receive quotes that show the premium, deposit, claim limits and deductible for the policy.

Once you receive the quotes, compare the premium’s first payment amount with the following monthly premium. If you aim to avoid a higher price for the first month, quotes should provide this information. If you’re still unclear about how much you’ll pay to start coverage, it might be a good idea to call the insurance company directly or speak with an agent.

Compare the quotes and choose a policy with the level of car insurance coverage you need and a premium you can afford. The insurer will often tell you how to proceed with setting up a payment plan and will tell you which payment methods they accept.

Tips on how to lower your car insurance premium

If you’re unsatisfied with your current policy, there are ways to lower your car insurance that don’t include searching for no-deposit car insurance. Here are some potential savings you may want to consider.

• Lowering your liability coverage limits: Each state has minimum liability coverage requirements, but if you currently have more than the minimum, you may be able to lower your monthly premium.
• Exploring usage-based insurance programs: If you’re a good driver, signing up for a usage-based insurance program could earn you a hefty discount for your good driving behavior.
• Searching for discounts: The number of car insurance discounts you may receive varies by insurance company, but there are plenty of ways to save.
• Signing up for pay-per-mile insurance: If you don’t drive often but still want to keep your vehicle insured, pay-per-mile car insurance could be a good fit.

Always remember to shop around for multiple quotes before choosing your next car insurance provider.

Editors’ take: Foremost auto insurance could be a good fit for someone interest in insuring multiple specialized vehicles.

What you need to know about Foremost auto insurance

Foremost was founded in 1952, and it started by insuring mobile homes. It expanded its offerings over the years to cover a wide range of vehicles, and today it’s a member of the Farmers Insurance Group.

Auto coverage offered by Foremost

Foremost offers standard types of coverage, plus a few less widely available options.

Auto insurance discounts offered by Foremost

Foremost lists just a few auto insurance discounts on its website.

The discounts available may depend on your location and the company that underwrites your policy. You’ll need to talk to an agent to get more complete information about possible discounts.

If you take out a home loan with a low down payment or through a government program, you might have to pay mortgage insurance.

Mortgage insurance protects the mortgage lender rather than you, the borrower. You’ll pay premiums to the insurer, which could be either a private company or a government agency, depending on the type of mortgage.

In return, the insurer agrees to pay the lender up to a specified amount if you fail to make payments on your mortgage as agreed. As a borrower, you’ll get no extra protection from mortgage insurance. You can still lose your home through foreclosure and hurt your credit scores if you default on your loan.

We’ll review the different types of mortgage insurance and look at how much it could cost you. We’ll also discuss how long you can expect to pay for different types of mortgage insurance and how to avoid mortgage insurance altogether.

• What are the different types of mortgage insurance?
• How much does mortgage insurance cost?
• How long do you need to pay mortgage insurance?

What are the different types of mortgage insurance?

Mortgage insurance goes by different names for different types of home loans.

PMI on conventional loans

Lenders typically require private mortgage insurance, or PMI, for conventional loans if the down payment is less than 20% of the home’s purchase price. In most cases, you pay PMI through monthly installments. But there are a few other options.

You might be able to pay for PMI with a single large premium when you close on the loan, or roll the upfront premium into your loan. You’d then pay it off gradually as you make loan payments.

Another common option is the split premium. In that case, you pay part of your PMI upfront and the rest on a monthly basis.

Finally, there’s also lender-paid PMI. The lender pays this form of PMI for you but usually charges a higher interest rate as a result.

MIP for FHA loans

If you take out a government-backed FHA loan, you’ll typically be assessed a mortgage insurance premium, or MIP, in a couple of ways. First, you’ll pay an upfront MIP when you close on your loan. Then you’ll pay an annual MIP going forward.

Your upfront MIP payment will be equal to 1.75% of your loan. Your annual MIP will vary depending on factors such as your loan-to-value ratio and your base loan amount.

USDA guarantee fee

USDA loans don’t require mortgage insurance, but they do come with an upfront “guarantee fee” as well as an annual guarantee fee that serve the same purpose. These fees are usually included in your monthly loan payment.

VA funding fee

If you’re an eligible service member, veteran or qualifying military spouse, you may qualify for a VA loan, which doesn’t require mortgage insurance. Instead, the VA charges an upfront funding fee, which can be rolled into your loan.

The VA warns that if you add the funding fee and closing costs to your loan, rather than paying for them upfront, you could be left owing more than your house is worth.

Some borrowers may qualify for exceptions and won’t have to pay the funding fee, including borrowers in the following situations:

• Borrowers who receive VA compensation for a disability related to their military service
• Borrowers who are eligible for VA compensation for a disability related to their service and who receive retirement or active-duty pay
• Surviving spouses who receive dependency and indemnity compensation

How much does mortgage insurance cost?

For some loan types, the characteristics of your mortgage determine how much you pay in mortgage insurance.

Conventional loans

The cost of PMI is based on a variety of factors, including the loan-to-value ratio of your mortgage, your credit scores and the length of your loan. Mortgage finance company Freddie Mac reports that PMI costs are typically $30 to $70 per month for every $100,000 of your loan amount.

You can estimate how much PMI you’ll owe by using Credit Karma’s PMI calculator.

FHA loans

The upfront mortgage insurance premium on your FHA loan will equal 1.75% of your loan amount. For example, if you borrow $200,000 for your mortgage, you’d make an upfront MIP payment of $3,500 when you close your loan.

The annual mortgage insurance premium depends on the size of the loan, loan term and down payment. Beginning in March 2023, the annual premium for new mortgages will range between 0.15% and 0.75%.

USDA loans

The USDA publishes standard guarantee fees and updates them regularly. As of February 2023, USDA loans have an upfront fee of 1% and an annual fee of 0.35%.

VA loans

The size of the VA funding fee depends on your loan amount and other factors, including whether you’re getting a purchase loan or refinancing as well as whether your loan is part of the Native American Direct Loan program.

The VA funding fee also varies depending on the size of your down payment — with higher fees for lower down payments. The fees are also higher if you’ve taken out a VA loan before.   

Depending on the various factors, the funding fees range between 0.5% and 3.6%.

How long do you need to pay mortgage insurance?

Given that mortgage insurance protects the lender rather than you and adds to your costs, you generally want to stop paying it as soon as you can. With some types of loans, you can get rid of mortgage insurance once you meet certain criteria. But other loans require you to pay mortgage insurance over the lifetime of the loan.

Conventional loans

If you opt for an upfront premium or lender-paid PMI on a conventional loan, then you generally can’t get that insurance removed.

But under the federal Homeowners Protection Act, you can request to have PMI removed once the remaining principal on your loan is 80% of the home’s original value. You’ll need to submit your request in writing, and you have to be up to date on your loan payments to qualify. You might also need to show that you don’t have a second mortgage on the property. And the lender may ask you to get an appraisal to confirm that your home’s value hasn’t gone down since you bought it.

Unless you’ve already gotten PMI removed, federal law requires your servicer to stop charging for PMI once your principal balance is at least 78% of the home’s original value. Again, this works only if you’re making on-time payments. If you’ve fallen behind on payments, you’ll still owe PMI until you’re caught up.

Alternatively, your servicer must end PMI when you’re halfway through the amortization schedule for your loan, as long as you’re on track with payments.

FHA loans

You’ll typically owe an upfront mortgage insurance premium plus an annual mortgage premium on an FHA loan. You can opt to finance the upfront premium, in which case you’ll pay it off with interest through your monthly payments.

To remove FHA mortgage insurance, first contact your lender to see what it requires to drop the insurance. Most lenders will want to see that you have a significant amount of equity in your home before they’re willing to remove the mortgage insurance premium.

Rules around removal of FHA mortgage insurance vary depending on your loan origination date, so lender flexibility may be limited.

For mortgages finalized on or after June 3, 2013, the length of time you owe the annual premium depends on the size of your down payment. If your down payment is under 10% of the home’s value, then you have to keep paying the annual premium for the whole term of the loan. But if you make a down payment of at least 10%, then you pay the annual premium for the first 11 years.

USDA loans

You’ll typically owe both an upfront guarantee fee and an annual fee on a USDA loan. You can choose to finance part or all of the upfront fee. If you do, you’ll pay the fee back over time with interest.

The annual fee applies for the life of the loan. You can stop paying it only if you pay off the mortgage early, if the lender forecloses on the home, or if the lender takes the home through a deed-in-lieu of foreclosure.

VA loans

The VA funding fee is a one-time fee, so you won’t owe any ongoing mortgage insurance on a VA loan. However, if you decide to roll the funding fee into your loan, you’ll gradually pay it off with interest through your loan payments.

What’s next?

A straightforward way to avoid paying mortgage insurance is to get a conventional loan and make a down payment of at least 20%. But you’ll want to budget for a down payment of this size because you’ll still need money for closing costs and moving expenses.

Some lenders offer piggyback loans that help bring your down payment to 20% to help avoid mortgage insurance. These loans may allow you to get out of paying PMI, but they can be costly and might not actually save you money in the long run. Plus, they can complicate the process of refinancing your loan later.

If you need to borrow money, you might consider taking out a home equity loan or a personal loan.

A home equity loan is a loan where your home serves as collateral. You borrow a set amount, and you usually repay pretty much the same principal and interest amount monthly until the loan term is up.

A personal loan is usually an unsecured loan that gives you a lump sum up front and, similarly, requires you to pay back the principal plus interest in monthly payments for a number of years.

Home equity loans and personal loans both have pros and cons. We’ll explore how these two loan types compare and look at some situations where it might make sense to choose one over the other.

• What is the difference between a personal loan and a home equity loan?
• Is it a good idea to take equity out of your house?
• Does a home equity loan count against your credit scores?
• Next steps: Questions to ask

What is the difference between a personal loan and a home equity loan?

The following table shows key details to compare.

How home equity loans and personal loans differ

Collateral

A home equity loan is a secured loan, meaning you have to put up collateral. In this case, the collateral is your home equity, or the value of your home minus the remaining balance on your mortgage. A home equity loan puts a lot on the line because if you don’t pay the loan back as promised, the lender can foreclose on your home to recover the funds.

In contrast, collateral often isn’t required for a personal loan. And you don’t usually risk losing your home or other property with an unsecured personal loan.

Some lenders offer secured personal loans, but these are typically backed by a savings account or car, rather than real estate.

Interest rates

Both home equity loans and personal loans typically have fixed interest rates.

Unsecured loans often have higher interest rates than home equity loans since they aren’t backed by property or savings.

The rate you might get for either type of loan will generally depend on your credit, income and the amount you’re borrowing. Shopping around and comparing rates will help you zero-in on the best possible offer for your situation.

Loan amounts

If you need to borrow a large amount, you’re likely better off going with a home equity loan. While lenders generally cap the amount you can borrow at 85% of your home equity, it’s common to see home equity loans for hundreds of thousands of dollars.

On the other hand, personal loans usually range from $1,000 to $100,000. And lenders may offer the highest loan amounts only to those with the strongest credit.

Repayment terms

Home equity loans often have longer loan terms available — up to 30 years — which can lower your monthly payments.

Personal loans usually have loan lengths between 12 months and 84 months.

Fees

To take out a home equity loan, you may need to pay for an appraisal to confirm your home’s value and for a title search to verify that you’re the owner of your home. Other fees may include an origination fee and a document prep fee.

In all, fees can often equal 2% to 5% of the amount you borrow.

When you take out a personal loan, lenders may charge an origination fee. This fee is usually 1% to 8% of your loan amount, and it’s generally taken out of your loan funds. That means you may not need to provide money upfront, but you’ll have to borrow enough to cover both the fee and whatever expenses you need the loan for.

Shop around and compare potential fees before you decide.

Tax advantages

You may be able to deduct the interest you pay on a home equity loan if you use the funds to renovate your home. But this tax incentive doesn’t apply if you use the money for something else, like paying for healthcare or a wedding.

The interest on a personal loan typically isn’t tax deductible.

Risk to credit

If you don’t repay either a home equity loan or a personal loan as promised, it can hurt your credit.

And if you default on a home equity loan, the lender could foreclose on your home.

A foreclosure would likely pull down your credit scores dramatically, and would stay on your credit reports for seven years. You almost definitely wouldn’t qualify for a new mortgage during that time frame.

Defaulting on a personal loan can also affect your credit reports and scores negatively. But the consequences likely won’t be quite as harsh as they would for defaulting on a home equity loan.

Is it a good idea to take equity out of your house?

There are pros and cons to borrowing against your home equity.

First, you’ll want to consider how much equity you have in your home. If you made a big down payment or have paid off a lot of your mortgage, a home equity loan might give you access to more cash than you’d be able to borrow with another loan type.

A home equity loan could be the better choice if you need a large sum, to pay for something like a kitchen renovation or an expensive medical procedure.

You’ll also need to ask yourself whether you can comfortably afford the payments on a home equity loan. If you can qualify for a lower interest rate on a home equity loan rather than a personal loan — and other terms are similar — the loan with the lower rate might be the better option.

But if you’ve been struggling financially and you’re worried about keeping up with payments, you probably shouldn’t risk your home.

And if you only need a small amount of money to cover a gap in your budget, a personal loan is likely a better option.

Does a home equity loan count against your credit scores?

Taking out either a home equity loan or a personal loan could cause a dip in your credit scores. Applying for a loan will usually generate a hard inquiry, which could bring down your scores slightly, temporarily. And taking on new debt will increase your credit usage, which can also pull down your score.

Whichever option you choose, making your payments on time adds to your payment history and might have a positive effect long term on your credit. And because both are installment loans, either one could improve your credit mix if you don’t already have debt in this category.

Next steps: Questions to ask

It’s a good idea to compare quotes from a few lenders before choosing a home equity loan or a personal loan.

And if you’re not sure which of these loan types is right for you, it might help to consider these questions:

• How does the cost of a home equity loan compare to the cost of a personal loan? Interest rates may be lower on a home equity loan, but both can come with fees that add to costs.
• Does one type of loan offer a more affordable monthly payment? No — it depends on the terms of each particular loan.
• How confident are you about putting up collateral? If your finances aren’t in great shape or if you’re borrowing for something that’s not critical, the risk of a home equity loan might not be worth it.
• Do you want to borrow a particularly large or small amount? A personal loan may be the better choice for smaller loans, while tapping into home equity can give you access to larger sums of cash.

And if you don’t know in advance how much you’ll need or if you plan to borrow repeatedly, you may instead want to consider a home equity line of credit, or HELOC. A HELOC is a form of revolving credit that allows you to borrow against your home equity multiple times, up to a credit limit (similar to a credit card).

*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.

Getting car insurance when you don’t have a driver’s license may take some extra legwork, but it can be done.

There are several reasons you might need insurance if you don’t have a license. You might be out of a license in the short term because of a medical condition. You might not be behind the wheel anymore, but you might have family driving your car for you. Or maybe your license was suspended, and you’re seeking to get it reinstated.

If someone else is driving your car for you, most states require that you have insurance coverage. Your lender might also require insurance if you’ve financed your vehicle. Even if no one is telling you to get insured, it’s usually best to have insurance just in case anything happens to your car.

• How to get car insurance without a license
• Why you might need car insurance without a license
• Which companies offer car insurance without a driver’s license?
• FAQs about car insurance without a driver’s license

How to get car insurance without a license

To find insurance companies that will offer you a policy without a license, try talking to an insurance agent or broker who can help you identify specific insurers that might work.

Working through an agent or broker might be easier than contacting companies and asking them directly. Most insurers’ online applications ask for a driver’s license number, so you’d likely have to call and ask if they’ll work with you.

In any case, try to compare car insurance quotes from multiple companies. You’ll want to choose the most affordable option that provides the level of coverage you need, but keep in mind that you may be charged a higher auto insurance premium than you’d pay as a licensed driver. Depending on your circumstances, the following tips might be worth considering.

List yourself as an excluded driver

If a family member or someone else is driving your vehicle, you might be able to buy insurance listing them as the rated driver — meaning the one who operates the vehicle — and yourself as an excluded driver.

When you’re an excluded driver, the insurance company doesn’t have to pay if you drive the vehicle and get in an accident. Of course, when you don’t have a license, you cannot legally drive anyway.

Excluding yourself might be the only way to get your car insurance if an insurer views you as too much of a risk and isn’t willing to cover you. Or, an exclusion might bring down the cost of your insurance, as long as the insurance company views the rated driver as a safer bet.

But getting an exclusion may not be possible in every state. And if you want to reinstate your license and start driving again, you’ll have to get the exclusion removed.

Ask about an SR-22 certificate if required by law

If your license was suspended or revoked, your state might require you to get an SR-22 certificate from your insurer. This document shows that you have at least the minimum amount of insurance coverage that your state requires.

Before you can get your driver’s license back, you generally need to submit an SR-22 to your state to prove that you’re complying with the law. Some companies may not be willing to insure you if you need an SR-22, so you should check that this form is available.

Get parked car coverage

“Parked car coverage” typically refers to a comprehensive insurance policy that doesn’t include liability or collision coverage. If no one is driving your vehicle, you might need protection against events like theft or vandalism, which comprehensive coverage provides.

You might not need full coverage auto insurance, which provides more extensive protection in case of car crashes. Buying parked car insurance could save you money because you wouldn’t be footing the bill for additional types of coverage that don’t apply to your situation.

Why you might need car insurance without a license

Here are some reasons a person could be without a driver’s license but still needing insurance.

• A medical condition is preventing you from driving. You might be unable to renew your license while you get better. Or you might need a medical procedure — like eye surgery —before you can meet the legal requirements for a license. Even if your car isn’t in use while you recover, you may still need insurance in case your vehicle is damaged or stolen, or to meet a lender’s requirement that you maintain coverage while repaying your car loan.
• You no longer drive, but your family members use your car. Maybe your family drives you to errands or appointments, or you let them take your car when they need transportation. You need insurance for your vehicle in case anything happens when they’re driving it.
• You collect cars. You might buy a vehicle because it’s a vintage treasure or because of the nostalgia factor. In that case, you’ll want to protect your investment against damage or theft with classic car insurance.
• You have a DUI conviction. If your license has been suspended for a DUI, you’ll sometimes need to prove you have car insurance to get your license back.
• You have a learner’s permit. If you’re learning to drive and aren’t covered by a family member’s or partner’s policy, you’ll need car insurance to go out on the road and practice.

FAQs about car insurance without a driver’s license