Are you dreaming of getting onto the property ladder? Then first things first. Before you start hunting down the best mortgage lenders, you need to save up for that all-important down payment – which, admittedly, isn’t always easy, particularly in the current climate. Then there are the other aspects you’ll need to consider, from sourcing the right mortgage to understanding the housing market. It can all feel a bit overwhelming to the uninitiated. 

There are small steps you can take to start building your savings pot and boosting your knowledge, so here, we take a look at how to save money for a house and prepare for taking that first step on the ladder. All of this will help you on your journey to homeownership.

How much should I save for a down payment?

Your first step is knowing what your end goal is – i.e., how much you're going to need to set aside to afford the house of your dreams. You'll need a sufficient down payment to ensure you're getting the lowest mortgage rates. This means looking at the current market to get a ballpark figure of house prices in your area, and from there, working out how much you'll need to save. 

Ideally, you want to aim for a minimum of 20% of the purchase price. “A 20% down payment will get you the most favorable mortgage rates and eliminate the need to pay for private mortgage insurance (PMI),” explains David Weliver, Founder at Money Under 30. “You can buy a home with as little as 3.5% down, but you’ll be paying much more in interest overall.”

A 20% down payment may seem like a stretch, but it will make homeownership more affordable in the long run, particularly when you consider PMI. PMI is a type of insurance designed to protect the lender if the borrower cannot keep up with the payments. It's a requirement for mortgages where you put less than 20% down. Dr. David Tuyo II, President and CEO of University Credit Union, explains that PMI is calculated as a percentage of the mortgage payments, on average 0.5% to 1.5%, depending on several factors like your credit score, credit history, and the amount of the down payment.

“Essentially, private mortgage insurance is an additional cost that may increase your monthly payments,” Dr. Tuyo said, so this will always need factoring into any calculation. And, when you consider the higher interest rates that are inevitable with a smaller down payment, it’s easy to see how costs can escalate. So, if your budget would struggle under the weight of these extra costs, spending longer saving for a larger down payment at the outset may make more sense. 

“Realistically, if it’s possible, the higher the down payment or savings prior to purchase, the better,” adds Dr. Tuyo. “Generally speaking, if someone can save between 20-30% of the cost of their new home, then they would be approaching the purchase with a healthy financial outlook and be well-prepared to take on the responsibility of homeownership.”

Don’t forget about the other costs that come into play, too. “Remember that unlike renting, there are quite a few variable expenses of homeownership,” says Matt Frankel, CFP, contributing mortgage analyst at The Ascent by The Motley Fool. “Property taxes, homeowners insurance, HOA dues, and maintenance are just a few examples. Be sure to take these into account when setting a reasonable budget.”

Such costs can quickly eat into your house budget, and that's before you even get to things like inspections and the cost of truck rental services for the move itself. Don’t forget to factor these into your initial calculations and add them to your down payment savings to get a more accurate ballpark figure of the total amount you need to save. Being thorough in your research and budget will ensure there won't be any surprise expenses down the line. 

What if I can’t save that much?

Of course, it isn’t always easy to get started, and in many instances, such a significant down payment will be an impossibility. “With home prices skyrocketing over the past year or so, it can seem very difficult to build up enough savings for a down payment,” says Frankel. “Two smart things you can do are finding out the low-down-payment options you can take advantage of, and researching any down payment assistance programs available in your local area.” 

This kind of support can be invaluable, so it’s worth spending time to see what’s out there. The US Department of Housing and Urban Development (HUD) offers several first-time buyer support programs and federal-backed loans. Most lenders have down payment assistance programs in place, too, operating on a state and local level. Taking advantage of such programs could mean you could reach your goal of homeownership far sooner than expected.

There's no need to panic if you learn that you're not eligible for this kind of support and find that you can't put away a 20% down payment. You should still be able to find a mortgage and buy your ideal first home. But be prepared for the monthly costs to be higher when going this route. 

Consider the housing market

It's important to bear in mind the impact that the economic landscape can have on your savings ambitions, too, because the housing market changes rapidly. As Frankel pointed out above, skyrocketing house prices mean that even though you know how much you'll need to save to afford a house, this figure can change in line with broader market fluctuations and the economy as a whole. Staying on top of market changes in your area will help you avoid such shocks.

All this can prove tricky for those relocating to an unfamiliar area. Yet, it also offers unexpected opportunities. The coronavirus pandemic has made remote work increasingly common, leading to many workers looking to move to capitalize on their newfound flexibility. Relocating to a more affordable neighborhood without needing to worry about commuting has never been easier.

You'll also want to weigh the differences between buying and renting. "The fact is that renting can be much cheaper than homeownership, particularly in very expensive cities and popular areas," says Dr. Tuyo. "As a homeowner, there are additional costs to consider that renters do not need to contend with in their monthly payments. Ultimately, these additional costs should be accounted for when comparing renting options against buying opportunities … However, it's a more complicated calculation if you consider the potential return on investment through equity and the increase in value of a home over the years."

Dr. Tuyo adds that once you pass a certain point, the cost of homeownership outweighs those of renting. “Generally speaking, owning a home starts to be less expensive than renting after living in the same home for at least five years,” he says, so even if the initial outlay is a stretch, it could pay off in the long run.

Fix your credit score

Spending time fixing your credit score, particularly if you’ve missed payments or had difficulty securing credit in the past, should be high on the list of priorities for anyone saving for their first home. A better credit score equals a lower mortgage rate and, as a result, lower payments for the life of the loan. 

This is because your credit score is a vital part of lenders’ eligibility criteria. If it isn’t up to scratch, you’ll be facing higher interest rates and repayment plans, and you could even be unable to secure a loan. “An individual’s credit score is used to determine the risk of providing them with a loan,” explains Dr. Tuyo. “Lenders use this to determine how likely it is for you to repay your loan once received and your general financial practices or habits in how you manage debt. Essentially, people with a higher credit score will be seen more favorably and they will be more likely to receive better loan offers with lower interest rates.”

Credit scores aren’t the only element lenders consider, added Dr. Tuyo, but it’s essential to be aware of your score and how it might affect your ability to get a mortgage. As a ballpark figure, if you’re looking for a conventional mortgage loan, you’ll likely need a credit score of at least 620 to be approved by a lender. If yours falls short, it’s time to get busy.

Seeking out credit repair services may be the quickest way to improve your financial health. Many of the best services guarantee to improve your score. They'll rifle through your credit report, spot areas that need attention, and highlight potential errors. They'll even work with credit bureaus to rectify lingering issues, which will help boost your score. Of course, it's possible to fix your credit score yourself. It'll take a bit more work on your part but costs nothing but time.

Figure out which mortgage you can afford

Even if you have your financial goals in order, your credit score has rebounded, and you have an eye on the local housing market, it's important to step back and remember that you need a mortgage you can actually afford. Doing this before you get the ball rolling with mortgage lenders gives you the added security of knowing you won't get in over your head.

“Before purchasing a home, it’s important to work with your lender to see how much buying power you can qualify for based on your debt-to-income ratio and credit,” says Ajani Scott, reality star and real estate agent of Agents of LA. Your debt-to-income (DTI) ratio is key. DTI is a measure of your income against your debt and can indicate how well you’re managing your current credit commitments. A higher score means you could already be struggling and may not be able to afford a mortgage on top of your other obligations. 

You'll need to take a thorough review of your finances so you can see the big picture realistically. Personal finance software can help. It'll give you a general overview of your financial stability and, if it links with your current bank accounts, offer an easy way to keep on top of your budget. Remember to think long-term. Saving for a down payment is only half the battle. You also need to be confident you can make mortgage payments on time, keep up with repairs around your new place, and have an emergency fund at the ready. Buying a new home should not cause you to overstretch yourself or strain your finances.

Dr. Tuyo encourages you to keep things realistic. “Search for a house you can comfortably afford. Your total housing payment should be under 30% of your gross monthly income.” Buying a house you can afford keeps your DTI ratio in check. Remember, lenders use that score to determine your eligibility for credit. Keeping payments under the 30% mark also takes less of a toll on your budget.

“One important point for new homeowners to keep in mind is that banks will typically approve you for more than you should realistically spend,” adds Frankel. “Most lenders will approve buyers with a DTI ratio as high as 45%, based on pre-tax income. But what your lender will approve you for and what you can comfortably pay each month are two different things.” And that is why sticking to the 30% rule is critical. 

Source the best mortgage rates

Dr. Tuyo believes your best chance to get approved for a mortgage is to ready yourself with the following: adequate savings for a down payment, closing costs, and cash reserves; a qualifying credit score; proof of consistent, reliable income for at least two years; and a reasonable debt-to-income ratio. Once you have everything in order, it’s time to find a low-interest mortgage.

Don't be swayed into accepting the first mortgage offered. "One of the biggest rookie mistakes homebuyers make is applying for a mortgage with one lender and simply accepting whatever loan terms they offer," explains Dr. Tuyo. Just as you comparison shop for daily essentials, you should do the same with lenders.

"For one thing, different lenders will offer different mortgage rates to the same borrower," says Dr. Tuyo. "And you might be shocked at how much a seemingly small difference can save you. For example, on a $300,000 30-year mortgage, the difference between interest rates of 3.125% and 3.25% is more than $7,500 over the life of the loan."

Using a website such as Mortgages.net is a simple way to look at all the choices available to you. Slow down your thinking and tame your excitement, too. Rushing into making a decision is never a good idea. Finding the right mortgage for you makes a big difference in your long-term financial health.

“It’s also important to research the eligibility requirements of the lender, the state, and the type of property you wish to buy as there can be differences that you should be aware of,” adds Dr. Tuyo. “Finally, after you are confident with your research and lender that best suits your needs, it is usually best if you can find preapproval on a loan before you actually start shopping for a new home.”

Choose your property wisely

Once you’ve saved your down payment and know where you stand with a mortgage lender, you can start searching for your ideal property. It may take a long time to get to this stage, but doing things the right way will not only yield the home of your dreams but improve your financial outlook.

“Make sure it’s a place you’d like to call home for an extended period of time,” said Dr. Tuyo. “Buy [it] because you want a place to call your own, not as an investment. Don’t stretch yourself too thin thinking you can do something with the equity, or flip it for a quick profit.”

Ajani Scott encourages you to take your time and never feel pressured into buying prematurely. “A rushed decision can lead to resentment, poor choices, and ultimately unhappiness,” she said. “When you are finally ready to purchase, be sure to have long-term and future goals in mind, such as family planning so that you can grow into the home and the rising value of homes in the area so that you may get the best return.”

Reduce your debt

It may seem counterintuitive to pay down your debt when you’re trying to save for a house but bear with me. By reducing your debt load, you’ll lower the amount of money spent on credit and car payments each month, allowing you to put more into your house fund instead. It’ll help your DTI ratio as well. A lower DTI means you’re more likely to be offered a lower mortgage rate, which means paying down your debt will pay off in the long run, too. 

Start by considering which debt to pay off first. Dr. Tuyo recommends paying off debts with the highest interest rates immediately. And if you have several loans or credit cards, consider consolidating all of them into a single loan to streamline your repayment schedule and lower the interest rate. Find the best debt consolidation companies to see if that's a workable option. If consolidation isn't for you, you may want to see if you could refinance your car or personal loan instead. 

Lastly, make sure that you're managing your credit effectively. This helps whip your credit report into shape. You'll want to begin this process early. As Dr. Tuyo explains: "One year out, avoid negative marks on your credit report like late payments or applying for new credit. Big purchases like a car should be made a year before buying a home, and definitely within six months." Applying for any form of credit while house shopping can result in a hit to your credit score, so be sure to avoid large purchases if buying a home is on your near-term agenda.

Make a savings plan

It’s always a good idea to actively look for ways to build your savings, and the best place to start is with a savings plan. How you go about this will depend on your timeframe to purchase a house. 

Let's say that typical homes within your price range are $250,000. If you want to put 20% down, you have to save $50,000. And if your goal is to buy your home within five years, you'll need to put away $833 per month. And that's just for the mortgage. We haven't factored in insurance or any of the other costs with buying a home.  If this seems like too much, you have to adjust your expectations. You'll either need to spend more time saving, opt for a cheaper property, or concede to putting less down at closing.

To guarantee you have enough to live comfortably, you must be realistic about your budget. Set a plan and stick to it, says Dr. Tuyo. “Life can manifest additional costs without warning, but the important thing is to keep making progress towards your goals despite any obstacles along the way.”

Cut your expenses

Once you've cleared out your debt, you'll have extra monthly income to put straight into your savings pot. The next thing on your agenda is to see where you can cut back on your current expenses so you can grow your savings at a faster clip.

One key area all experts agree on is the culling of expenses. You will reach your financial goals sooner by breaking the habit of overspending, especially on things that aren't needed.

Start by looking at your subscriptions to see if any can be cut, and be honest with yourself. When was the last time you went to the gym? Do you really need every streaming service on the market? Are those magazine subscriptions worth it? Try to limit your luxuries, save money on your groceries, downgrade phone plans, and when it's time to renew your various insurances, always shop around to find a cheaper rate.

You could even take this expense-cutting one step further by reducing your current housing costs, either by looking for somewhere cheaper to rent, moving in with friends for a few months to kick-start things, or getting a flatmate to split the rent.  “Do not hesitate to move back in with parents if it’s an option,” says Scott. “Although probably not ideal for most, it can help you reach financial goals much more quickly.”

Get hustling

Along with cutting back expenses, Dr. Tuyo recommends seeking ways to earn additional income. Do you have a hobby that could potentially make money? Do you have enough time for a side job? Whether you want to start selling your wares on Etsy or get set up as a virtual assistant, it could pay off. A survey found that men earned an average of $8,948 per year from their side hustle, while women earned $6,085.

Even easier, sell the belongings you no longer need. You'll make money and will have less to pack and move. A recent survey shows that Americans have netted an average of $1,810 by selling household items online this past year, so it could prove lucrative.

Save smart

Once you get into the swing of things and know how much you can realistically save, make sure to stick to your plan. Dr. Tuyo suggests you "automate your savings and allocate a certain percentage or dollar amount into a savings or money market account every month." Making this simple change guarantees you'll add to your housing fund with every paycheck. You'll likely stash away far more than if you waited until the end of the month to see what's left over. 

You could even step it up a notch by saving as if you were already in your new home. If your future housing costs are likely to be higher than your current rental outgoings, put the difference straight into savings. Not only will you be saving more for your home, but you'll be getting used to the extra expenditure that can come with it.

If you can add anything extra at any point from overtime work or holiday pay, funnel it straight into savings. You should also bank windfall gains like gifts, bonuses, commissions, and the sale of personal assets, says Dr. Tuyo. And if you get a pay raise, put the extra straight into your savings account. You won't notice it if it's not there. And don't forget about your tax refund either! Firing up your tax software and working out what tax deductions you're entitled to can maximize your refund and grow your savings. 

Once you're closer to realizing your goal, it's imperative to change tactics again to maximize your every dollar. "Six months out, you should go into 'cash preservation mode' so you'll be able to afford your down payment yet still have some money left over for additional unexpected expenses that will come with homeownership," said Dr. Tuyo. And don't forget to have an emergency fund throughout the process, giving you accessible cash to fall back on in a pinch.

Find the best savings rates

So, where do you save all this money to get the best returns? For this, you'll need to do some research, and the first place to scout out your options is online. When you find the right bank and couple that with the magic of compounding interest, you’ll reach your goal in record time.

Online banks have traditionally had the best savings rates. Thanks to their low overheads, they're able to pass on savings to their customers. Opting for an online-only savings account will also prevent the temptation of spending the money on other things.

Be on the lookout for banks that offer the ability to siphon off any spare change into a linked savings account – many round-up debit card purchases to the nearest dollar and put the difference into savings. And speaking of debit cards, if you’re able to earn cash back on your spending, consider putting it straight into your savings rather than keeping it in your checking account. The same applies when it comes to cash back credit cards. Every little bit helps. 

Summary

The path to homeownership isn't always easy, but it is always worth the effort. There's nothing quite like getting the keys to your very own slice of real estate! Scrimping and saving can seem like a never ending battle, but there are plenty of small changes you can make that will have a big impact on your goals. The sooner you start, the sooner you'll be able to realize your dreams of homeownership.

In 2021, people are increasingly opting to renovate or remodel their existing home, instead of trying to find a new one. Making the most of the space you have is essential if you're looking to undertake a home revamp, but knowing how to actually pay for your renovation is absolutely the first thing to consider. This means not only how to cost up the work and finance it, but how to plan for additional costs and surprise work that inevitably forms part of a remodeling of a home.

We recommend starting your journey with a look at the best home design software, to plan out the extent of your renovation and to get a clear picture of how you want things, and roughly how much work this may involve. Following that, you need to work out a budget by getting quotes for each piece of work needed, and then you need to allocate additional funds for emergency work and unexpected issues (these always pop up). After that, when you have a rough total, it's time to work out how to finance the remodel - be it through your own savings, or by borrowing money.

Is using finance for home renovation a good idea?

Whether you should use finance to pay for your home improvements will usually depend on the current state of your finances and scale of the remodel you have in mind. In an ideal world, you will have saved up for your renovation, and have a pot of money that can be used solely for the purpose of delivering your project. Of course, the reality for most is likely to be very different, with unexpected expenses and significant projects making the use of finance in one form or another almost inevitable.    

First, you’ll need to work out whether your idea is realistic given your circumstances. You’ll need to consider the overall cost of the works – according to Remodeling, kitchen renovations can cost in excess of $26,000, and if you’re considering a full master suite extension, you can expect to pay more than $150,000 – and then you’ll need to think realistically about whether or not you can afford it. Do your household finances allow you to commit to making a further monthly payment if that’s what’s needed? Think about how secure you are in your job, whether any other expenses are on the horizon, and perhaps if there are any areas of your spending that can be pared back to help fund your project - the best personal finance software is perfect for helping to figure all of this out. 

If you’re comfortable that you can meet the expense, the second step is to think about whether your plans actually make sense. So will your renovations add enough value to your home to counter what you spend? And will the time and effort you put into remodeling your home be worth it in the long run? Making firm plans is a must, and something that interior design software can help you to achieve if you’re making changes inside, and landscape design software can help with if you’re improving outdoors. 

If your proposed works are extensive, you may also want to think carefully if it is cheaper to renovate your house or move, with the latter being an increasingly appealing option in the post-pandemic landscape. Of course, relocating won’t be a consideration for some, and others will readily spend whatever it takes to achieve their dream home, and find value in the new space they have rather than their property price. Whichever side of the fence you fall, these are all things that should be considered before you start to arrange finance for home renovation. 

How to finance a home renovation

If you’re happy that your home renovation is a viable idea, and that your finances can handle the expense that comes with it, there are a number of home renovation finance options that can potentially help you out. 

1. Home improvement loans

If you don’t want to put your home up as collateral to raise the funds that you need, a home improvement loan is the obvious choice. These unsecured personal loans can be arranged through banks or credit unions, or you can simply search for the best personal loans online. 

How much you can borrow will depend on the provider, but loan amounts of anywhere between $1,000 and $100,000 are generally available. The money can often be in your account within a day, and you’ll have the certainty of knowing precisely what your monthly payments are and how long you’ll be paying the loan back for. 

2. Home equity lines of credit (HELOCs)

If you have equity built up in your home, home equity lines of credit - or HELOCs, for short - are another popular way to finance home improvements. With a HELOC, a pool of funds is made available from which you can draw money as and when you need - this facility makes HELOCs ideal for projects that are difficult to put an exact price to at the start. You’ll only pay interest on what you borrow, and as this is secured against your property, rates are often lower with HELOCs than on personal loans. 

On the other hand, many HELOC rates are variable, meaning what you pay could rise if interest rates start to go the wrong way, and you also run the risk of losing your home should you fail to keep up with the payments that must be made. As you’ll need to have a good chunk of equity in place to be considered for a HELOC, making sure your outstanding mortgage is much lower than what your home is worth is also a must. 

3. Home equity loans

If you've got a fairly good idea how much your renovations will cost, and like the security of knowing what your payments will be, a home equity loan may be right for you. Home equity loans are similar to HELOCs in that you’re tapping into the value stored in your home - the major difference is that you’re taking out a lump sum all in one go, with the value of the loan you’re eligible for dependent on the amount of equity you’ve built up in your property. On the plus side, your payments will be fixed, and so don’t have the potential to rise as they do with a HELOC; when loading up your tax software, it’s worth remembering that the interest payable on a home equity loan used for home renovations is tax-deductible too. 

4. Refinance your mortgage

Low interest rates are helping to make a refinance mortgage a real viable home renovation funding option right now. Replacing your existing mortgage isn’t a decision to be entered into lightly, but for costlier projects, it’s definitely worth approaching the best refinance mortgage companies, particularly if you’ve not refinanced in the past year or so. If you qualify for a much lower interest rate than what you’re paying now, you might even be able to secure the additional loan you’re looking for without seeing too much of a rise in your monthly payments. 

Importantly, you’ll need to take into account all the additional fees that come with refinancing your mortgage, and think carefully if borrowing more means you’ll have to extend the length of your mortgage. 

5. A 0% interest credit card

If it’s only small changes that you’re looking to make to your home, or you’re at the final stages of a remodel and simply need to fund the finishing touches, a credit card might be the best way of securing the funding that you need. With a 0% interest credit card, for instance, you could potentially pay for whatever you need using your card, and avoid paying any interest if you can clear the balance before the interest-free period comes to an end - at the moment, some cards offer 0% terms as long as 18 months. Alternatively, reward credit cards can give decent amounts of cashback or loyalty points if you spend heavily on them.  

The risk with 0% credit cards comes when you fail to pay back what you owe before your grace period expires and high interest rates start to kick in. And if you use an existing card to pay for your spending, on which any introductory period has already expired, remember that you’ll only have the one month to pay it all back before interest starts to build.  

6. Government programs

Before starting out on any renovation, it’s also worth checking whether the Government has a home improvement finance option that could help. A number of options are available, and you’ll always need to ensure you meet the criteria for the various assistance schemes that are provided. 

So if you’ve just bought a home, and don’t yet have any equity to call on as a result, a HUD Title 1 Property Improvement Loan might be able to provide the funding you need to make your property more liveable. For full details of this and other schemes, including the Section 504 Home Repair program and community-based programs, the HUD website is a good place to start. 

Will my credit score come into it?

Any one of the above options could provide the ideal funding solution to turn your home renovation dreams into a reality, but before you take the plunge, it’s important to consider your long-term financial status, with your credit score likely impacting your ability to be accepted for finance – particularly if you’re seeking an unsecured form of credit, such as a personal loan or credit card. In this case, whether or not you’re eligible and the interest rate you’ll pay will depend heavily on your credit score, so getting it up to scratch – either by working to fix it yourself, or by investing in the best credit repair services – could save you a lot on your repayments over the long run. 

However, even if you have bad credit, there’ll still usually be a lender that is happy to oblige. The caveat to this is that the rates will usually be higher and the terms less favorable, but if you’re itching to get started on your home renovation project, there’ll be the options to suit.

Yet if you’re considering using your home as collateral, you may even find that your credit score won’t be such an issue. Given that lenders already have their security in the form of your home, they’re less concerned about your credit history, so opting for a HELOC or home equity loan could be a more viable option for those worried about a potted credit history. That said, it’s still vital to make sure that you’re on a firm financial footing and can keep up with any credit agreement you sign, so looking to improve your financial footprint ahead of applying would be no bad thing, if only for peace of mind.

Debt settlement might be an avenue to explore if you're struggling beneath unmanageable debt and you can't get on top of it. But before diving in to find best debt settlement companies to help you out, there are some big consequences to consider. Particularly when it comes to your credit score. 

Debt settlement is the process of “settling” your debt for less than you currently owe, either agreeing to repay it in a lump sum or through a new (ideally more affordable) repayment plan, or sometimes via a debt discharge. So, how much does debt settlement hurt your credit? Let's take a look... 

What does debt settlement involve? 

The process of debt settlement negotiation is typically conducted via a third party – you can, of course, attempt to negotiate with your creditors yourself, though many find more success if they go through companies that specialize in this area – and you’ll be expected to pay high fees for their service.

It’s by no means the easy option either. Aside from the high costs involved, the process of debt settlement can be prolonged (particularly if you have a lot of creditors or very large debts), during which time you’ll be advised to stop paying the original creditors to encourage them to settle. 

If the settlement is agreed and the amount you owe is reduced, you may also find that you need to pay tax on the forgiven amount, but perhaps the biggest downside to debt settlement is the impact on your credit score. 

Will debt settlement hurt my credit score?

Yes, undoubtedly. Debt settlement can have a significant negative impact on your credit score in two potential ways. The main reason is that the amount you owe won’t be settled in full. Instead, it will be reported to credit bureaus as “paid – settled”, which indicates that you haven’t kept within your original credit agreement to pay back the full amount that was loaned to you. 

This will understandably lead to a dent in your credit score, and will likely make mortgage lenders, credit card providers and the companies behind the best personal loans online wary about lending to you in the future, as you’ve proven yourself to be a credit risk. 

The second potential hit to your score comes from the fact that during the negotiation period, you normally won’t be making payments to your creditors – you’ll be paying into a separate settlement account instead, with the third party making the appropriate payment(s) to settle the debt when an agreement has been reached. 

Again, this will show up on your credit report, with late and missed payments having a direct impact on your score and marking the account as delinquent. 

How can I fix my credit score after settlement?

Any settled account will still stay on your credit report – and therefore be visible to lenders – for seven years, and scores can decline by as much as 100 points (or more) for each settled account. That’s a significant drop, and it could have a huge impact on whether or not you’ll be accepted for credit in the future. That said, settled debts will have less of an impact over time; there are a lot of other factors that go into a credit score, and there are things you can do in order to speed up the process too. 

One of the most important steps is to make absolutely certain that you keep up with all other repayments, and to keep your credit utilization ratio below the magic number of 30%, too. If you can avoid applying for additional credit for a certain length of time that could help by not creating more hard inquiries on your profile, and will have a secondary benefit of keeping your debt-to-income ratio at acceptable levels as well. You may even want to consult the experts to bring your score back up to scratch, which is where the best credit repair services can come in. Yet ultimately you’ll have to wait until the settled account drops off your report, which will always be the point at which your financial status improves the most.

Is reducing my debt burden worth it?

The stark impact on credit profiles means that debt settlement won’t be the right solution for everyone, particularly if you plan to apply for a large amount of credit in the near future. It should only ever be used as a method of last resort once all other options have been exhausted, such as the best debt consolidation companies, or by opting for a personal loan to arrange things yourself. These options won’t reduce the amount you owe, but will have far less of a negative impact on your credit report, so should always be considered. Find out more about debt settlement vs. debt consolidation here.

Yet for some, the chance to reduce your debt burden and head back towards a solid financial footing could be worth the credit score hit. In particular, a case may potentially be made if late payments have rendered your score woefully low already or if debt collection is on the horizon, which could have an even greater impact on credit profiles. Although you should definitely avoid if you have any near-term aspirations to secure finance, the negative effect of settling won’t last forever, either, and it’s possible to return your score to acceptable levels with careful management of your finances. Just be fully aware of all the risks involved and think very carefully is debt settlement worth it for you.   

If you’re looking to get that all-important first mortgage – or perhaps refinance an existing one – knowing where you stand when it comes to loan-to-value (LTV) is vital. But just what is mortgage LTV, and why is it so important?

The LTV of a mortgage refers to the amount you’re borrowing in relation to the value of the property. It’s expressed as a percentage figure and is directly related to the amount you’re able to put as a down payment (or, in the case of a refinance mortgage, the amount you have in equity). The higher the LTV, the higher risk you’re deemed to be, because the lender faces a greater loss should you be unable to repay the loan. 

For example, if you had 30% of the value of the property to put as a down payment, you’d need to take out a mortgage loan of 70% to cover the rest. The LTV is therefore 70%. You can work it out by using the following calculation:

(Amount borrowed ÷ Value of asset) x 100 = LTV

As you repay the loan, the LTV will reduce, because you’ll gradually own more of the property outright and will owe less on your mortgage. This can have a significant impact on your mortgage rate and subsequent repayments, with the LTV having a direct impact on the amount you have to pay. 

Why is LTV important?

The LTV is important because it indicates to lenders how much risk they’ll be taking on, and as such, how high the interest rate will be. While there are several factors that go into how mortgage interest is calculated – including your income, credit score, prevailing market conditions, whether you’re using mortgage points and the term of the loan – it’s your down payment and, subsequently, your LTV, that will arguably be the most important of all. 

This is because most lenders operate risk-based pricing, and will apply higher interest rates to the loans they deem to be the most risky. Given that loans with a higher LTV are typically seen as higher risk, it follows that they’ll come with a higher interest rate. This, really, is why LTV is so important, at least where your budget is concerned – if you have a higher LTV, your loan rate and therefore your repayments will be higher, with lower LTVs typically equating to lower interest rates.

Related to this is the issue of mortgage insurance. Private mortgage insurance, or PMI, is typically required on all conventional loans with an LTV of 80% or above, which can add a significant chunk to your monthly outgoings – and can add up to thousands of dollars over the term of a loan, particularly if it takes several years to hit that magic 80% mark. This form of insurance is there to repay the mortgage if you can’t, and essentially covers the lender against any potential losses should you fail to keep up with your end of the credit agreement. The link between it and the LTV of your mortgage is undeniable. 

While the LTV will be of most importance to lenders when you’re initially taking out the mortgage credit, it can matter throughout the life of the loan as well, particularly if you’re thinking of refinancing and/or want to look for ways to reduce your interest rate. 

What is a 'good' LTV?

A good LTV is typically seen as being 80% or lower. This is the level where lenders begin to view you as lower risk – crucially, it’s also the point at which mortgage insurance can be canceled – and interest rates will typically be lower as a result. For this reason, it’s often advisable for borrowers to get to this level as quickly as possible, as it’s when mortgage borrowing becomes a lot more affordable. The ideal scenario would be to have a low LTV combined with a high credit score, which is when the very best mortgage deals become available to borrowers. 

Yet your combined loan-to-value (CLTV) could also come into it. This ratio includes all secured loans on the property when making the LTV calculation, not just the primary mortgage, and so includes any second mortgages, home equity loans or lines of credit as well. Ideally, you’ll still want to keep the CLTV as low as possible in order to benefit from the best rates, though most lenders will still offer mortgages to those with CLTVs above 80%, provided the borrower has a high credit score, too (if yours has got room for improvement, now could be the time to consider credit repair).  

How can I lower my LTV?

Aside from making a larger down payment and/or choosing a more affordable property at the outset, the best way to lower your LTV is to pay off more of your mortgage balance. This can be achieved either by sticking to your monthly repayment schedule – which over time will see you increase your level of equity and reduce the amount you owe – or by overpaying, if your mortgage agreement and budget allow. 

Yet you could also benefit from house price rises. If it’s been several years since you took out your mortgage loan and house prices have been rising in your area, you may want to consider getting a reappraisal to see what your property is now worth. If it’s risen in value, your level of equity would have increased and therefore your LTV would be lower, which could really pay off if you’re considering refinancing.  

If you’re planning to take advantage of the current low rate environment by either buying your first home or refinancing, one of the biggest mortgage decisions you will need to make is whether you want a 15-year loan or a 30-year one. 

Mortgage lenders and the best refinance mortgage companies will offer both of these options and both will provide a fixed monthly payment over several years. But each has its own benefits and drawbacks, and it’s important to evaluate these in full before making your choice.   

What’s the difference between a 15-year mortgage and a 30-year mortgage?

The main – and most obvious – difference between a 15-year mortgage and a 30-year mortgage is the length of term. With a 15-year mortgage, you’ll have 15 years in which to pay down the amount borrowed, while a 30-year mortgage gives you twice as long to repay the loan.

Most 15-year and 30-year mortgages are fixed rate deals, which means the interest rate won’t change for the duration of the loan. However, the amount of interest you pay overall can vary considerably depending on the mortgage you choose. 

Advantages of a 15-year mortgage

Perhaps the biggest advantage of a 15-year mortgage is the amount you could save on interest – potentially thousands of dollars. There are two key reasons for this. First, interest rates are usually lower compared to 30-year loans, and second, you’ll be paying down your mortgage over a shorter period of time, so the amount of interest you pay in total will be much less. 

Another benefit is that you will pay off the full amount borrowed in half the time compared to a 30-year mortgage, which means you’ll own your home outright much quicker.

A 15-year mortgage also allows you to build equity in your home at a faster rate. Equity is the portion of the property you actually own and is the difference between what you owe on your mortgage and what your home is currently worth. Building equity faster means you may be able to tap into that equity by refinancing, allowing you to pay for major home renovations or school fees, for example. 

Disadvantages of a 15-year mortgage

Of course, there are also drawbacks to a 15-year mortgage. Crucially, because you are paying down your mortgage over a shorter period of time, your monthly repayments will be significantly higher. So while this enables you to be mortgage-free more quickly, if you can’t afford the monthly payments, a 15-year mortgage is best avoided.

Remember that your monthly payment is not the only cost associated with refinancing or getting your first mortgage. There will be closing costs to factor in too, including appraisal fees, home inspection fees, application fees and insurance costs, to name a few. 

Advantages of a 30-year mortgage

A 30-year loan tends to be the most popular choice for American homebuyers, primarily because the lower monthly payments on offer make it a more affordable option. Lower monthly payments can also provide the opportunity to build up savings or even buy a larger home than would have been possible with a 15-year mortgage. 

Another advantage is that 30-year mortgages can be more flexible. If you choose a mortgage without prepayment penalties, you’ll have the option to increase your payments on your own schedule. This means the best mortgage lenders will allow you to pay off the principal balance earlier than you agreed to, without the need to commit to a shorter term. 

Disadvantages of a 30-year mortgage

The biggest drawback to a 30-year mortgage is that it will take you twice as long to own your property outright and you could potentially pay thousands of dollars more in interest during that period. 

As mentioned above, interest rates are generally higher compared to 15-year mortgages, and you’ll be paying interest over 30 years rather than 15.

How interest affects your total mortgage cost

If you know how mortgage interest is calculated and the different rates available to you, it's possible to do some calculations. Let’s say you’re borrowing $150,000. A 15-year fixed rate mortgage might offer you an interest rate of 2.47%, while a 30-year fixed rate mortgage might offer 3.31%. 

Applying these rates to a few calculations, the 15-year mortgage would have a monthly payment of $998 for principal and interest, while the total amount of interest over the life of the loan would come to $29,677.

In comparison, the 30-year loan would offer lower monthly payments of $658 for principal and interest, but the total interest paid would be significantly higher at $86,854 - over $57,000 more than the 15-year loan.

Even if we applied the 2.47% rate we’ve used for the 15-year mortgage to the 30-year loan, the monthly payment for principal and interest would be $591, while the total interest over the life of the loan would be $62,580 – still more than double that of the 30-year loan.

Which is best for you?

The best way to make a decision about which loan length is right for you is to calculate how much you can afford to pay towards your mortgage each month. If you can comfortably afford higher payments, you may favor a 15-year mortgage which will allow you to own your home outright more quickly.

If your budget won’t stretch that far, however, or you’d prefer to be able to put more money away into savings, a 30-year mortgage will likely be the better choice. Choosing a mortgage with no prepayment penalties could be a good compromise as it offers the flexibility to pay more when you can afford to, without the formal commitment. 

Remember that lenders will scrutinize your finances when you apply for a mortgage - knowing the difference between prequalfication and preapproval is a must - so even if you feel comfortable with your payments, you could still be turned away if your lender is not satisfied you could afford the loan. Taking the time to improve your credit score and ensuring your debt-to-income ratio is good could increase your chances of getting accepted for your preferred mortgage.

If you’re hoping to get on the property ladder and have found your ideal home, securing a mortgage is probably near the top of your list of things to do. But the first step to buying a home isn’t finding the best mortgage lenders – it’s finding out your credit score, and whether or not you need to improve it before you’ll be approved as a borrower. So before you book the truck rental, you’ll need to know what credit score is needed to buy a house, and what you can do if yours isn’t up to scratch. 

What should your credit score be to buy a house?

The minimum credit score you’ll need will depend on the kind of mortgage you’re looking for, though lenders may have additional criteria that you’ll need to pass in order to be approved. That said, here’s a look at what you can expect:

FHA loans
If you’re looking for a loan that’s insured by the Federal Housing Administration, you’ll need a minimum score of 500 – though you’ll need to put up a 10% down payment. If you can only put down 3.5%, you’ll need a higher score of 580 to qualify. 

VA loans
Loans that are insured by the US Department of Veterans Affairs don’t have a minimum credit score requirement, though lenders that offer such loans will typically expect a score of at least 620.

USDA loans
These loans, which are designed for those looking to buy homes in rural areas and are backed by the US Department of Agriculture, typically require a minimum credit score of 640 (lower scores may be approved, but will require manual underwriting). 

Conventional loans
If you’re looking for a traditional mortgage (i.e. one that isn’t backed by a government agency) you can expect a minimum credit score requirement of 620.

Jumbo loans
If you’re looking for a mortgage that exceeds Freddie Mac and Fannie Mae lending limits, credit scoring criteria will be higher accordingly, with the minimum score needed typically around 700.

Why do credit scores matter?

Credit scores give lenders an instant indication of your credit worthiness, and how risky you are as a borrower. The lower your score, the higher risk you’re deemed to be, which can lead to less favorable mortgage terms and higher interest rates – and subsequently, higher repayments. This means your credit score will not only dictate whether or not you’ll be accepted for a loan, but also how much you’ll be expected to pay each month, which can be a vital consideration when determining the kind of mortgage you can afford. 

For example, if you wanted a $240,000 loan over a 30-year term and qualified for a 3.5% mortgage rate, you’d pay $1,077 each month (excluding insurances and property taxes, and after making a 20% down payment), with the amount of interest paid over the term of the mortgage totalling $147,974. 

Conversely, if you had a lower credit score and only qualified for a 5% interest rate, your monthly payment would increase to $1,288, which would also see the total amount of interest you’d pay over the life of the loan skyrocket to $223,814. This equates to an increase of over $75,000, so having a less-than-perfect score can seriously cost you.  

Can I get a mortgage with bad credit?

It depends how low your credit score is. Provided your score is above 500 you may qualify for certain types of loan, though if it’s below this level, you could find it tricky to be accepted, as lenders will be less confident that you’ll be able to repay the loan. That said, there are many factors that will go into a lender’s decision-making process – such as your debt-to-income ratio, cash reserves, income and employment history, together with the amount of down payment you’re offering – but if you’ve got bad credit, it’s always worth trying to improve it before you start the application process. 

How can I improve my credit score?

The first thing you’ll want to do is check your report so you know where you stand - you can do this for free at AnnualCreditReport.com - and if you notice any errors, you’ll want to dispute them. However, it may simply be that you need to work on your credit management, in which case you’ll want to focus on paying down your debt to improve your credit utilization ratio, and always pay bills on time to ensure you don’t get any marks on your profile. Try to avoid making any other credit applications in the months before applying for a mortgage, as multiple credit inquiries can have a negative effect on your report, albeit a temporary one. 

While it’s possible to improve your credit score yourself, you may want to seek the best credit repair services to help. Doing so can be one of the best ways to fix your score fast, particularly if you’re not sure why you’ve got bad credit in the first place, as the professionals will be able to look for any anomalies on your report, check for derogatory marks and get any errors expunged. 

Credit scores and the coronavirus crisis

People’s finances have come under extra scrutiny in the last year as a direct result of the coronavirus pandemic, with lenders becoming increasingly cautious in who they lend to as well. This, combined with the rush in refinancing brought about by favorable mortgage rates, means that the typical credit score among borrowers who qualify for a mortgage has increased, with the average sitting at a two-decade high of 786 in both the third and fourth quarters of 2020. 

Yet it’s important to remember that this is just an average; as discussed above, the credit scoring criteria for many mortgage lenders is below this level, though it remains the case that the higher your score, the better your chances of approval – and the better terms you’ll likely qualify for. Whether you’re buying a new home or searching for the best refinance mortgage, it’s always worth spending the time to make sure your score is the best it can be.

More than 4 in 10 American workers who have embraced the benefits of working from home during the pandemic have said they’d look for a new job if their employer told them to return to the office. 

Around one year since many workplaces were first shut down due to the pandemic, Prudential Financial's Pulse of the American Worker survey found that 42% of current remote workers say if their company does not continue to offer remote work options long term, they will look for a job at a company that does. 

The weight of numbers represents a significant warning to employers that anticipate their workers will readily leave their laptops on the sofa and slip back into pre-COVID working practices. Indeed, of the 2,000 full-time workers that took part in the survey, 87% who have been working remotely during the health crisis said they would like to carry on working from home at least one day a week, post-pandemic. 

And it seems that even those who have still had to make the journey into work have had their heads’ turned, with 68% of all workers now favoring a hybrid workplace model, where they can split their time working remotely and in the office. 

“This is a double-digit percentage point jump from a similar question in a survey fielded last fall and indicates that the positive aspects of remote work, such as flexible schedules and reduced commute times, outweigh the challenges of isolation and increased work hours that workers cited,” the report notes.  

With a quarter (26%) of those questioned admitting they plan to look for a new job when the threat of the pandemic decreases, and 1 in 5 (20%) having actually switched jobs during the past year, the threat doesn’t appear an idle one either. 

Taking seriously what the people are saying, Rob Falzon, Prudential vice chair, said: “Our survey shows that American workers want the benefit of remote work, but still see value in coming together in-person at least some of the time. For Prudential, working nine-to-five, five days a week in the office will be a relic of the past. A hybrid workplace is better for our business and our employees.”

Remote working tips

If you’ve enjoyed the work-from-home lifestyle and are reluctant to return to the daily commute and your old office environment, the chances are that you have already managed to establish a home office that you’re happy working from. For the sake of your wellbeing, we sincerely hope the kitchen table is no longer doubling up as your work station either, and that you’ve been able to create a healthy home office set-up. 

Perhaps your employer has already made promises that working from home is here to stay for you, in which case you may be among the 28% of remote workers that said they now want to move house to accommodate their new work/life balance. The good news here is that interest rates remain low, and the competitiveness of the home loans available from the best mortgage lenders could allow your relocation dreams to come true.

Others may not want to move, but would still appreciate some dedicated space from which to work remotely, in which case you may wish to finance a home renovation. Whether a personal loan will be enough to cover the changes you need to make, or you’re considering a more significant remodel where perhaps you’ll need to approach the best refinance mortgage companies to secure the level of funds you need, there are plenty of options out there.

American taxpayers have been told they should still file their tax returns on time even if they can’t pay the taxes that they owe in full by the May 17 deadline.

In a special reminder, the IRS said individual taxpayers unable to raise all of the funds they need to meet their tax obligations should either file or request an extension of time to file by May 17 if they want to avoid a failure-to-file penalty. It was also reminded that an extension of time to file - which can be granted until October 15 - is not an extension of time to pay taxes, which will be due May 17 regardless. 

To get an extension, you must either file Form 4868 through your tax professional, the tax software you use, or by using Free File on IRS.gov. Alternatively, you can select Form 4868 when you submit an electronic payment. 

If you don’t think you’ll be able to pay all of your taxes by May 17, the advice is to pay what you can, but to be aware that a failure-to-pay penalty is likely to come your way. Also, you shouldn’t just let the situation slide; instead, it’s better to contact the IRS to find out about the payment plan options that are available. 

Plus-up payments continue

The reminder comes as the IRS confirmed a further 700,000 plus-up stimulus payments have been issued in the past week. The payments are being made people who have recently filed and, as a result, the IRS has determined are owed more money than they've been paid under the third stimulus check. Extra funds may be due if your income has changed in the past year, perhaps due to job loss or change, or your family has welcomed a new arrival. 

In a similar vein, the IRS has confirmed that taxpayers who fell out of work last year, and have already completed their tax returns, are set to get an automatic refund from the IRS on their unemployment benefits.

The agency says it is taking steps to automatically return money this spring and summer to those who filed reporting unemployment compensation ahead of the recent changes made under the American Rescue Plan. The relief package, signed by President Biden on March 11, allows eligible taxpayers who earned up to $150,000 in modified adjusted gross income to exclude up to $10,200 of unemployment compensation. For those that are married and file jointly, the stimulus tax break doubles to $20,400 of the unemployment benefit received. 

Even though the tax deadline has been extended to May 17, the amendment to the rules comes after millions will have already filed their taxes, for whom the IRS says it will make the appropriate change to their returns. If a refund is due as a result, these payments will begin to be disbursed in May, and then continue throughout the summer, or will be applied to any taxes that might be owed.

Should you file an amended return? 

According to the IRS, there should be no requirement to file an amended tax return UNLESS the recalculations result in someone becoming newly eligible for additional federal credits and deductions that are not already on their first return.

“For example, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund,” the agency explains. “However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.”

Those affected in this way are also being advised to review their state tax returns as well. The IRS says it has also been working with the companies that deliver tax software packages to make sure the changes are reflected in the questions asked of those who prepare their tax returns electronically.

IRA contribution deadline extended 

The IRS has also announced that taxpayers now have until May 17 for making contributions to individual retirement accounts (IRAs) and health savings accounts (HSAs), and have more time to claim tax refunds for the tax year 2017. 

Contributions into both IRAs and HSAs have the potential to be tax deductible, giving taxpayers another opportunity to claw money back from the tax service. Just a few days’ ago, the agency revealed that people now have the opportunity to claim a deduction on the COVID-related personal protection equipment they’ve been buying.  

Unclaimed 2017 tax refunds 

At the same time, the IRS confirmed that anyone who is yet to claim their refund for the tax year 2017 has also been given until May 17, rather than the normal April 15 deadline, to request the money that they may be owed. It's estimated that Americans will miss out on $1.3bn in 2017-related refunds if they don't act before that date. 

Legally, taxpayers have a three-year window of opportunity to claim a refund. If a stake on that money is not made within that period, it becomes property of the U.S. Treasury. Anyone needing to file a prior year tax return to claim these funds has been told they must properly address, mail and ensure their return is postmarked by the May 17, 2021, date.

Reasons to file your taxes online

Those who are urgently waiting on their tax refunds have also recently been given 12 million reasons why it’s better to file your taxes online. That’s the number of paper tax returns that were backlogged at the Internal Revenue Service (IRS) as of the end of last year, according to a new Treasury Inspector General for Tax Administration report. As a result, there’s likely to be many taxpayers who are still yet to receive a refund for last year’s filing season.  

Unsurprisingly, it is the fallout from the coronavirus pandemic that has been hampering the IRS’ efforts the most. When people file online, it’s far easier for the IRS to rubber stamp refunds than processing paper returns which is not something that can be easily completed by employees working remotely. 

“In 2020, the IRS found itself in uncharted waters, as did the entire nation,” Kenneth Corbin, commissioner of the wage and investment division at the IRS, wrote in reply to the report. “The IRS’ top priority during the COVID-19 outbreak was, and continues to be, protecting the health and safety of taxpayers and the IRS workforce. For that reason, we temporarily scaled back operations, taking such steps as closing our Submission Processing Centers and Taxpayer Assistance Centers, discontinuing face-to-face operations and suspending our telephone helplines.”

Paper jam at the IRS

The volume of paper returns caught in the system represents a huge jump on the 183,000 that were backlogged at the end of 2019. At the same time, the IRS has had to introduce new processes and find the resources to deliver the stimulus payments that have been sent to Americans in light of the pandemic. The third stimulus check is in the process of being distributed now, with some 161 million payments having been sent at the last count. 

With staffing numbers already stretched, and the extra responsibility of getting relief payments to Americans a priority, the IRS’ ability to address the backlog that has been built up will be hampered further still. In turn, this inevitably means some people will experience a longer-than-usual delay in getting their tax refund, and their stimulus payments. The agency has already extended the tax season to give filers more time to get their finances in order, and, according to Corbin, has sought authority to hire more staff to alleviate the bottlenecks in the system. 

“We are hopeful the benefits of electronic filing have been reinforced with the public and that the experience of 2020 encourages traditional paper return filers to convert to electronic filing,” he added in his response to the report. 

Navigating tax season 2021

Even before the backlog came to light, the overwhelming advice for tax season 2021 has been to file taxes online if you want your refund fast. Although the IRS issues a similar message every tax season, the challenges created by the pandemic means it still cannot be reiterated strongly enough. 

Choosing the direct deposit option to receive your funds, rather than a mailed check, will ensure a safer and speedier transfer of money too. All told, the IRS predicts it will process more than 160 million tax returns this year, with nine out of ten returns being filed electronically. But while around eight out of ten taxpayers are expected to receive their refunds straight into their bank via direct deposit, IRS Commissioner Chuck Rettig would like to see this number rise even further.

"The pandemic has created a variety of tax law changes and has created some unique circumstances for this filing season," he said. "To avoid issues, the IRS urges taxpayers to take some simple steps to help ensure they get their refund as quickly as possible, starting with filing electronically and using direct deposit.”

How to file taxes online

With coronavirus still a major issue, taxpayers are being encouraged to “stay home and stay safe” and use the online tools available on the IRS website if they can. If you’re happy filling out tax forms electronically, you can do so and then submit your returns online - mailing them is an option too, but should be avoided if at all possible.

Almost everyone can file for free direct with the IRS, while the service also has resources for directing you to a tax preparer if your finances are not so straightforward. Many people also prefer to use their own online tax program at home, which will guide you through the entire process, in a similar way to which the best personal finance software can help you keep on top of your money and budget. 

What do I need to file taxes online?

The first step is usually to gather all your tax records together. Not only will this make preparing a tax return easier, it could also bring to light potentially overlooked deductions or credits. As most income is taxable, you should locate documents such as Form W-2 from employers, and Form 1099-MISC if you’re self-employed, a freelancer, or a gig-economy worker. 

If you have savings, you’ll need a Form 1099 from banks and other payers to show income from interest, while there are also particular forms covering rental income received by landlords, and investment income. Should you have expenses that you’re allowed to deduct, such as mortgage or student loan interest, Form 1098 will have all the information that you need. 

Tax refunds

As well as keeping the tax office from your door, file accurately and on time and you can expect to receive any tax refund you’re due in a timely manner too. Most refunds are issued in less than 21 days, and given the impact of COVID-19 on many household finances, it’s money that could be more welcome than ever.

As a side note, if you received a tax refund in 2020 you may also have been paid interest, which is actually taxable and must be reported on your tax return. If you received refund interest totaling $10 or more, you’ll need to complete Form 1099-INT which the IRS should already have sent to you. 

When are taxes due?

Following the IRS decision to extend tax season, you now have until Monday May 17, 2021, to file your 2020 tax return and pay any tax owed. If that still isn't long enough, and you’re worried you won’t be able to file on time, you can still ask the IRS for a formal extension to file until October 15. Remember, however, you’ll still need to pay your taxes (or an estimation of them) by May 17 if you want to avoid the unnecessary expense of penalties and interest.

Stimulus checks and tax filing

The main reason tax season 2021 opened later than usual this year was because the IRS needed to prepare for the roll-out of stimulus check 2 at the same time. Now all of those payments have been sent, anyone who hasn’t received any form of relief payment, or have received less than what they thought they would get, must claim missing stimulus payments when filing taxes. If you’re eligible, you can claim the Recovery Rebate Credit on your return, which will either be added to your refund, or set against the tax that you might owe. 

What else do I need to know?

With last year’s tax season rather different to most, and a number of other tax changes having been introduced over the year too, the IRS is keen to make sure filers are as well-informed as possible to help avoid mistakes. Make sure you’re aware of the tax-filing reminders that everyone needs to know, particularly if you’ve experienced a change in your employment status over the past year or are part of the gig economy.

If you’ve been working remotely, you’ll also want to familiarise yourself with the rules surrounding home office deductions.

Derogatory marks are negative indications on your credit report that can stay there for the better part of a decade. Such marks – whether from a missed payment or bankruptcy – can drag your credit score down and affect your ability to get credit in the future.

As well as making it harder to qualify for the best personal loans or credit cards, a derogatory mark coupled with bad credit can also make it difficult to refinance your home. Additionally, it can lead to higher insurance premiums and even make it harder to rent an apartment or get a job.

Fortunately, the impact of derogatory marks on credit tends to decrease over time. 

Derogatory marks and how long they last

There are several different financial events that can result in a derogatory mark. Below, we’ve outlined eight of these, along with how long each one can stay on your credit report, and what you can do to minimise the damage: 

Missed payments

7 years
Late payments are typically those made 30 days or more after the payment due date. Usually this results in a “minor” derogatory mark, but each subsequent late payment is weighted more heavily and can further damage your credit score. 

What you can do:
Make the payment as soon as possible. If it’s your first late payment, your lender may agree to waive the late payment fee. If you’re continually struggling to meet payments, however, speak to your creditor to see if you can arrange a hardship plan. 

Account charge-off

7 years
If your lender decides you’re unlikely to repay your debt – if you’ve missed several payments, for example – it can write or “charge off” the account. The debt may then be sold to a collection agency which can be even worse for your credit. In this case, two accounts will appear on your report – the charged-off account and a new collection account. 

What you can do:
Pay off the debt or look to negotiate a settlement where you pay less than the full amount owed. This won’t remove the negative mark from your report, but it will prevent you from being sued. 

Collection accounts 

7 years from first date of a delinquent payment
If your original lender charges off the debt and sells it to a third-party debt collector, the debt will remain in collections until you pay it off, are sued, or the statute of limitations runs out. 

What you can do:
Pay the collection agency if you’re able to and ask for the account to be marked as “paid in full”. This won’t remove the mark from your credit report, but it will remove the risk of being sued, as well as show other lenders you paid off the loan.

Repossession 

7 years
Your mortgage lender can repossess your home if you are unable to keep up with your repayments. Likewise, if you continually miss payments on an auto loan, your lender can auction off your vehicle to recoup its money. 

What you can do:
Repossession can have a big impact on your credit score so it’s important to try and reduce this by paying any other bills on time and in full.

Bankruptcy

7 or 10 years
In Chapter 7 bankruptcy, certain assets are sold to pay off unsecured debts such as personal loans and credit cards. This then allows the borrower to start over with a clean slate. 

In Chapter 13 bankruptcy, on the other hand, you can usually keep your possessions. Instead, a more affordable repayment plan is set up with your creditors which typically spans a three or five-year period. Once you finish the plan, any remaining unsecured debt is discharged. 

Note that bankruptcy is extremely damaging to credit and should always be considered with care.

What you can do:
Chapter 7 bankruptcy will automatically be removed after 10 years, while Chapter 13 bankruptcy will automatically be removed after 7 years. However, it’s a good idea to take steps to start rebuilding your credit score as soon as possible. 

Tax lien 

7 years from the filing date, or indefinitely if the lien is unpaid
Liens are usually the result of unpaid taxes. The federal government can place a lien against your property in an attempt to recover the cost. 

What you can do:
Pay your taxes as soon as you can to reduce the risk of the mark staying on your report indefinitely. 

Student loan default

7 years
Late payments can affect your credit score after 30 days for private student loans and 90 days for federal student loans. Private student loans often default after three missed payments, while federal student loans go into default if you don’t make a payment for 270 days.  

What you can do:
For private loans, contact your lender as soon as possible to see if you can arrange a new payment agreement. For federal loans, you can either pay the full amount of the loan, enter a loan rehabilitation agreement, or apply for a direct consolidation loan. 

Civil judgments

7 years if paid. If it remains unpaid, the timeframe can be reset, depending on local laws
These are also referred to as civil claims and can be taken out for unpaid debts. If a creditor or collection agency files a suit in court and the court rules in their favor, a judgment can be taken out against you and this will appear on your credit report. It can have a severe negative impact on your credit score. 

What you can do:
Pay your civil judgment as soon as possible.  

Improving your credit score 

The majority of negative marks will fall off your credit report after seven years. However, the effect of these marks should start to diminish well before that, and even with derogatory marks on your report, you can still work to raise your credit score. 

Seeking help from the best credit repair services is a good place to start, but the following steps can also help boost your credit score: 

• Make payments on time – to give you peace of mind and ensure you are not charged unnecessarily, set up automatic payments on your accounts for at least the minimum amount. Talk to your lender right away if you don’t think you can afford your payments.
• Check your credit reports – if you spot any inaccurate information get it corrected as soon as possible. This includes incorrect derogatory marks. 
• Consider your credit utilization – as a general rule of thumb, it’s best to keep credit balances below 30% of the credit limit. 

Taking such action should help raise your credit score after three to six months.

Refinancing activity is on the up again after American homeowners reacted quickly to a fresh drop-off in mortgage interest rates. 

According to the latest Mortgage Bankers Association (MBA) data, refinance applications increased 10% for the week ending April 16, marking the first rise in activity since the end of February. In turn, mortgage loan applications overall were up 8.6% compared with the previous week, as home loan rates, which have been steadily rising in the early months of the year, fell sharply lower. 

"Mortgage rates dropped to their lowest levels in around two months, prompting a small resurgence in refinance activity after six weeks of declines,” said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. “Borrowers acted on the decrease in rates for most loan types, with both conventional and government refinance applications showing gains."

Refinance interest rate savings

The MBA said the average interest rate for conforming 30-year fixed-rate mortgages dropped to 3.20% from 3.27%, while 30-year FHA loans — backed by the Federal Housing Administration — fell to 3.15%, from 3.24%. The average rate on 15-year mortgages - which prove popular among existing borrowers looking to the best refinance mortgage companies to switch to a better deal - decreased to 2.65% from 2.67%.

The downturn in rates is also backed up by separate data from Freddie Mac, which found that 30-year rates averaged just 3.04% for the week ending April 15, down from 3.13% a week earlier, and that 15-year rates averaged 2.35%, falling from 2.42%.

While rates haven’t returned to the record lows that were regularly being posted last year, Black Knight says some 13 million American households still have a strong financial incentive to refinance, and could lower their monthly payments by on average $283 if they were to switch to a new low rate mortgage deal. Over 2 million could save more than $400 a month.

Should you refinance now?

If you haven’t got round to refinancing within the past year, the time to search out the best mortgage lenders is almost certainly now. Mortgage interest rates may not be as low as they were, but by historical standards they’re still extremely attractive, and there’s always the chance that the next rate move will be up. 

Rather ominously, Sam Khater, Freddie Mac’s Chief Economist, warns: “Despite the pause in mortgage rates recently, we expect them to increase modestly for the remainder of this year.”

Of course, you shouldn’t just take our word for it - you’ll need to do your own calculations to make sure refinancing makes financial sense, and take into account all the costs involved with refinancing your house too. 

This means locating the paperwork for your existing mortgage and checking if there are penalties to be paid if you switch. Remember that fees will be charged for setting up your new mortgage too.

Before you start to apply for refinancing, make sure you have as much of the paperwork you’ll need to hand. Most lenders will want to see proof of income, identity forms, your tax returns, and your bank statements - they’ll also want to know all about your debts from credit cards and personal loans. 

Finally, to get the very lowest mortgage interest rates on your refinance deal, you should take the time to polish and repair your credit score too.

When you refinance your home, you replace your existing mortgage with a new one. Your existing mortgage is paid off and your new mortgage can be with either the same lender or a different one. 

Thanks to the current low rate mortgage environment, refinancing has the potential to lower your mortgage payments significantly. Seeking out the best refinance mortgage companies will help you to find the most appropriate refinance deal for your circumstances.

However, while refinancing can be a sensible way to reduce your outgoings, it will also come at a price. It is therefore prudent to get the full picture on how much closing costs will set you back. 

What are refinance closing costs?

On a national level, average closing costs on a refinance are around $5,000, according to data from Freddie Mac. In general you can expect to pay 2% to 5% of the total loan amount. So, if you were refinancing a $175,000 mortgage loan, for example, you could pay between $3,500 and $8,750. 

Costs will be dependent on factors such as:

• Your loan size 
• Your mortgage term
• Your mortgage lender
• Your location
• Your credit score.

Common mortgage refinance fees

If you’re thinking about refinancing your mortgage, some of the most common closing costs fees are outlined below:

• Loan application fee: Some lenders will charge an application fee when you apply to refinance. Often this must be paid even if your application is rejected, and it can vary between $75 and $500.
• Origination fee: This is the fee to process, underwrite and close the loan for you. It can be between 0.5% and 1.5% of the loan amount. 
• Appraisal fee: A property appraiser will need to evaluate your home and assess its value. Expect to pay between $300 to $400.
• Credit check fee: Lenders will need to check your credit report before your application can be accepted. The fee charged for this usually sits between $30 and $50.
• Title search and insurance fee: Your lender will typically require a title search before your refinance can be approved. This can cost around $400. Additionally, you’ll need to purchase a new title insurance policy to guard against any problems with the title transfer. Costs are around $800.
• Recording fee: Depending on the area you live in, you may be charged a recording fee for handling the paperwork. Costs vary depending on location but are usually between $25 and $250.
• Flood certification: Some areas require you to pay for flood certification. This typically costs $50 to $150. 
• Attorney fee: Certain states require an attorney to review and file paperwork for your refinance. Fees can range from $500 to $1,000.

How to lower the cost of refinancing

If you’re concerned about how much refinancing will set you back, there are several steps you can take to reduce these costs:

Improve your credit score
A good credit score can increase your chances of being offered the best refinance deals. So, before applying to refinance, be sure to check your credit score and work on improving it if necessary. This is something the best credit repair services can help with, but measures include correcting any errors on your credit report, paying bills on time and reducing your outstanding debt.

Keep in mind that refinancing has the potential to hurt your credit score – whether you’re refinancing a mortgage or a personal loan. For this reason, it’s crucial that you continue making repayments to your old mortgage loan while your new one is being approved and ensure you don’t miss your final payment. 

Compare multiple lenders
As with any financial product, the best way to get the best deal is to shop around and compare what’s on offer from the best mortgage lenders. Look at options with both your existing lender and a range of others. 

Negotiate fees
Don’t be afraid to speak up and ask for a better deal. If certain fees seem particularly high, see if you can negotiate with your lender. You’ll have a stronger case if you’ve shopped around and have more than one refinance offer open to you. 

Avoid buying mortgage points
To reduce closing costs, ask yourself this: are mortgage points worth it? Mortgage points, or discount points, allow you to pay an upfront fee to reduce your interest rate and as a result, your monthly payments will be lower. 

However, if you’ve got good credit, you should already be able to access lower interest rates without the need to pay for mortgage points. 

Keep the same title insurance company
Ask the title insurance company you worked with when you first bought your home if it can reissue the policy for your refinance loan. If the company agrees, you could save a significant sum of money.  

Consider a no-closing-cost refinance
If cash is limited, see whether your lender will offer you a no-closing cost refinance. It won’t be free, but you won’t have to pay anything upfront. Instead, your lender will either charge a higher interest rate or add the closing costs to your loan – the downside is that you’ll pay more over the lifetime of the loan. 

Reasons to refinance your home 

There are several reasons why you might want to consider refinancing your home. But the main ones include reducing your interest rate, shortening your mortgage term or accessing available home equity. 

Mortgage rates are currently at record lows, and this means if you can secure a lower interest rate, you could be one of the millions of homeowners to save a substantial amount of money on your monthly mortgage payments. Alternatively, you may be able to reduce your mortgage term by several years which, in turn, will reduce the amount of interest you pay overall.

Should you need to get hold of additional cash to pay for credit card debts, home improvements or school fees, for example, you may be able to do a cash-out refinance. This will only be an option if you have built up a significant amount of equity in your home over the years.

To find out more about refinancing, make sure you check out our guide on how to refinance your mortgage.

Americans have prioritized paying their mortgage ahead of all other credit products during the pandemic for fear of not wanting to risk losing their home. 

According to a new TransUnion study, the COVID-19 health crisis has had a huge impact on how people pay their debts, particularly in the face of financial stress. In the United States, the change in behavior was notable across many credit products, but it was mortgage loan payments that were mainly put first over what may have been owed on auto loans and credit cards.

With almost 28 million Americans holding all three loan types as of Q3 2020, the analysis found that the delinquency rate where borrowers were over 30 days behind on payments was lowest for mortgages, at 0.75%. Auto loans had the second lowest rate of 1.13%, followed by credit cards at 1.95%. 

Why are people putting their mortgage first?

As to why mortgage payments have been the priority for most, the survey suggests it is because Americans believe their home loan offers the highest perceived value of all the expenses competing for their attention. 

Part of this is likely connected to the desire to protect the equity that has accumulated in their properties following strong house price growth in recent years. In addition, there is a sense that keeping current on home loan payments has taken on increased importance because of the greater amount of time spent at home during lockdowns and the shift to working and schooling from home.

“Mortgage is once again the clear priority for U.S. borrowers,” said Matt Komos, TransUnion’s head of research and consulting in the U.S. “The mantra, ‘you can’t drive your home to work’ doesn’t have the same effect when millions of Americans are waking up, showering, eating breakfast and taking only a few steps to their home office.”

As well as the growth in remote working and rise in home values, the study also notes that fewer people will have fallen delinquent on their mortgage due to the large number of borrowers who will have quickly entered accommodation programs, and been able to delay payments and maintain their accounts, during the pandemic. 

While these people may have had their mortgage fears allayed for a while at least, the survey also reveals the weight of pressure that others have felt to keep up with their payments. Indeed, six in 10 homeowners said they expected to receive a call from their lender if they missed one mortgage payment and more than half (52%) were concerned by the damage that might be inflicted on their credit score if they skipped a payment. Almost one in five (17%) were fearful of the threat of foreclosure or repossession should they miss a mortgage payment.

Which debt should you pay off first?

The reasons put forward for not wanting to miss mortgage payments definitely have their merits, yet in some circumstances, arguments can be made as to why other debts may need to take priority. In particular, anyone with a payday loan should almost certainly be looking to pay down this high rate and high risk debt first. 

Indeed, for some people, the instinct will always be to pay off the credit that is attracting the highest rate of interest first, and this is an eminently sensible strategy to adopt, as you’ll pay less in interest over the long term. If this is the approach for you, it’s important to remember, however, that you must also meet the minimum payment requirements on credit cards and personal loans at the same time to avoid costly penalties. 

For others, the need to keep themselves motivated and see that they are making tangible progress in lowering their debt may make paying off their smallest debt first a better approach. If this doesn’t happen to be the debt with the highest interest rate, then you may end up paying more in interest overall. However, for some people, the psychological benefits of being able to say that they’ve ticked something off their debt list, and giving them the impetus to clear more, will prove more important. It’s also worth considering that the quicker you pay down what you owe, the better it is for your credit rating. 

A further option if you’re really struggling to work out which debt to meet first could be debt consolidation, as by bringing everything that you owe together into a single loan, the only priority you’ll have is making that one payment.  

Mortgage prequalification and preapproval. The terms are often used interchangeably, but there are actually distinct differences between the two – and if you’re searching for the best mortgage lenders, it’s worth knowing what they are so you know exactly what you’re dealing with, and how they can work in your favor when you’re buying a home. 

What is mortgage prequalification?

Mortgage prequalification is the process of determining how much you might be able to borrow from a lender. It’s usually the first step in your homebuying journey and is based on a fairly informal appraisal of your financial status and credit commitments; some lenders will run a soft credit check, while others will simply ask for details of your financial obligations and any personal loans you may have, either over the phone, online or in person. 

Once you’re prequalified, you’ll have an idea of the kind of mortgage you could be eligible for, and it could even point you in the direction of potential loans. Lenders will normally use this stage to discuss your requirements and will advise on the mortgage most suited to your needs, explaining the options accordingly. However, at this stage you’re only getting a ballpark estimate of the mortgage you may qualify for; nothing’s set in stone, and the lender will need to take a closer look at your finances (during the preapproval stage) in order to confirm eligibility.

Nonetheless, getting prequalified for a mortgage is standard practice in the current market. It essentially offers proof that you’re likely to be able to buy the home you’re interested in, and most sellers will require evidence that you’re prequalified (normally you’ll be expected to give them a copy of the prequalification letter) before taking that interest further. 

How long does it take to be prequalified?

It depends on the lender, but it can be a very quick process, particularly if you go online – in some cases, you can become prequalified in as little as an hour. You’ll likely need to wait a few days to receive the prequalification letter, however, and bear in mind that your prequalified status will usually expire after 90 days; if it’s lapsed, you’ll need to go through the process again. 

Does mortgage prequalification affect your credit score? 

Provided the lender only undertakes a soft inquiry on your credit report, it shouldn’t affect your score. Some lenders won’t look at your report at all and will simply use the information you provide when determining your prequalification status, so this should have zero impact on your credit rating. 

What is mortgage preapproval?

Mortgage preapproval is the next step of the homebuying process, and is much more rigorous. This is the stage during which your lender will conduct a more detailed examination of your finances to determine the mortgage you can afford, and as such will run a more thorough credit check and ask for verification documents (such as bank statements, tax returns, etc.) so they can properly assess your financial situation. 

You’ll need to fill in an official mortgage application and, once the lender has analysed your finances, checked your credit score and performed the necessary calculations, you’ll be preapproved for a loan up to a specific amount. This gives confirmation of the mortgage you’ll likely qualify for and you can use this to your advantage – by getting preapproved, sellers will know you can follow through on an offer which could put you ahead of those who aren’t at the preapproval stage, and it can often speed up the buying process, too.

Getting preapproved can also give you certainty over the ceiling price of properties you can look for, as well as giving a better idea of the interest rates and fees your lender could charge – some lenders will even let you “lock in” a certain interest rate, though this will likely be at a cost – which could be useful for your own affordability calculations. Bear in mind, though, that preapproval still doesn’t guarantee that you’ll be given a mortgage, particularly if your circumstances change between preapproval and actually taking out the loan, but it can definitely give you leverage and is the closest you can get to a loan commitment.

Does mortgage preapproval affect your credit score? 

Yes. Mortgage preapproval requires a hard credit check, which will always show up on your credit report and could result in a temporary dip to your score. However, the key word here is “temporary” – any negative impact is likely to be minimal and, provided you keep up with effective credit management habits, can quickly be reversed. 

How long is a mortgage preapproval good for? 

A mortgage preapproval can initially take longer to come back from the lender, simply because of the extra checks involved, but once you’ve received the preapproval letter it will typically be valid for 60-90 days. For this reason you’ll want to time things carefully to ensure you’re in the right position to buy the home you want. 

So… what’s the difference?

The main difference between the two is in terms of the weight of their credit checks and resulting proof of your creditworthiness. Preapproval gives a more specific idea of the amount you’ll be able to borrow and, as such, carries more substance when it comes to negotiating with a seller; that said, prequalification could still be beneficial if you’re in the early stages of scouting out your ideal home. 

Ultimately, prequalification and preapproval should be seen as vital first steps on your mortgage journey, helping ensure you’ll be able to get the home you want. 

However, both are arguably more important when buying a new home than when you’re refinancing or seeking a reverse mortgage; if you already own the home you won’t need to compete against other buyers to show your worth, though you’ll still need to go through the approval and credit checking process to ensure you’ll be eligible for a new loan. It may also be worth seeking the best credit repair services if you’re in any way concerned about your credit profile.

If you have acquired a large amount of debt in recent years across a number of different loans, paying it off can seem a difficult and daunting task and staying motivated can be a struggle. Fortunately, there are strategies you can employ to help prioritize these debts and achieve your financial goals more quickly. These strategies broadly fall into two categories – paying off the loans with the highest interest rate first or focusing on the smallest debt first. 

When using either one of these, it is crucial that you continue to keep up with the minimum monthly payments on each of your remaining loans to avoid being stung by extra charges and higher interest rates. 

Paying off the highest interest rate loan first

When considering which loans to pay off first, one option is the “debt avalanche” method. This involves putting as much extra cash as possible toward the loan with the highest interest rate, while continuing to meet the minimum monthly amount on your other loans. The biggest advantage to this method is it has the potential to save you a substantial sum in interest over the long-term. 

Once the most expensive loan has been paid off in full, all of the money you were putting toward it each month can then be used to start paying off the loan with the next highest interest rate. Again, you must keep up with the minimum payments on your remaining loans. You continue this process until all of your loans have been paid off.    

As an example, let’s say you had the three loans below:

• Personal loan A of $8,000 at 10%
• Personal loan B of $10,000 at 12%
• A student loan of $5,000 at 6%

Here, you would focus on putting extra funds toward personal loan B first, then once that had been paid off, your focus would turn to personal loan A, and finally to the student loan.

Paying off the smallest loan first 

While paying off the most expensive debt first has many benefits, if your most expensive loan is also your biggest one, it can take a considerable amount of time to clear and it can be easy to lose motivation as a result.   

Many people therefore favor the “debt snowball” method. This involves paying off the smallest loan first, no matter the interest rate, and although you’ll likely end up paying out more interest overall, the results can be more tangible, giving you a bigger sense of achievement. Each time you pay off a loan, you’ll be one step closer to your financial goal of becoming debt-free and this can help keep the momentum going. 

Additionally, the faster you pay off your debt, the better it is for your credit score and your debt-to-income ratio. This can be particularly beneficial if you are hoping to qualify for credit such as a mortgage in the near future. 

Prioritizing your loans

Regardless of which method you feel will work best for you, certain riskier loans should always be prioritized above all others. Both payday loans and title loans fall into this category as they are short-term loans that charge excessively high rates of interest. Payday loan rates can be close to 400%, while title loan rates are often around 300%. 

If you are unable to pay off your payday loan or title loan at the end of each month, many lenders will simply roll them over into a new loan, resulting in further fees and interest being added and starting a cycle of debt that can be difficult to escape. Those with title loans also risk losing their vehicle if they cannot repay the loan. For these reasons, paying off these riskier loans first is an absolute must. 

Once these have been cleared, you can turn your attention to paying off personal loan debt, alongside any credit card debt you may have. A quick and easy tactic to help pay off credit card debt is to move your balance to a 0% APR balance transfer credit card as this will allow you to avoid paying interest for a number of months.

This will only work, however, if you are able to clear your credit card debt before the 0% introductory APR period ends as it is after this point that you will start paying interest at the standard rate. You will also pay a transfer fee of around 2% to 5% of the balance when you move it across and the best credit cards will only be offered to those with good credit. 

Loans such as student loans or home equity loans may be pushed further down the priority list as these can give you a tax break on the interest that you pay. Mortgages and business loans can also take more of a backseat as they are generally regarded as “good” debt due to their potential to make you better off in the long run. 

What about debt consolidation?

If paying off loan debt feels too overwhelming and you’re concerned about managing your various repayments, you may want to consider the best debt consolidation companies as another option. These services enable you to combine all your existing loan commitments (and any other forms of credit) into a single loan with a single monthly payment. 

This can make the process far more manageable and saves you from assessing which debts should be paid off first. Furthermore, if you can secure a lower interest rate your monthly payments could shrink and you will save money in the long run.

Alternatively, if you have already explored this option and you are struggling under the weight of your debt repayments, the best debt settlement companies may be able to help. These services negotiate with your creditors with the aim of reducing the amount you owe and hopefully establishing a repayment plan that you’re more likely to achieve. However, they should only be used as a last resort and it is wise to seek professional help first. We recommend speaking to National Debt Relief which offers a range of services to help customers manage their finances and find the right debt resolution option. 

Private mortgage insurance (or PMI) is unfortunately a fact of life for many who take out even the very best mortgages, with it being intrinsically linked to the level of equity in your home. If it’s been part of your outgoings for a few years, you’ll likely have one question on your mind – can mortgage insurance be canceled? The short answer is yes, but you’ll need to meet certain criteria first. 

What is mortgage insurance? 

PMI is an insurance product that will repay your mortgage if you’re unable to. It’s designed to protect the lender in the event of default, as with this kind of insurance in place, they’ll still get the majority of the money owed to them, even if you can’t pay it. Given that mortgage insurance premiums can cost anywhere from 0.3% to more than 2% of your mortgage balance (depending on various risk factors), it can easily add hundreds of dollars to your monthly repayments, so it’s little wonder that so many Americans want to get rid of it.

It’s something that can affect a lot of borrowers, too. A policy will usually be required if you make a down payment of less than 20% on a conventional mortgage loan, or if you’re refinancing and have less than 20% equity in your property. This is because the higher the loan-to-value (LTV) of the mortgage, the more risk the lender is taking on, and they’re looking to protect their investment accordingly. But, once you hit that magic 20% mark, you can start the process of getting PMI canceled. 

When can mortgage insurance be canceled? 

Once your level of equity reaches 20% and your mortgage balance falls to 80% LTV, you can request that your loan provider cancels the PMI contract as per the federal Homeowners Protection Act (HPA). You’ll have to do this in writing and will need a good payment history, and you may also be required to get a home appraisal to ensure that your home’s value hasn’t declined. But, if you tick all the boxes, you may be able to cancel your PMI contract and reduce your repayments in the process. 

It’s possible to get to this stage quicker by overpaying on your mortgage, or if you’re not in such a rush, you can wait for it to happen automatically. Provided you haven’t missed any repayments, the HPA states that the provider must terminate a PMI contract either once the mortgage balance reaches 78% of the original purchase price (automatic termination), or at the midpoint of the amortization schedule, if sooner (final termination). This means that, if you’ve got a 30-year mortgage term and you hit the 15-year mark, the insurance policy will be canceled, even if you haven’t fallen below 80% LTV. Again, to be eligible for either of these scenarios, you need to be up-to-date with your payments. 

Another way to reach that key point is to get your home reappraised if you believe it’s increased in value. If it’s been five years since you purchased the property the LTV must be no more than 80% for the insurance to be canceled, but if you’ve only owned your home for two years, 75% LTV is the maximum. However, remember that getting an appraisal can cost a lot of money in itself, so you’ll need to be confident that your home has gained in value – if properties in your area have seen price rises, for example, or if you’ve made a lot of improvements – to work out if it’ll be worthwhile. 

In a similar vein, refinancing your mortgage could be a way to remove the PMI if you find that, on appraisal, you’ve gained 20% equity ahead of schedule. This could be a particularly prudent move in the current low-rate environment; not only could you potentially take hundreds of dollars off your mortgage payment each month by refinancing to a lower rate, but you could save even more by removing PMI from your mortgage contract. As with the reappraisal route, just make sure that the fees associated with refinancing won’t make the endeavour unprofitable. 

Is mortgage insurance required?

If you're wondering is mortgage insurance required in the first place, and you want to avoid mortgage insurance altogether, one of the best ways to go about it is to put a larger down payment on your home. If you can put down more than 20% you’ll have a lower loan-to-value, which should mean the lender doesn’t require you to take out an insurance policy. 

Yet don’t be so focused on avoiding PMI that you fail to leave yourself any financial liquidity. Having some spare cash lying around for emergencies is always recommended, so when working out what mortgage you can afford, try not to spend every last cent on making a bigger down payment if it’ll mean you’re struggling afterwards. Besides, for some, that extra amount each month could be a small price to pay for getting on the property ladder, with many finding that even with PMI added, they’re still paying less than they would have been on a rental contract. 

And, if you’re not in a position to avoid PMI at the outset, you may like to consider ways you can reduce the cost of such a policy instead, which means understanding the various risk factors that go into a PMI calculation. These include your mortgage term, LTV ratio and the amount of cover required by the lender, as well as your credit score. You’ll already need a decent score to be approved for a mortgage, particularly now that the credit score needed for such an approval has risen, and typically speaking, the higher your score, the lower your PMI premium is likely to be. This means now’s the time to seek credit repair services if your score could do with a refresh.

Yet even if you end up paying more in the way of PMI than you’d like, remember that it won’t be forever – there are several ways that mortgage insurance can be canceled, and after a few years, you can look forward to spending the premiums on something far more enjoyable. 

The American cities whose citizens lay claim to the highest credit scores - and the lowest - have been revealed. Following a pandemic-affected year during which borrowers increasingly paid down debt to the general benefit of their credit scores, it is the residents of The Villages, Florida, who can boast the highest median credit score of 807. As a result, they’re better placed than anyone else in the US to access the best personal loans, mortgages and credit cards around right now.

Credit scores overall have widely improved during the health crisis due to consumers cutting back on their spending, putting their stimulus checks to good use either to keep on top of debt or pay back what they already owe, and by taking advantage of the various debt relief concessions that have been introduced to help people manage their finances. 

The cities with the highest credit scores

Published by WalletHub, the report takes in almost 2,600 US cities, of which some 267 have a median credit score of at least 750 - the mark beyond which borrowers are accredited as having Excellent credit, and so should be able to take advantage of the lowest home loan rates from the best mortgage lenders, and the most favorable credit terms generally. 

After The Villages, the next-best credit scores are found in Sun City West, Arizona and Sun City Center, Florida, which both have an average of 789, while Green Valley, Arizona isn’t far behind with 788. The two California cities of Los Altos and Saratoga come next with 784, followed by Lexington and Needham, both Massachusetts, and Laguna Woods, California, at 781. Pittsford, New York and Mequon, Wisconsin complete the top 10 with a median score of 780. 

The cities with the lowest credit scores

On the other side of the coin, it is the residents of Chester, Pennsylvania, East St Louis, Illinois, and Camden, New Jersey, who report the lowest credit scores right now, of just 552. With any score below 579 rated as Very Poor, those with such a low rating might expect to pay additional fees when applying for credit cards, and be offered far less favorable rates and terms on other forms of credit, if they qualify to borrow at all. 

Detroit, Michigan is only slightly better at 560, while Gary and East Chicago, both Indiana, are next worst at 561 and 564 respectively. Those living in West Memphis, Arizona, and Harvey, Illinois, are not much further ahead at 566, with the low credit scores of all those mentioned, and millions more Americans, likely to present a real challenge.

How to improve your credit score

With the credit score required to secure a mortgage at a 20-year high, and many people still needing to borrow simply to help make ends meet, taking the time to improve your credit score can really pay off. This means regularly examining your credit report, and looking for discrepancies that might be holding your rating back, and is particularly important given the surge in credit reporting errors that was noted last year. 

Some may wish to hand responsibility for increasing their score over to the best credit repair services, while others will prefer to do it themselves. Whichever path is taken, Jamie Wagner, Assistant Professor, Director, Center for Economic Education, Department of Economics – University of Nebraska at Omaha, says the difficult thing with improving credit scores is that there isn’t usually a quick fix. 

“If you are working to improve your score it is going to take several months or years to increase a credit score depending on how low your score starts. My biggest tip regardless of trying to improve your score or not is to pay your credit cards or loan repayments every month. Pay your bills every month - payment history is a large part of your credit score. Additionally, I would recommend stop opening accounts or close accounts that you do not use.”

Consumer complaints about credit report errors more than doubled last year, putting the onus on Americans to monitor their credit ratings and dispute erroneous items if necessary. Around 282,000 complaints related to credit reporting were recorded by the Consumer Financial Protection Bureau (CFPB) across 2020, compared with 136,000 in 2019. 

Of these, the majority of the grievances received were to do with credit report errors, which could hold people back in their applications for personal loans, credit cards, mortgages and other credit. More specifically, 141,000 of the complaints were tagged with the problem “information belongs to someone else”.

Credit bureaus under fire

The study, which was conducted by the U.S. PIRG Education Fund, went on to reveal that the vast majority of credit reporting complaints – nearly 9 in 10 –  involved one of the ‘big three’ credit bureaus. And between them, Experian, Equifax and TransUnion accounted for 246,000 of the complaints the watchdog received overall, making them responsible for more than half of the total received by the CFPB in the whole of 2020. 

A day after the damning report was released, the ‘big three’ announced that they’d continue to provide free weekly credit reports for another year in light of the ongoing financial issues many Americans are facing as a result of the pandemic - normally, free credit reports are limited to one per year, unless you meet certain additional criteria. However, for some, this hasn’t disguised the issue at hand, as Lucy Baker, U.S. PIRG Education Fund’s consumer program fellow, said:

“Mistakes in credit reports lead to lower credit scores and denial of credit, housing or employment, but under President Trump, the CFPB gave the credit bureaus a free pass from handling consumer disputes in a timely manner. That hands-off approach couldn’t have happened at a worse time. It exacerbated family finance problems during a pandemic that had already left many consumers teetering on the edge of financial ruin.”

Why do I need to dispute credit report errors?

If there are errors on your credit report, you could have a lower score without even realising it, which could be holding you back from being offered the best credit terms – and it may even be preventing you from being approved for finance altogether. This is why it’s so important to fix credit report errors, particularly if you’re thinking of applying for finance in the near future. 

It can be especially important when it comes to securing a mortgage, an issue highlighted by the recent finding that the credit score needed to be approved for such a loan has increased. Being approved for the best personal loans will also depend on having a stellar credit score, not to mention credit cards and auto loans; quite simply, if you want to stand the best possible chance of being approved for finance and getting the best terms in the process, it’s vital to make sure any credit reporting errors are fixed as soon as possible.  

How to fix credit report errors

If you suspect that the credit bureaus are holding incorrect information about you, you’ll want to get it rectified as quickly as possible. It’s possible to do this yourself: you can start the process by requesting your free report via annualcreditreport.com, and from there you can analyse the information held about you to spot any inaccuracies.

If you notice an error, write to the relevant bureau with details of the information you think is inaccurate, together with copies of any supporting documents to back up your claim. The bureau then has 30 days in which to investigate, during which time it must forward the data to the organization that originally provided the information in order for them to review it, after which it must either delete, update or verify the information held. 

Yet it isn’t always as simple as that, and it may be the case that the original organization challenges your claim. This is where it can start to get tricky, and is why many people choose to seek specialist credit repair services instead. These companies will deal with the credit bureaus on your behalf to expunge the offending information from your credit history, and typically have much higher success rates than if you were to go it alone. Some can even guarantee an improved rating as a result of their work, so for many, investing in their services could be worthwhile.

An estimated 11 million American households are significantly overdue on their regular housing payments and at heightened risk of losing their homes over the coming months, according to a worrying new report. The more encouraging news is that President Biden’s American Rescue Plan sets aside billions of dollars for rental relief which should ensure the threat of becoming homeless is allayed for the time being. 

The potential scale of the problem has been highlighted by the Consumer Financial Protection Bureau which found that some 8.8 million renters and 2.1 million homeowners were “significantly” behind on their mortgage payments. Black and Hispanic households were more than twice as likely to report being behind on their payments than white households, as were households with incomes below $75,000 compared with those whose income was greater. 

“Some of these households were already behind on their payments before the pandemic began, but many households experienced income shocks such as a job loss, reduced hours, or the death of a family member,” noted the report. 

Renters struggling the most

With 6% of mortgages delinquent as of December 2020, up from 3% in March last year, the number of struggling mortgage borrowers has doubled since the beginning of the pandemic. In a sign of the severe financial stress being felt, most of the delinquent loans were more than three months behind on payment. 

However, through sheer weight of numbers - and particularly given renters only account for just over a third of US households overall - the report suggests that the challenges faced by renters are far greater than homeowners. Perhaps unsurprisingly, low income renters were more likely to report that they were behind, with more than one in four with incomes under $25,000 owing rent.

How the new relief package will help

The report notes that the coronavirus relief afforded by the Government, including stimulus checks, enhanced unemployment benefits, forbearance measures, and moratoriums on evictions, have been instrumental in ensuring millions of Americans have not lost their homes during the health crisis. 

However, with the ban on evictions expiring at the end of March, and additional support measures for the unemployed ending mid-March, attention inevitably turns to the latest rescue plan which has been passed by the House, but still needs Senate approval. A further $26 billion has been earmarked to help renters, and another $10 billion for mortgage assistance, along with an extension of the enhanced benefits for those out of work and the promise of a third stimulus check.

What about the eviction ban?

What is notable by its absence is an extension of the nationwide eviction moratorium announced by the Centers for Disease Control and Prevention (CDC) in September last year. Despite calls from President Biden to keep the ban through September 2021, the budget reconciliation path that the American Rescue Plan legislation is taking through the Senate means the eviction extension can’t be included in the bill. The hope now is that the President will move to extend the safeguard through an executive order to avoid the flood of evictions that would inevitably follow if it were to lapse and the wider implications it could have on health and debt.  

“The Biden administration must vigorously defend the CDC order in the courts, and must strengthen, enforce and further extend the eviction moratorium for the duration of the pandemic and until all emergency rental assistance has been disbursed,” said Diane Yentel, President and CEO, National Low Income Housing Coalition. “Evictions risk lives, drive families deeper into poverty, and strain overstretched public health systems. When our collective health depends on an ability to stay in our home, we all have a stake in ensuring that tens of millions of renters don’t lose theirs.”

Qualifying for rental assistance

In terms of the relief for renters that is included in the bill, emergency rental assistance is available if at least one person within a household: 

• has qualified for unemployment benefits or seen a reduction in household income, incurred significant costs, or experienced other financial hardship during the pandemic; 
• can demonstrate a risk of experiencing homelessness or housing instability; 
• has a household income below 80% of the area median income (AMI).

The funds must be used to cover back and forward rent and utility payments, and other housing expenses, but if you’re struggling with your rent, there are other steps that you may be able to take too. 

For homeowners behind on mortgage payments, talking to your lender about your situation is the first thing you should do, while also exploring the other options that may be available to you. Making contact with lenders is good advice if wider debt is taking its toll too, including on credit cards and personal loans.

The US states with the highest and lowest property tax rates have been revealed in a new report illustrating the different tax burdens that households can face, depending on where they live. In analysis, which should prove of interest to anyone looking to move home, Hawaii has the lowest property tax rate at $606, almost 9 times lower than the highest rate seen in New Jersey, where the average household must pay out $5,419 each year. 

Homebuyers should be all-too familiar with the need to pay out for property taxes alongside their usual mortgage payments. And with tax season underway, it’s vital to remember that the property tax deduction is one benefit that homeowners should take advantage of when loading up their tax software to file their returns. 

“Consideration of property tax is not the most exciting part of the home buying process, but it is incredibly important and should always be considered,” Natasha N. Varyani, Associate Professor of Law – New England Law, Boston, told WalletHub, which compiled the data. “Often it is overlooked because it is not included in the list price of real estate, and it is an obligation that will be attached to the property forever.”

The states with the lowest property taxes

The numbers have been crunched using U.S. Census Bureau data, with the real estate property tax rates calculated by dividing the median tax payment by the median home price in each state. The resulting rates were then used to work out the dollar amount of property tax paid on a house worth $217,500 - the median value for a home in the U.S.

While the average American household pays $2,471 on property taxes each year, there are 14 states where bills typically fall below $1,500. Outside of Hawaii, annual property taxes based on the national average home value are next lowest in Alabama at $895, and then Colorado at $1,113. 

The states with the highest property taxes

Taking the dubious honor of having the highest property taxes is New Jersey at an average of $5,419, followed by Illinois at $4,942 and New Hampshire at $4,738. Overall, property taxes in Blue States were found to average $2,722, some 31% higher than the average of $2,076 seen in Red States. 

However, when it comes to calculating the average paid on property taxes for a home priced at a state's median home value - rather than the national average - many residents of New Jersey will be paying well above $8,000 a year.

Renters should take note as well

Although almost two-thirds of Americans are homeowners and explicitly subject to property taxes, renters are being urged to take note of the figures too, because of the impact the taxes can have on rental costs.

“While most home buyers consider property taxes in deciding where to move, renters should also be aware of local taxes and services,” Stephanie Leiser, Lecturer in Public Policy, Ford School – University of Michigan told the website. “While renters may not directly pay the property tax bill, their landlords will bake those expenses into their rent payments.”

And for renters about to file tax returns, it's also worth checking whether property taxes are payable as part of your lease agreement. If they are, it's possible to deduct that portion of your rent or any property tax you pay directly. 

• Find more essential tax-filing reminders for the 2021 tax season

Americans who are working remotely could be losing out financially by carrying out their roles from home rather than at their usual place of work. That’s the perhaps surprising finding of a new report from the National Bureau of Economic Research (NBER) which reveals that employees who work from home spend on average 7% more on housing costs than those who stay in the office.

Hidden housing costs

The figures show that between 2013 and 2017, households with at least one adult working from home spent between 8.4% and 9.8% more on housing costs than non-remote households, largely the result of higher mortgage costs and property taxes. Yet a similar jump was true for renters, who spent between 6.5% and 7.4% more than their office-based peers.

The study suggests that this is due to the fact that remote workers typically have larger houses with a higher cost per room, with the need for extra space becoming apparent to anyone who’s been catapulted into remote working in the last 12 months. 

And, given that the figures were compiled in a pre-COVID era, it isn’t difficult to assume that even more workers could now be feeling the effects of higher housing costs. Indeed, in 2017 a report from FlexJobs revealed that only around 3% of the US workforce regularly worked from home; by May last year, however, this proportion had exploded, with the NBER reporting that half of respondents were doing so, including 35% who’d switched to remote working as a direct result of the pandemic.  

This isn’t a trend that’s likely to slow down any time soon, particularly given the relative ease with which many employers and employees alike have adjusted to this new way of working. Yet this also means that a growing number of Americans are likely to be impacted by rising housing costs, be it through moving to a bigger property - as over a quarter of remote workers have said they’d like to do - or perhaps by renovating their current home if they want to finance a dedicated home office space. But there are ways you can mitigate some of those costs, with the considerations differing depending on whether you’re relocating or renovating.  

Should you move or remodel? 

The first thing to do is be realistic about what you can afford, particularly if you’re considering relocating. Moving to the suburbs may be an option if you don’t need to worry about the commute, but costs are rising here too, and knowing how much mortgage you can afford will be your very first step in deciding whether it’s viable. 

Firing up your personal finance software can be hugely beneficial when working out your level of affordability, and remember too that if you’re moving to a bigger, more expensive property, it follows that homeowners insurance can become similarly more expensive, so always keep these kinds of costs in mind when contemplating your next steps. 

If staying in your current home, but switching it around or adding to it, is more of a viable option for the time being, you'll likely want to know how to finance a home renovation. This will usually depend on whether it’ll be a simple update to a few rooms or a full remodeling project, complete with extension for the home office - the former might perhaps only need a small personal loan, while the latter could require something at the more extreme end of the scale, such as refinancing your mortgage or securing a home equity loan.  

Remember the benefits

The NBER study didn’t delve into the additional expenses of home-working either, such as the cost of new equipment required to create the perfect home office and the endless supply of coffee that employers will no longer be paying for, yet there are undoubtedly some perks to this way of working, too. 

Most will save on travel costs to the office, and are unlikely to miss the time spent stuck in traffic getting there. And while the home office tax deduction is not as wide ranging as it once was, if you’re self-employed, an independent contractor or gig worker working from home, it could still benefit you, when loading up your tax software.

What you can’t really put a price to, however, but what remains valuable about working remotely nonetheless, is the flexibility to quickly step away from your desk and just pop that nearly-ready meal into the oven, or welcome repair workers without needing to take the day off - these are little extras that can make a lot of difference as well. 

A rising number of Americans are considering a house move in 2021, spurred on by the realization that remote working is here to stay, even in a post-pandemic world. 

That’s the message being delivered by The NPD Group, which found that almost 20% of employees were working from home full time at the end of last year, and that a growing number of companies will continue to offer the option to work remotely in the future. 

Reassured by these flexible working promises, many Americans are now feeling emboldened to find new homes to better suit their new work/life balance, with 28% giving thought to relocating because of the pandemic. Some 20% more homeowners than last year have also revealed their intent to move in 2021.  

“For many, where you choose to live has often directly correlated with where you are currently employed or where you are employed has helped to determine where you choose to live,” said Leen Nsouli, Executive Director at The NPD Group. “This relationship is a common one for many – but that may be changing.”

Could you relocate? 

The good news for those contemplating relocating in the near-term is that interest rates at the best mortgage lenders remain either at or close to record lows. Even taking into account the sharp rise in house prices seen last year, the cost of home loans has fallen so significantly over the same period that many buyers will find mortgage payments are actually more affordable now than when real estate prices were lower. 

And if you’re already on the property ladder, similarly low rates are available at the best refinance mortgage companies too, and providing the opportunity for millions of homeowners to save hundreds of dollars on their monthly loan repayments. What this also means is that existing borrowers may have the chance to switch to a new low-rate mortgage deal, and raise the extra funds needed to take a step up the ladder, without seeing their payments rise dramatically.

Should you move home? 

Whether you take the plunge or not will ultimately depend on your own circumstances and the priorities you have going forward. Many people who are thinking about moving as they can now work from home will be looking for additional living space in which to create a home office. They might also wish to consider the recent rundown of the best US cities for remote working, which saw Fishers, Indiana, come out on top, due to its affordable housing costs and widespread availability of high speed broadband. 

Others may simply want to relocate to escape the crowdedness of cities, and will probably have their eyes set on the best states to live in the US. More reasons to move might include a desire to live closer to family, to lower your cost of living, or to retire. For those whose occupation means they can’t work remotely, the needs of their job might also take them to places new. 

All of these are valid reasons for moving, but of course, your finances will need to allow too. This will mean evaluating the security of your job, and making sure you’re in the best position to secure a good mortgage deal, including seeking out credit repair services if your credit rating needs a boost. Remember as well to include things like the cost of truck rental for moving when making your calculations, and the other expenses that might come your way. 

And if it turns out that moving isn’t for you, perhaps you’re still in a position to finance a home renovation, and could freshen up where you live instead. 

Working out which deductions can be included on your tax return is the tricky task that most Americans face when firing up their tax software each year. If you’re buying your home, mortgage interest could well be one of them, but with the rules around it changing in the Tax Cuts and Jobs Act – which has impacted returns filed since 2019 – there could still be some confusion. So, is mortgage interest tax deductible? Whether you’re claiming it for the first time or simply need a reminder, you’ll find the answers here.

What is the mortgage interest deduction?

The mortgage interest deduction is a tax benefit provided by the IRS. It allows homeowners to reduce their taxable income by the amount of interest they’ve paid on their mortgage over the year, reducing the amount of tax they owe. It’s an itemized deduction and applies to any “qualified residence loan” that’s used to purchase, build, or substantially improve the property, including refinance loans, provided you don’t cash out and use the loan for other means (the deduction doesn’t apply to reverse mortgages, as interest isn’t paid until the loan becomes due).  

What mortgage interest is deductible?

For those who have bought their home since December 16, 2017, the mortgage interest deductible limit for this tax year stands at $750,000. This limit applies to single filers and married couples who file jointly; married taxpayers who file separately can deduct up to $375,000 each. If your home was purchased prior to this date your mortgage contract still falls under previous rules, and you’ll be able to deduct the interest paid on mortgages worth up to $1 million (or $500,000 each for married couples filing separately). 

However, the interest paid out on home equity loans isn’t necessarily included in the deduction. Prior to the Tax Cuts and Jobs Act, the interest on any home equity loan up to $100,000 could be deducted from taxable income, regardless of how the loan was used. Now, it all depends on how you spend the money; if it’s used to make improvements on your property it counts as a qualified residence loan and the interest is still deductible, but if you used the money for something else, such as to cover a personal loan or similar expenses, the interest can’t be included in your tax deduction calculations. 

The other exception is in the case of “grandfathered debt” on mortgages taken out before October 13, 1987, where all interest paid is deductible. 

Is mortgage interest deductible on a second home?

This depends on what you’re using the home for. If the second home is a rental and you haven’t stayed in the property yourself, you won’t be able to claim mortgage interest deduction, and there will be other tax implications to consider. However, if you stay in the property for at least 14 days or 10% of the days it’s rented out for (whichever is longer), it qualifies, and if you’re not renting it out you can deduct mortgage interest regardless. Remember that the mortgage interest deductible limit applies to the amount of interest paid on both the first and second home combined. 

How can I claim a mortgage interest deduction?

Whether you file your tax return online or use a professional service, it’s important to know how you can actually claim mortgage interest deduction – and it’s all to do with itemizing. Rather than taking the standard deduction, you’ll need to itemize your mortgage interest by filing Schedule A (Form 1040), which is also the form you can use to list other deductions. You’ll need Form 1098 from your lender (which details how much mortgage interest you’ve paid over the last year) to fill it in. 

However, if you make money from the property (such as by renting it out for part of the year or using it for business purposes) you’ll need to fill in additional forms. Remember, too, that you can’t deduct your entire monthly mortgage payment from your income, only the interest portion of the payment qualifies. Mortgage interest is calculated in such a way that sees more of your monthly payment go towards interest in the earlier years of your loan, which makes the mortgage interest deduction more valuable. 

Is it worth claiming the mortgage interest deduction?

The mortgage interest deductible limit means that the majority of homeowners will be able to qualify for the deduction, but whether or not it’s worth claiming largely depends on their individual circumstances, and whether they’d be better off taking the standard deduction. 

The standard deduction for this tax year is $12,400 for single filers and $24,800 for married couples filing together. If the amount you spend on mortgage interest and other deductions (including charitable donations, student loan interest, medical expenses, mortgage points, etc) exceeds these levels, it makes sense to itemize and claim, as you’d be able to reduce your taxable income by a larger amount. If, on the other hand, your allowable deductions total less than the standard deduction, you’ll be able to save more on your taxes by taking the standard deduction. 

It’s generally expected that the larger the mortgage and the higher your tax bracket, the more you’ll be able to benefit by itemizing and claiming mortgage interest deduction. Though if you’re paying a tax expert to file your return, make sure to factor in the additional cost of itemizing to ensure it’s still worthwhile.

The Federal Housing Finance Agency (FHFA) has announced that it’s extending mortgage forbearance for those struggling as a result of the coronavirus pandemic, with those who qualify now given a break of up to 15 months on their mortgage payments. Here, we take a look at what the new rules mean, and discuss whether mortgage forbearance is a good idea.

What is mortgage forbearance and when does it end?

Mortgage forbearance offers borrowers who can’t pay their mortgage the chance to pause their repayments for a set period of time, without the mortgage being reported as delinquent. Borrowers with Freddie Mac or Fannie Mae-backed mortgages have been able to request COVID-related forbearance of up to a year since March 2020, but the latest announcement extends this period by three months, and means struggling homeowners will have more of a break from making repayments. 

The announcement means that anyone who’s in COVID-related forbearance as of February 28, 2021 will qualify for up to 15 months of paused payments, dated from the time their forbearance started. This extension could be particularly beneficial for those who entered forbearance early on in the pandemic, as without it they could be nearing the end of their forbearance period; now, they can get some additional breathing space. 

Is mortgage forbearance a good idea?

For those whose finances have been impacted as a result of the pandemic – perhaps due to job loss, reduced income or additional expenses – forbearance can offer a lifeline. Being able to press pause on your mortgage payments can give you the space you need to get back on a firmer financial footing, without needing to worry about the impact on your credit score, or worse, the possibility of losing your home. 

There’s also no need to avoid making repayments if you can afford them; if during your pre-agreed forbearance period you find your circumstances change and you can start making payments again, you’re free to do so - this, in turn, could reduce the impact on your finances once forbearance comes to an end.

So for many, forbearance can be a good idea, but it’s important to remember that it isn’t loan forgiveness – the money will still need to be paid eventually and interest will still accrue during the period, so in some cases it can simply push the problem further down the road. For this reason forbearance should only be seen as a last resort, and for those approaching the end of their forbearance period, it’s vital to start thinking about what happens next. 

What happens after mortgage forbearance?

Once your forbearance period comes to an end, and ideally beforehand, you’ll want to contact your lender to discuss your options. If you’re still unable to make full repayments, you may qualify for an extension to your forbearance period; if not, a repayment plan will need to be arranged so you can repay the full amount.

Usually, this will either be achieved by making a higher repayment each month until you’ve caught up, or making more monthly repayments, thereby extending your overall repayment term. A lump sum payment could be another option, whereby you’ll pay the entire amount owed in one go, though for many this won’t be feasible, and lenders can’t force you to catch up on your repayments in this way. 

Some may be facing the possibility of being unable to stay in their homes, in which case they always need to discuss things with their lender to prevent foreclosure. 

Will mortgage forbearance affect my credit score?

Provided you were up-to-date on your mortgage payments prior to entering forbearance, the mortgage won’t be reported as delinquent, and under the Coronavirus Aid, Relief and Economic Security (CARES) Act, it won’t negatively impact your credit score. 

Does mortgage forbearance affect refinancing?

Borrowers won’t be able to arrange a refinance mortgage while still in their forbearance period, but once it has come to an end, there’s nothing to stop them from doing so – provided timely mortgage payments were made in the months following the forbearance. Prior to the pandemic, borrowers would have been expected to show 12 consecutive months of full repayments before they’d be eligible to refinance – or indeed before they could apply for a loan to purchase a new home – but in May 2020 the FHFA reduced that timeframe to three months. Credit scoring criteria will still apply, of course. 

What are the alternatives to forbearance?

If you’re struggling to make your mortgage repayments but don’t want to go down the forbearance route, there are other options to consider, depending on your circumstances. Refinancing could be one option if you think you could secure lower mortgage payments elsewhere, though if you’re in financial difficulty, it could be difficult to be approved for a new loan; if this is the case, it may be worth consulting credit repair services beforehand.  

Looking at your other credit commitments could therefore be a solution, particularly if you have several credit cards or loans that you could consolidate into a single debt consolidation loan. And if not being able to pay your mortgage is part of wider, more significant debt concerns, talk to family, friends, or a debt counsellor, to see if they can help or have advice, but don’t let the issue go unattended. As a very last resort, debt settlement could be an option, although the long-term impact on your credit score and finances requires careful thought to ensure it is the right decision for your financial future. 

Millions of American homeowners could still slash hundreds of dollars off their mortgage payments simply by refinancing to a new low mortgage rate deal. That’s the message coming from data firm Black Knight, which suggests 16.7 million borrowers could lower their mortgage rate by at least 0.75% by approaching the best refinance mortgage companies. 

How much could refinancing save you? 

The typical refinance candidate would save $303 a month on their mortgage payments as a result, and potentially tens of thousands of dollars over the lifetime of a loan, if not more, the research revealed. 

The low mortgage rate environment is one of the few positives to emerge from the coronavirus pandemic, with record low borrowing costs regularly being posted over the past year. But while millions of homeowners have already rushed to take advantage with a new mortgage deal, many more are still missing out. Some 3.8 million could actually save more than $400 per month using the best mortgage lenders.

As the table below shows, many of those who could benefit the most live in just a handful of states. Californians, in particular, are paying an unnecessarily high mortgage price by not refinancing, with almost 2.5 million residents in the state missing out on an average saving of $415 per month.

Could you benefit from refinancing? 

Even though rates have recently been ticking up, Freddie Mac reveals that the average rate on a 30-year fixed-rate mortgage was still just 2.73% last week, and significantly lower than the average of 3.45% seen a year ago. As a result, even if you arranged a mortgage as recently as January last year, and are yet to refinance your mortgage since, a huge reduction in your rate could be achieved by making a move now. 

In particular, you stand to gain if your rate will reduce by around 0.75% - so from 3.50% to 2.75%, for instance - and you have a 30-year mortgage. It will also help if you have good credit, and a decent lump of equity in your home - maybe 20% or more - so that you can access the very lowest rates. It also appears that those who would probably find the extra dollars that refinancing would free up most useful have so far been slowest to act. 

“This rate environment is advantageous for those who are looking to refinance in order to strengthen their financial position,” said Sam Khater, Freddie Mac’s Chief Economist. “While many have already refinanced, the evidence suggests that upper income homeowners have taken advantage of the opportunity more so than lower income homeowners who could stand to benefit the most by lowering their monthly mortgage payment.”

Why you need to act now

If you’re yet to make your refinance move, getting started sooner rather than later is the best advice we can give. As already noted, mortgage rates have recently been rising, and as the roll-out of COVID-19 vaccines continues, and optimism over the economy improves, it’s likely borrowing costs will generally head higher over the year ahead. The credit score required to get a mortgage has been rising too, so don’t delay any longer if you can help it. 

Shopping around for a mortgage deal is key, with online brokers the quickest and easiest way to source rates and terms from a number of lenders at once. 

Taking out a personal loan can be a useful way to cover all manner of fees and expenses, but how does the Internal Revenue Service (IRS) view the money that you borrow, and do personal loans affect your tax return? Read on to find out what you may - or may not - need to do, as you sit down with your tax software.  

What is a personal loan?

A personal loan is a lump sum of money that you’re able to borrow from a lender on the promise that you’ll pay it back, usually with interest. You’ll have a repayment schedule whereby you repay a set amount each month, and at the end of the term, the loan (plus any associated interest) will be paid back and your obligations to the lender come to an end. 

Is a personal loan taxable? 

Typically speaking, no, a personal loan is not taxable. This is because a loan generally isn’t viewed as income by the IRS – you’re not earning anything from it, as you would with wages or investment earnings, and as you have to pay it back your net worth won’t increase, which means it has no bearing on your tax status and won’t need to be declared. 

This is the case no matter where you borrow the money from, be it a bank, peer-to-peer lender, credit union or any other financial institution. Even if the loan is from a family member or friend, the money won’t be classed as taxable income; it may even be considered a gift rather than a loan if it has no or below-market rate interest, though the giver may need to file an extra form if the gift exceeds their yearly gift tax exclusion (which is $15,000 for calendar year 2021).

The exception to the rule is if part of your loan is canceled by the lender, and/or you settle the remainder for less than you actually owe. In this case, the canceled or forgiven portion is considered income; you’re benefiting from the extra money as you won’t need to repay it, and it will therefore become taxable. As such, it will need reporting to the IRS, and could have an impact on your tax liability. 

This can also apply in the case of certain federal student loans that are forgiven after you’ve made payments for 20 or 25 years, as well as with secured loans that have been canceled and the lender claims the secured property as payment. If the loan contract is for recourse debt, you’ll need to report the difference between what you owe and the market value of the property claimed as taxable income. If it’s for nonrecourse debt – in other words, you’re not held personally liable for it – the claimed property is considered sufficient payment, and the canceled amount doesn’t need to be reported. 

All that said, there are exceptions to the exceptions! If the debt is discharged during bankruptcy or insolvency, the forgiven loan may not count towards your gross income, and therefore won’t be taxed. Similarly, some student loans can be forgiven without the remaining amount being considered taxable. If you’re filing your taxes for 2021 and think some of these exclusions apply, it’s worth consulting a tax professional to go over things.

Is the interest on a personal loan tax-deductible?

Unlike with some types of loans – such as mortgages, student loans or business loans – the interest payments on personal loans are not tax-deductible, meaning you can’t use the interest to reduce your income for tax purposes. 

However, there are a few scenarios in which you can deduct the interest payments, such as if some or all of the money loaned to you is used for business purposes, if you use it for a qualified educational expense, or if you take out a loan to buy stocks or similar investments. You’ll need to check with the lender if you can use the loan for these kinds of purposes though, as not all do. 

Do I need to declare a personal loan on my tax return?

Only in one of the exceptions listed above. If a portion of your loan is canceled or forgiven, you may be sent Form 1099-C by the lender, which will detail the amount of canceled debt you’ll be required to report on your tax return as regular income. Similarly, if you meet the criteria to deduct interest payments, you’ll need to declare it accordingly. In these kinds of exceptional circumstances it’ll be prudent to consult the experts who will be able to help you determine what needs to be reported, and with the tax season starting February 12 this year, now could be the time to find that kind of support. 

Yet the majority of the time, personal loans aren’t taxable and nor is the interest tax-deductible, which means it won’t have any impact on your tax return and you won’t have to report any loans you take out. Provided you manage the loan efficiently, don’t miss any repayments and are able to repay the amount in full by the required date, there’ll be nothing whatsoever to declare, and you can file your return in confidence.  

When choosing between the best mortgage lenders, the interest rates on offer will likely be a deciding factor. The resulting interest you’ll have to pay can have a huge impact on the cost of the loan, but how is the rate set, and the amount you pay ultimately decided upon? Here, we look at how mortgage interest is calculated to help you better understand the process.

What is the mortgage interest rate?

The mortgage interest rate is the rate providers charge for lending you the money. It can have a huge impact on what mortgage you can afford, as the higher the rate, the higher your repayments will be. Even a slight change in rate can lead to a difference of thousands of dollars in interest charges over the term of the mortgage, so it’s vital to seek the best rate possible, and to know what the options are.

Whether you’re buying your first home or wanting the best refinance mortgage, mortgage interest rates are primarily either fixed or adjustable; in the former the rate is locked in and won’t change for the duration of the loan, which means neither will your repayments. Conversely, with an adjustable-rate mortgage (ARM), you have an initial fixed term after which the rate isn’t set and can change depending on certain conditions - this means the monthly payment can similarly fluctuate. While the initial rate on an ARM will typically be lower than on a fixed rate mortgage, the trade-off is that rates can change frequently after the initial term comes to an end, adding some uncertainty as to what you’ll need to pay going forward. 

The option that’s right for you will depend on a number of different factors, not least how long your mortgage term is, how long you’re planning to stay in the property, and whether you’re buying or wanting to refinance your mortgage. Your own personal preferences in terms of budgeting will be important too. It’s important to discuss the options thoroughly with your provider and, ideally, a financial planner so you can choose the one that best suits your circumstances. 

How is the mortgage rate determined? 

When choosing a mortgage you’ll likely be tempted by the provider offering the lowest interest rates, but it’s important to remember that the rate you’re actually offered will entirely depend on your own personal circumstances (including the perceived risk you pose to the lender) and wider economic conditions at the time you’re approved. 

A few factors that can affect your interest rate include: 

Your credit score
Your credit score will have a huge impact on the interest rate you’re offered, for the simple reason that it indicates the kind of borrower you are, and whether you’re a risky prospect for the mortgage lender to take on. A better credit score will typically result in a better mortgage rate, as you’re viewed as lower risk and likely to repay your loan. If your score is less than stellar, it’s also a reason why it may be worth consulting the best credit repair services before you apply to boost your chance of acceptance, and of getting a decent mortgage rate.  

Your income
Lenders will also take into account your income and, more specifically, how good is your debt-to-income (DTI) ratio. The lower your DTI ratio – that is, the lower your debt repayments are in proportion to your monthly income – the better, as it indicates you can comfortably take on an additional payment. 

The amount you’re looking to borrow
The bigger the loan, particularly in relation to the value of the house, the more risk you pose, and the mortgage rate will reflect that. If you have the funds, it may be worth placing a larger down payment to see if you can reduce your interest rate. And at the very least, it will result in a smaller loan on which to pay interest on – which means you’ll save money.

The term of the loan
A shorter term poses less risk to the lender as there’s less time in which you can default, whereas the longer you have to pay it off, the higher the risk of non-payment. This means you’re likely to get a lower mortgage rate if you opt for a 15-year mortgage over a 30-year term. 

Prevailing market conditions
Economic conditions will always have an impact, as will your location and the position of the lender itself. Mortgage rates are constantly changing in line with numerous different factors, with the prevailing market rate acting as a guide when you come to apply. 

If you’re using mortgage points
Mortgage points allow you to pay an upfront fee to reduce your mortgage rate, and for some people, could result in great savings over the life of the loan. They won’t have the same effect for everyone, however, so it’s worth finding out are mortgage points worth it before going ahead. 

How is mortgage interest calculated? 

Once you’ve been offered a mortgage rate, you’ll probably want to know how much interest you’ll actually have to pay on your loan, and when you’ll be paying it. To determine this, lenders use a process known as amortization.

The amortization formula calculates a payment schedule based on the loan amount, the term and the interest rate, and breaks down each payment to include both interest and principal repayment. It’s a complex formula which means it’s best to use an amortization calculator, at which point you’ll be able to clearly see the total amount of interest you’ll pay, how much you’ll pay each month, and what the difference would be if you had a 15-year mortgage or a 30-year mortgage, or between a fixed or adjustable rate loan. 

At the beginning of the loan, more of your monthly repayment will go towards the interest and a lesser amount will repay the principal, but over the years this will reverse as the interest charges reduce. A fully amortized loan will be fully paid off by the end of the term, regardless of whether you’ve got a fixed or adjustable rate.

It’s worth spending some time crunching the numbers in an amortization calculator when you’re deciding on what type of mortgage you should get. That way, as well as being able to effectively compare the options to find the best deal, you’ll also enter the process with a better understanding of how mortgage interest is calculated – and crucially, how much you’ll have to pay. 

The US cities whose residents have taken on the most debt during the coronavirus pandemic have been revealed, as millions of struggling Americans continue to borrow more through their mortgages and credit cards just to make ends meet. 

Although job losses and reduced working hours have heaped pressure on household finances across the US in the past year, it is those living in Winston-Salem, North Carolina, who have been forced further into debt than any others. Residents of Baton Rouge, Louisiana, were not far behind in the amount of debt they’ve been forced to take on just to pay bills and buy everyday necessities, and were themselves followed closely by inhabitants of Corpus Christi, Texas. 

In compiling the list of where people have needed credit the most, WalletHub compared the 100 most populated cities in the US across 20 key metrics, including rises felt in mortgage balances, credit card debt, and utilization rates on lines of credit. The additional debt being taken on through student and auto loans was considered too, although one notable omission from the survey was how often people were turning to payday loans, which are widely acknowledged among the riskiest forms of borrowing.

The findings make for uncomfortable reading, particularly as the cities that were found to have taken on the least debt all recorded significant increases in the levels of credit being sought. Scottsdale, Arizona, appears to have emerged the least affected so far, but still saw their score rise markedly. 

How are people borrowing? 

Among the 10 most affected cities, mortgage debt saw the highest average percentage increase, with home owners either taking out a refinance mortgage to raise funds, or making use of lines of credit available through home equity loans. Credit card debt has seen the next biggest increase, and in some cities card use has more than doubled - indeed, in Winston-Salem the average number of credit cards for every 1,000 people with a credit report has soared by over 105% since COVID-19 took hold. 

In terms of credit utilization rates, those living in the worst impacted cities are now using on average 57% of their available credit from HELOCs (home equity lines of credit), compared to 42% of the available credit from credit cards, and 41% from other lines of credit. To put some perspective on the numbers, the ideal credit utilization ratio is less than 30%. A higher utilization ratio can impact the health of borrower’s credit scores too, and could leave some looking to credit repair services if they start to be rejected for loans as a result. 

Is financial help on the way?

The arrival of President Biden in the White House has brought fresh urgency to getting relief out to struggling Americans, and the biggest hope for many is that the third stimulus check will get swift passage through Congress and start landing in bank accounts soon. However, with the timing and size of any additional stimulus still unclear, Jill Gonzalez, WalletHub analyst, says that “if waiting is not a possibility, consumers should enter into debt a small amount at a time so that they don’t take on more than they need.”

“The first COVID-19 stimulus payments were an extremely big help to Americans in debt. For example, during the first three quarters of 2020, we saw the highest credit-card debt paydowns in decades,” she adds. “Many people have now received an additional $600 stimulus payment. The second stimulus payment is smaller than the first, but it should still prove helpful and allow people to pay down additional debts if they don’t need to use it for everyday expenses. However, these aggregate figures do not mean that people are not suffering due to the economic damage brought by the pandemic.”

For those out of work, state unemployment benefits are currently being supplemented by an additional $300-a-week Federal payment, and could rise to $400 weekly under plans put forward by President Biden. Also at the request of the new Administration, the option to request mortgage forbearance has recently been extended to the end of March, as has the eviction ban on renters. Those struggling to meet personal loan and credit card payments are also encouraged to continue approaching their lenders too, rather than missing payments without seeking help. 

President Joe Biden has promised to make it quicker and easier for people to claim their stimulus payments after it was revealed that as many as eight million eligible households are yet to receive the first payment that began being issued in March last year.

Millions of Americans are also still waiting on the delivery of stimulus check 2, which was signed off at the end of December and promises to pay qualifying individuals up to $600 to bolster household finances and hopefully ward off the need to borrow via other means to cover bills. A third stimulus check, which could be worth up to $1,400, is also soon to be pushed out, assuming the proposal can negotiate a path through Congress. 

Who is missing out on their stimulus check?

With more than ten million Americans out of work, and millions more either struggling with their mortgage, rent or debt due to the pandemic, President Biden made it one of his first tasks to issue an Executive Order to help those most in need. In particular, the new President wants to ensure the eight million households who still have not received the financial assistance to which they are entitled under the first stimulus payment quickly receive what they are owed. 

Frustratingly, those most at risk of missing out on the payments - which could be worth up to $1,200 to qualifying individuals - are predominantly low-income households to whom the money would make the most difference. Inevitably, it is the same group of people that are most likely to miss out on the second payment - and the third too, when it comes - unless something changes. 

Making stimulus check delivery easier

Responding to the President’s call for action, the Treasury Department has outlined plans to expand and improve the delivery of stimulus payments. 

In the coming weeks, the department says it will work with the IRS on creating more online tools and “simple options” for people to claim their payments. This will include building on the online non-filer tool that was introduced last year, through which those who have no need to file taxes - which is one way to claim your payment - could submit their personal information and so receive their check.

Efforts will also be stepped up to reach people who may not have access to the internet or are non-English speakers, and to contact households who have been issued payments, but did not cash them. While the vast majority of payments were sent to people’s online bank accounts directly, many millions were also distributed by checks and debit cards in the mail.

Recognizing that hundreds of thousands of these have not been cashed or activated, perhaps because the recipient mistakenly discarded the delivery, the Treasury says it will either reissue unclaimed benefits or reach out and encourage people to claim the benefit when filing their tax return in the coming months.  

If working from your kitchen table is no longer the novelty that it once was, it’s probably time you set up a dedicated home office. Given that so many of us have found ourselves working from home for the first time this past year, there’s no shortage of advice about how to create a perfect home office. But while you may have ideas in mind, and a wish list of things that you want to buy, you’ll also need to work out how to finance your new home office setup.

Fortunately, there are many ways in which you might be able to pay for the items you’ve earmarked to set up your ideal work environment, and to fund any bigger renovations that might be needed too. 

1. Ask your employer

If you’re employed by a company, and they want you to work from home during the course of your normal duties, it’s always worth asking your employer if they’re willing to help get your home office set up. Of course, with the pandemic necessarily closing most offices, most employers are now used to receiving such requests, and will also want to make sure that their employees feel happy and healthy when remote working. 

As a result, many employers will have funds readily available for home workers to buy essentials such as home computers and keyboards for home offices, as well as a desk and chair. And knowing that you’re adding to your normal household bills too, many employers might also make a contribution to help cover the cost of your internet provider, utilities, and phone use.  

2. Refinance your mortgage

If you’re planning on making some major alterations to accommodate your new workspace, you might consider refinancing your mortgage if you need to raise a larger amount of funds to get the work done. With the interest rates on offer from the best refinance mortgage companies having sat either at, or near to, record lows during the pandemic, it’s an excellent way to pay for such a renovation, and could even pay for itself if your new home office setup adds value to your home. 

3. Tap your home equity

If wholesale renovations aren’t required, and your borrowing requirements aren’t quite so high as a result, you might prefer to use a home equity loan, or home equity line of credit (HELOC), to raise the funds that you need to finance your home office setup. You’ll still be making use of the capital that is stored in the value of your home, but without having to refinance your entire mortgage. 

If you want a lump sum, any interest you pay on a home equity loan is tax-deductible if you use the funds for home improvements. And if you use a HELOC to draw on your line of credit only when you need it, you’ll only pay interest on what you’ve taken so far. 

4. Consider a personal loan

If you want to borrow without using your home as collateral, the best personal loans are where you might look. Loan sizes typically range from $1,000 all the way up to $100,000 from some lenders, and you’ll know exactly how much you need to pay back each month and for how long. Loans terms can sometimes stretch as long as 12 years, and if your credit score is up to the mark, you’ll be able to secure the very best rates.

5. Credit cards for small costs

If your home office only requires the finishing touches, and none of the expense associated with major renovation, a credit card can be a useful way to meet the smaller costs of furnishings or a laptop.  

Look out for 0% interest credit cards that will give you a certain amount of months to pay off what you owe before interest starts to build. Alternatively, a reward credit card can give you cashback or loyalty points depending on what you spend. That said, a credit card that isn’t managed properly can quickly result in rapidly growing debt. If you borrow in this way, you must always make at least your minimum monthly payment each month, and should try to pay off what you owe as soon as possible. 

6. Approach the SBA 

If you want to create a new home office setup and run your own business or are self-employed, it might be possible to secure funding via the U.S. Small Business Administration (SBA). While the agency doesn’t lend money directly, it operates a number of programs with partnering lenders that aim to make it easier for small business owners to access the funds they need. 

7. Home office tax deductions

Although you won’t be able to fund a new home office setup using home office tax deductions, always make sure to claim what you can. Unfortunately, the rules changed in 2018 so that only self-employed workers can make use of such deductions. You’ll also need to show that your home office is used exclusively and regularly for conducting business, and that your home is your principal place of business.

If you are eligible, when filing your taxes you’ll be able to claim deductions for expenses directly attributable to your office, as well as some indirect costs, including property taxes, part of your rent, mortgage interest, utilities, and your cell phone plan. 

Sales of existing U.S. homes plummeted by 17.8% in April, as the coronavirus pandemic continued to take its toll on the real estate market. 

The National Association of Realtors (NAR) said that just 4.33 million transactions were completed in April, with the month-over-month drop the largest seen since July 2010. Sales were also 17.2% down on a year earlier, as borrowers struggled to get deals over the line, despite the best mortgage lenders offering some of the lowest rates on record. 

According to analysts, the drop was largely expected given the social distancing and stay-at-home orders that were in effect for most of March and April. “Widespread restrictions to contain the spread of the pandemic have been challenging for both buyers and sellers,” said Mark Vitner, Senior Economist at Wells Fargo. “Virtual tours and digital signings have been useful stop-gap measures. They were clearly not enough to avoid a sharp pullback in buying activity and new listings.”

What about sales across the regions? 

The NAR revealed that all four major regions experienced monthly and annual declines in sales, with the Covid-19 outbreak refusing to respect borders. 

The West was the hardest hit, with existing-home sales falling 25% to an annual rate of 810,000 in April, a 27% decline from a year ago. The South recorded a 17.9% drop to an annual rate of 1.88 million, down 16.8% from April 2019, while the Northeast saw sales fall 16.9% to an annual rate of 540,000, an 18.2% decrease from a year ago. Least affected was the Midwest, where sales decreased 12% to an annual rate of 1.10 million, down 8.3% from a year ago. 

How are house prices reacting? 

Despite the fall-off in transactions, the NAR said house prices remained higher than a year earlier, thanks largely to a shortage of homes for sale, especially for first-time buyers. Marking 98 straight months of year-over-year gains, the median price for existing-homes sold of $286,800 was up 7.4% from April 2019 ($267,000), with prices rising in every region. 

Gains were strongest in the Midwest, where the median sold price of $229,200 was 9.3% higher than a year earlier, while the Northeast reported growth of 8.7% to $312,500. The median price in the South was $249,400, a 6.4% increase from a year ago, while in the West, prices climbed by 6.1% to $419,300.

“The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales, but the listings that are on the market are still attracting buyers and boosting home prices,” said Lawrence Yun, NAR’s chief economist. “Record-low mortgage rates are likely to remain in place for the rest of the year, and will be the key factor driving housing demand as state economies steadily reopen. Still, more listings and increased home construction will be needed to tame price growth.”

What else has been happening in the real estate market?

While prices remain high compared with a year ago, the dramatic slide in sales, alongside findings from other recent studies, reveal the uncertainties facing those trying to buy or sell a home at this time, or refinance their mortgage. 

Only last week it was revealed how around a quarter of homeowners putting homes up for sale have cut their asking prices below pre-pandemic levels. At the same time, the financial struggles created by the coronavirus has seen the number of Americans missing mortgage payments recently pass four million.

Unsurprisingly, most home-movers are putting their plans on hold, although one group perhaps finding conditions slightly more favorable are first-time buyers, who the NAR said were responsible for 36% of sales in April, up from 34% the month before and 32% in April 2019. By comparison, individual investors or second-home buyers, who account for many cash sales, purchased just 10% of homes last month, down from 13% in March and from 16% a year earlier. 

Has the worst already passed? 

Although most will likely put their home-moving aspirations on hold until something resembling a more normal reality resumes, the prospect of cheaper asking prices and the near record low interest rates on offer from the best mortgage lenders suggests opportunities could still arise for the right buyer. 

There is also cautious optimism from Mark Vitner at Wells Fargo that the worst is perhaps over, and that real estate could be among the first markets to bounce back. 

“While most areas of the country have now reopened, it will be a slow and gradual recovery,” he says. “More optimistically, there are green shoots suggesting the housing market will help lead the recovery. Purchase mortgage applications dipped in late March and early April but have since steadily risen and are now down only 1.5% from their year ago level.”

Find out whether you could benefit from historically low interest rates with one of the best refinance mortgage companies. 

The number of Americans struggling to pay their mortgages has soared as the coronavirus pandemic continues to take its toll on household finances. Almost three million homeowners are now at least one month behind on the mortgage payments, according to Mortgage Bankers Association (MBA) data, after the proportion of loans in forbearance leapt to 5.95% as of April 20, 2020, up from 3.74% just a week before. Only 0.25% of all loans through the best mortgage lenders had been in forbearance for the week of March 2, so that’s a big jump.

By investor type, mortgages backed by Ginnie Mae accounted for the largest share of struggling borrowers – 8.26% – while the combined share of Fannie Mae and Freddie Mac loans in forbearance increased from 2.44% to 4.64% week-on-week.

This is important because under the CARES Act introduced by President Trump at the end of March, in response to the coronavirus outbreak, homeowners with mortgages backed by the federal government – including Fannie Mae, Freddie Mac, FHA, VA and USDA loans - are protected from eviction. The Act also allows homeowners to temporarily reduce or suspend their mortgage payments for 12 months with no penalties.

Crucially, however, the CARES Act fails to protect mortgages that are not backed by the government, and this accounts for around half of all mortgages nationwide. 

What to do if you're struggling to pay your mortgage

With over 22 million Americans having to file for unemployment over the past month, growing numbers of people will have concerns over how they will be able to afford to meet their everyday bills. The coronavirus stimulus check – which should be arriving if you are eligible very soon - might provide some leeway in the short term.

However, the largest monthly outgoings, such as mortgage payments, could quickly account for this cash and more. So what should you do if you are struggling to keep up the usual monthly payments on your mortgage?

Talk to your mortgage lender

Regardless of whether you have a government-backed mortgage or not, the best place to start is to contact your mortgage lender. Even if you are only worried that you might not be able to make your mortgage payment, give them a call; there is no need to wait until a payment has been missed.

Be prepared with details about your current circumstances, including your income and outgoings, and also be ready to talk about the reasons why your situation might have changed to leave you concerned about meeting your payments.

“Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates,” acknowledges Mike Fratantoni, MBA's Senior Vice President and Chief Economist. “Borrowers facing COVID-19-related hardships should contact their servicer to review all of their options."

What might your mortgage lender offer

Forbearance

The option most likely to be put forward by a mortgage lender at present is forbearance, and will see your mortgage payments paused or reduced for a certain period of time. As previously mentioned, if your mortgage is backed by the federal government, the CARES Act allows you to temporarily suspend payments if you are experiencing financial difficulty due to the impact of the coronavirus on your finances.

You have a right to request forbearance for up to 180 days and also an extension for up to an additional 180 days, but you must contact your mortgage company to request this forbearance. There won’t be any additional fees, penalties or interest added to your account, but importantly, your regular interest will still accrue. Other than telling your servicer that you have a pandemic-related financial hardship, you won’t need to submit additional documentation to qualify for this forbearance.

If your mortgage is not through a government-backed lender, forbearance should still be an option, but the exact options available to you may differ. You will still need to be prepared with the relevant income and expenditure workings and the reason why your circumstances have changed, but there may be a few more things that your lender will want to see. Nevertheless, once again, it is vital to call and discuss your situation before a payment is even missed.

Regardless of the type of loan you have, you will still be expected to make up the discounted or missed payments at the end of the forbearance period. The discussion with your lender should include consideration of how long it might take you to make these payments up; it is important to tell your lender if you feel you won’t be able to meet the payments that are suggested, and try to ask for different terms. Alternatively, it might be possible to secure a loan modification instead.

Loan modification

With a loan modification, new terms are agreed for your existing mortgage without having to refinance your mortgage. Loan modification is usually the final step used to avoid foreclosure or for people who are already delinquent on their payments, with the overall aim to make your monthly mortgage payments more affordable, perhaps by reducing your interest rate, extending your mortgage term, or altering the type of loan you have.

Forbearance is usually the first option offered to those facing problems with their mortgage payments, so if you think you need to go straight to loan modification, you will be asked for evidence of your hardship.

That said, the CARES Act has given mortgage lenders more flexibility to authorise loan modifications than they had before the coronavirus, so it should be an option that they are willing to discuss. As before, though, contacting your lender early to find out your options is key.

If all else fails, and you find yourself struggling across all aspects of your finances, you should consider something like the best debt consolidation companies, to try and get your money in order - including those mortgage payments.

Homebuyers are finding it harder to secure a new mortgage, or refinance to a new mortgage deal, at the very time that US mortgage rates are falling back to record lows.

While the coronavirus pandemic means there are currently few people actively looking to buy a new home, there are still a number who were already in the process of making a house purchase who will be looking to mortgage lenders to secure a deal. Similarly, there are numerous existing homeowners who will be eyeing up the freshly cut mortgage rates as a means to save money through one of the best refinance mortgage companies.

Tighter lending criteria

Sadly, however, it is getting tougher for borrowers to complete on the attractive mortgage deals that they see. This is because even the best mortgage lenders are tightening their lending criteria for fear of the impact the coronavirus will have on the ability of borrowers to meet their repayments. 

Indeed, according to the latest Mortgage Bankers Association (MBA) data, mortgage availability decreased 16% in March to the lowest level since June 2015. While availability declined across all types of loan, the drop was most notable among conventional jumbo loans - those that are valued above the conforming loan limit of $510,400 - where the relevant indicator slumped by 36.9% compared with the previous month. The availability of conventional loans overall dropped by 24.2% month-on-month as a result, while Government loan availability fell by 6.6%. 

In particular, it is the borrowers that lenders deem to be the most risky - so those who need to borrow the most, or have had credit problems in the past - who are now finding far fewer mortgage options available to them than just a month ago. 

“There was a reduction in the availability of loans with lower credit scores and higher loan-to-value (LTV) ratios, and the largest pullback came from the jumbo and non-qualified mortgage (non-QM) space," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "This month's release highlights the large retreat from jumbo and non-QM investors due to a sharp drop in liquidity. Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs."

Only last week, Wells Fargo raised its minimum credit score requirement for mortgage loans to 720, while JPMorgan Chase has subsequently announced it will require borrowers to have a credit score of at least 700 and a 20% down payment in order to qualify. 

Mortgage rates on the decline

The frustration for borrowers is that mortgage rates are now firmly on the decline, and once again at - or fast-approaching - record lows. According to the latest Bankrate.com data, the average rate for a 30-year fixed mortgage of 3.62% has dropped 15 basis points over the last seven days, and from 3.99% just a month ago. At the current average rate, this means borrowers will pay principal and interest of $455.77 for every $100,000 borrowed, a saving of $8.48 compared with a week ago.

Similarly, the average 15-year fixed mortgage now commands a rate of 3.11%, down 12 basis points in the space of a week, and the average that can now be expected to be paid on a 5/1 ARM is 3.46%, down 6 basis points since the same time last week.

Separate MBA data released yesterday showing that the share of mortgage loans in forbearance has continued to climb suggests lenders are right to rein back on their lending criteria. For borrowers, however, there is little to suggest that the tighter rules will be relaxed anytime soon.

All those that are looking to the best mortgage companies and best refinance mortgage companies can do is to monitor the situation and hope for something to change soon.

Homeowners are celebrating historically low mortgage rates with the number of refinance applications jumping 79% in the first week of March to the highest level since April 2009, according to the Mortgage Bankers Association.

The figures compare to 66% a week ago, and are nearly six times higher compared to the same week last year. On the back of this, the Mortgage Bankers Association has nearly doubled its 2020 estimates for total refinances to around $1.23 trillion, a 37% increase from 2019 and the strongest finance volume since 2012. Now really is the time to look up one of the best refinance mortgage companies, and see if you can better your rate.

"Market uncertainty around the coronavirus led to a considerable drop in U.S. Treasury rates last week, causing the 30-year fixed rate to fall and match its December 2012 survey low of 3.47%. Homeowners rushed in, with refinance applications jumping 79% - the largest weekly increase since November 2008," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

"The purchase market also had a solid week, with activity nearly 12% higher than a year ago. Prospective buyers continue to be encouraged by improving housing inventory levels in some markets and very low rates."

Mortgage rates dropping

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to the lowest level in more than seven years and the lowest in survey history, falling to 3.47% from 3.57% with points increasing to 0.27 from 0.26 (including the origination fee) for loans with a 20% down payment. The best mortgage lenders in the US are seeing good business in 2020.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) decreased to the lowest level since the series was added in 2011, to 3.58% from 3.63% with points decreasing to 0.20 from 0.21 (including the origination fee) for loans with a 20% down payment.

Kan said: "As lenders handle the wave in applications and manage capacity, mortgage rates will likely stabilize but remain low for now. This in turn will support borrowers looking to refinance or purchase a home this spring."

The MBA is forecasting the 30-year rate to remain between 3.3% and 3.4% for the rest of the year, which will lead to increased refinance activity. 

The coronavirus strikes again - this time on mortgage rates, but the connection may not be obvious. China has a heavy hand in the world economy, so whatever happens to the Chinese economy is likely to affect the economies of other countries, including that of the United States. The coronavirus has fueled fears of slower economic growth and uncertainty surrounding the virus's impact on the global economy. According to Forbes, investors have started to feel safer pulling out of the stock market amid turmoil caused by the coronavirus - you may have heard of Apple's troubles in China, for example. That means this money is likely to go into stable US Treasury bonds - and as a result, bond yields have been driven to new lows. So, this is good news if you're considering one of the best refinance mortgage companies to take out fresh borrowing on your home... let us explain why.

How bonds and mortgage rates are connected

Bonds and mortgages compete for the same kind of investors: they offer a fixed and stable return. But bonds are largely considered to be safer investments. More often than not, large organizations take out bonds. Large organizations are more likely to be able to repay their loan than individuals. Bonds are safe also because they're easy to sell and trade on a public market. Mortgage rates are closely tied to bonds - if the latter falls, so does the former. In a nutshell, the more money goes into bonds, the lower mortgage rates fall. So if you're looking to refinance now, you're likely to get a lower rate.

What does this mean for homeowners?

Experts say that if you're a homeowner or a prospective home buyer, you should look into refinancing your home or checking out one of the best mortgage lenders to take out a fresh mortgage. 

In fact, if you took out a mortgage a year ago, when mortgage rates hovered around 4.5%, you can take advantage of the new rate of around 3.9% for a 30-year fixed FHA loan. That $150 that you may be saving with the new rate can offer increased financial security for many families. 

Experts add that, if the mortgage rates stay low throughout the spring, more home buyers may flood the market and sales volume can reach a new high. This will result in not only a rush in inquiries for the best truck rental for moving services, but an increase in house prices too. And with Chinese property buyers being discouraged by the Chinese government from investing in international property, there may be even more real estate to choose from. After all, Chinese buyers make up the largest amount of foreign investment in US property, particularly in California and New York.