Whether you’re renovating your home, consolidating debt or paying for education, an FHA cash-out refinance could help you access the funds you need.

The Federal Housing Administration loans are typically easier to qualify for than conventional loans because they’re federally insured. FHA loan options include a cash-out refinance, which allows borrowers to take equity from their homes.

We’ll review how FHA cash-out refinance loans work and what the qualification standards are.

• What is an FHA cash-out refinance?
• FHA refinance requirements
• Minimum credit scores for an FHA cash-out refinance
• 4 things to know about an FHA cash-out refinance

What is an FHA cash-out refinance?

A cash-out refinance works similarly to any other refinance loan, where you’re replacing your current mortgage with a new one. But in the case of a cash-out refinance, your new loan is larger than your original loan and you receive the excess in cash.

Cash-out refinances allow you to take out some of the equity you’ve built up in your home.

Cash-out refinances can be used for a variety of purposes, from paying off debt to remodeling your home or sending a child to college. These loans reduce the amount of equity you have in your home but give you access to money at an interest rate that’s typically lower than you may find with a personal or home equity loan.

An FHA cash-out refinance is one of several loan programs offered by the Federal Housing Administration. Like other FHA loans, the cash-out refinances aren’t actually underwritten or lent by the FHA. Instead, they come from private lenders and are insured by the FHA, meaning if you fail to make your FHA loan payments, the agency will cover the lender’s losses.

FHA refinance requirements

Borrowers have to meet certain credit and debt-to-income ratio requirements for an FHA cash-out refinance. Expressed as a percentage, your debt-to-income, or DTI, ratio is all your monthly debt payments divided by your gross monthly income. 

When you apply for a mortgage, there are two DTI ratios that lenders may consider. The front-end DTI ratio is the percentage of pretax income going to your housing payment. The back-end DTI ratio is your total DTI ratio and includes your housing payment and all other debt.

If you have credit scores on the low end of the FHA’s home loan requirements, you’ll need a front-end DTI ratio of no more than 31% and a back-end DTI ratio of no more than 43%. If your credit scores exceed 580 and you meet certain requirements, you may have a front-end DTI ratio as high as 37% and a back-end DTI ratio as high as 47%.

The compensating factors you can use to qualify for this higher DTI ratio include …

• Documented cash reserves
• A minimal increase in your housing payment
• Residual income

In some cases, you may be subject to different DTI ratio requirements. For example, if you have no qualifying debt, you can have front-end and back-end DTI ratios of up to 40%. And if you meet any of the compensating factors above and have significant income that isn’t reflected in your DTI ratio, you could qualify for a front-end DTI ratio of up to 40% and a back-end DTI ratio of up to 50%.

It’s also important to note that FHA cash-out finances are only allowed on your principal residence. You must have owned and lived in the property for at least one year before applying for your cash-out refinance. You also must be current on all your mortgage payments for at least the past year.

Minimum credit scores for an FHA cash-out refinance

One of the most attractive features of FHA cash-out refinances — and FHA loans in general — is their relaxed credit score requirements. The credit scores needed for an FHA loan are considerably lower than for a conventional loan.

The minimum credit score needed for an FHA loan is 500. Keep in mind that lenders can set their own credit requirements.

4 things to know about an FHA cash-out refinance

There are a few other things you should know before you consider an FHA cash-out refinance.

1. Types of loans eligible

Your current mortgage doesn’t have to be an FHA loan in order to qualify for an FHA cash-out refinance. You may decide to switch to an FHA loan if you want to refinance your home and if your credit scores or another factor prevents you from doing a conventional cash-out refinance.

2. Mortgage insurance

As with other FHA loans, FHA cash-out refinance loans will require that you pay an upfront mortgage insurance premium that’s equal to 1.75% of the loan amount.

FHA loans, including cash-out refinances, also require that you pay annual mortgage insurance premiums. The amount you’ll pay depends on your base loan amount and your loan-to-value ratio. These premiums range from 0.80% to 1.05% of the base loan amount per year for mortgages with terms of more than 15 years.

3. Maximum LTV

When you borrow using an FHA cash-out refinance, you are limited to how much equity you can pull from the home. The maximum loan-to-value ratio on cash-out refinances is 80% of the adjusted value of the home, which will need to be appraised as part of the loan process.

For example, suppose an appraisal shows your home is worth $300,000. The most you’d be able to borrow is $240,000, which is 80% of the home’s value. If you already have a mortgage of $210,000, you can take out no more than $30,000 in cash.

Additionally, regardless of your LTV, you can only borrow up to the FHA’s loan limits. In 2022, those limits range from $420,680 to $970,800, depending on your area’s cost of living.

4. Energy Efficient Mortgage program

FHA loans, including cash-out refinances, are eligible for the agency’s Energy Efficient Mortgage program, which allows borrowers to save on their utility bills by financing energy improvements to the home.

The amount you can finance under the EEM program isn’t included in their maximum loan amount. The EEM financing amount is added afterward. Borrowers who are a part of the EEM program may also have access to higher DTI ratios.

What’s next?

A cash-out refinance can provide you with the money you need for home improvements, debt consolidation or other financial needs. They typically have more relaxed requirements than traditional refinance loans, making them an attractive option for a lot of borrowers.

That being said, FHA loans can come with some downsides, including mortgage insurance premiums.

If you’re shopping for a cash-out refinance, it’s worth comparing the total cost of an FHA cash-out refinance to a conventional one — including interest rates and mortgage insurance — to see which makes the most sense for your situation.

A cash-out refinance can be a valuable way for homeowners to take equity from their homes and use it for debt consolidation, renovations or major purchases.

Current and former military members may be able to take out a VA cash-out refinance loan, which offers the same perks as a typical VA loan.

If you’re considering a VA cash-out refinance, it’s important to understand how they work. Let’s take a closer look and review how a VA cash-out refinance can be used to draw on your home equity.

• Does the VA allow cash-out refinances?
• How does a VA cash-out refinance work?
• What is the maximum LTV for a VA cash-out refinance?
• Can you do a VA cash-out refinance on a free and clear property?

Does the VA allow cash-out refinances?

The Department of Veterans Affairs offers several loan programs to help certain military members and veterans purchase, renovate or refinance their homes. In most cases, the VA backs these loans rather than originating them. In other words, they work with other lenders to guarantee a portion of the loan so that if the borrower doesn’t make their payments, the lender can recover some or all of its losses.

Among the loan programs that the VA offers are two refinance programs. One is a VA cash-out refinance that allows borrowers to pull equity from their home to pay for renovations, consolidate debt or use for another purpose.

The requirements for taking out a VA cash-out refinance loan resemble those of other VA loans. To qualify, you’ll need a Certificate of Eligibility from the VA, meaning you’ll have to meet certain service history and duty status requirements.

In addition to meeting the VA’s service requirements, you must also live in the home you’re refinancing and meet your lender’s requirements for credit, income and other factors.

How does a VA cash-out refinance work?

Cash-out refinance loans are similar to traditional mortgage refinancing, where you essentially replace your current mortgage with a new one.

The major difference between a traditional refinance and a cash-out refinance is that a cash-out refinance allows you to pull equity from your home. In other words, you take out a new mortgage that’s larger than what you owe on the home. The excess amount is given to you in cash.

You can then use those extra funds for any purpose, including making a large purchase, paying off debt and more. Your new loan balance will be your original loan balance plus the amount of equity you took from the home.

VA cash-out refi perks — and costs

A VA cash-out refinance has additional benefits, including having the same perks as traditional VA loans. First, this type of loan allows you to refinance a non-VA loan into a VA loan. You can borrow up to the conforming loan limit set by the Federal Housing Finance Agency ($647,200 for one-unit properties for most areas in 2022).

When you close on your VA refinance loan, you’ll have to pay any closing costs your lender charges, which could include an origination fee, discount points, appraisal fee and more. You’ll also have to pay a VA funding fee for your refinance loan unless you meet certain exceptions, such as receiving certain compensation or pay for having a service-connected disability or a Purple Heart. The funding fee you’ll pay for a cash-out refinancing loan depends on whether you’ve used this type of loan before. The fee is currently 2.3% for your first such loan and 3.6% for subsequent loans.

What is the maximum LTV for a VA cash-out refinance?

VA loans — whether for a purchase or cash-out refinance — allow you to borrow up to 100% of the value of your home. For example, if you have a home valued at $300,000 and have a mortgage balance of $200,000, you can take the full remaining $100,000 out in cash. The amount you’re able to borrow is determined by a home appraisal ordered by your lender.

And unlike VA purchase loans, your loan-to-value ratio, or LTV — meaning the percentage of the home’s value you can finance — doesn’t affect your funding fee amount for a VA cash-out refinance.

It’s important to note that with a VA loan, you’ll still have to meet your lender’s requirements regarding your income, credit and more. And if you can’t afford the monthly payment on a cash-out refinance with a 100% LTV, then you may have to reconsider your cash-out amount.

Can you do a VA cash-out refinance on a free and clear property?

Unfortunately, you likely can’t get a VA cash-out refinance if you own the home free and clear. Instead, the VA requires that this loan refinance an existing lien against the property.

The good news is that there are few requirements for the type of loan you must currently have. First, you don’t necessarily have to have a VA loan to qualify. In fact, the VA clearly states that a VA cash-out refinance can be used to refinance a non-VA loan into a VA loan.

There’s also no requirement to be current on your mortgage to qualify for a VA refinance loan. You may be eligible for a VA cash-out refinance loan if you’re delinquent on your current loan. You might also be able to refinance even if the lien on your property is a tax lien or another judgment lien rather than a mortgage.

What’s next?

If you’re considering a VA cash-out refinance, your first steps should be to confirm that you’re eligible and to find a VA-approved lender.

Check the VA’s loan requirements on its website to see if you might qualify for a Certificate of Eligibility. If you think you’ll qualify, you can request your certificate on the eBenefits platform.

In most cases, you’ll have access to your money in just a couple of days after you deposit a check.

While you may be more accustomed to getting paid with cash, direct deposit or even apps like Zelle, you may still get the occasional check that needs to be deposited in your bank account. Whether you’re using that money to pay bills or are trying to grow your savings account, you likely want access to your money as quickly as possible.

Depositing a check doesn’t give you immediate access to the deposited funds. It’s important to understand when a check will clear in your account so you can make a budget, stay on track with your bills and avoid overdrafts.

We’ll explain how long it takes for a check to clear in your account, some situations where it may take longer and how you can speed up the process.

• How long does it take for a check to deposit?
• Can a bank stop a check from depositing?
• What are some ways to get a check to clear faster?

How long does it take for a check to deposit?

In most cases, the money from a check you’ve deposited will appear in your bank or credit union account in just one or two business days. But in certain situations, it could take up to six more days.

Here are some factors that affect how long it takes for a check to deposit.

Amount deposited

When you deposit a check, a bank is generally required to make the first $225 available at the start of the next business day. For checks larger than $225, the remainder should be in your account on the second business day.

For example, if you deposit a check of $500 on a Tuesday, you can expect to have access to $225 on Wednesday, and the remaining $275 on Thursday. But if you deposited the check on a Friday, the $225 may not be available until Monday, since Saturdays and Sundays aren’t normal banking days.

Deposit cut-off time

Banks usually have a cut-off time for when you can deposit your checks with same-day access. Federal regulations state that a bank can set a cut-off time any time after 2 p.m. for deposits made at the bank, and no earlier than 12 p.m. for deposits made at ATMs, contractual branches or somewhere other than the bank itself.

If you deposit a check after these cut-off times, your bank may record the check deposit as a transaction occurring on the next business day.

Method of deposit

How you deposit a check can also determine when your money will be available. If you deposit a check at a staffed facility, a contractual branch or at an onsite ATM, the funds will be deposited the same business day and should be available within one or two business days.

But if you made a deposit elsewhere, the funds could take longer to appear in your account. For example, when you mail a check, it can’t be deposited until the bank has received it. Likewise, checks left in lockboxes, offsite ATMs or night depositories aren’t considered deposited until the day they’ve been collected.

When you deposit a check using your mobile banking app (assuming you do so before the bank’s cut-off time), your check is considered deposited as if you’d made the deposit at the bank branch, and your money should be available in the normal one to two business days.

Type of check

While deposited checks are generally available in your account the following business day for the first $225 and the business day after that for the remaining balance, there are some exceptions. Several types of checks will be available in full the following business day, rather than only in part. Those checks include the following:

• Checks from the U.S. Treasury
• Money orders
• Checks from the Federal Reserve Bank or Federal Home Loan Bank
• Checks from state or local governments
• Cashier’s checks, certified checks or teller’s checks
• Checks written from and deposited into the same bank

Account standing

A bank can extend the hold of a check if you have a negative bank account. If your account isn’t in good standing with the bank, you may have to wait longer for your check to deposit. If you’re frequently overdrawn on your account, the bank can extend the hold on your check for five additional business days.

Can a bank stop a check from depositing?

Federal regulations have six exceptions that allow financial institutions to extend the timeline of a check on hold.

• Checks deposited into new accounts (opened 30 or fewer days previously)
• Checks that are $5,525 or greater (though only for the amount after the initial $5,525)
• Redeposited checks
• Checks deposited into accounts that have been repeatedly overdrawn
• Checks written from accounts that the bank doubts it can collect from
• Checks deposited under some emergency situations

Banks can generally delay deposit on a check for up to five additional business days. For checks written from and deposited into the same bank, the bank can only extend the hold for one additional business day.

As far as checks deposited in ATMs that your bank doesn’t own, an extension of up to six additional days is allowed. If your bank decides to extend the hold on a check, it must let you know and tell you when the funds will be available.

What are some ways to get a check to clear faster?

When you’re depositing a check into your bank account, you may want access to the money quickly. Luckily, in situations where you want or need fast access, there may be ways to speed up the deposit.

First, be sure to deposit your check before your bank’s cut-off time. Banks may have cut-off times as early as 2 p.m. for onsite deposits and 12 p.m. for other deposits. But major banks often have much later cut-off times, giving you more flexibility for when you deposit your check.

You may also be able to access your money more quickly depending on the deposit method. If you deposit your check via the bank’s mobile app or at the bank branch, the money should be available more quickly than if you deposited it via mail or an offsite ATM.

If your check exceeds $225, you may also access your money more quickly by cashing the check and depositing the cash itself into your account. While banks can hold the cash for a short period, they generally must make the entire amount available the next business day. If you simply deposited the check, you may only have access to $225 the next business day.

Some traditional and online banks may also allow you to access check deposits even faster, though they may charge a fee.

What’s next?

If you’re depositing a check into your bank account, it’s important to understand just how quickly you’ll have access to the money. Checks usually deposit most quickly when both parties’ accounts are in good standing and you use either a mobile or in-person deposit.

Check deposit rules and bank guidelines are also important to know when you’re writing a check. Depending on when the recipient cashes a check, the money may not come out of your account immediately. You’ll want to make sure you aren’t caught off guard and have enough money in your account to cover the check.

You may also decide to avoid checks altogether. Payments and money transfers via apps like Venmo and Zelle have become increasingly popular because they allow you to quickly receive and send money digitally.

Cashing a check without a bank account may be time-consuming and costly in some cases, but it’s usually possible.

For some people, the process of cashing a check might be as simple as heading to the bank where they hold an account, or using the mobile deposit feature on their bank’s mobile app. But for the estimated 7.1 million households that are unbanked — meaning they don’t have a bank or credit union account — the process isn’t quite as simple.

If you don’t have a bank account, you may wonder whether you can cash checks. Even if you do have a bank account, if you happen to be traveling, you may find that you need to cash a check without your bank nearby. The good news is that you often can cash a check without a bank account. It just might require a bit of work.

Keep reading to learn more about how to cash a check without a bank.

How to cash a check without a bank account

If you don’t have a checking account, you may find it’s more difficult to cash a check.

Banks and credit unions aren’t obligated to cash checks for non-customers. Luckily, there are several ways to cash a check, even without an account at a bank or credit union.

Where can I cash a check without a bank account?

Here are some ways you might be able to cash a check without a bank account.

• Try the bank where the check was issued: You may be able to cash the check at the issuing bank, even without an account there, since the check’s writer is a customer of theirs.
• Check-cashing service at a bank: If you can’t get to the bank where the check was issued, some banks and credit unions offer fee-based check cashing services for third-party checks.
• Check-cashing stores: Check-cashing stores cash checks for a fee and also may offer other services like providing money orders. Some check-cashing stores also market payday loans.
• Major retailers: Some retailers offer check-cashing services for a fee, with the fee varying by store. Walmart, Kmart and Kroger offer this service, for example.
• Prepaid debit card: You may be able to deposit a check onto a prepaid debit card, and then use that card for spending, bill-paying, withdrawing cash and more. You can typically find prepaid cards at retail stores, banks, online and even from government agencies. Be aware that there are usually card-related fees.
• Sign over the check to someone you trust: If a friend or loved one has a bank account, you can sign the check over to them and have them cash it on your behalf. To do so, you’ll sign the back of the check as you normally would, and then write “Pay to the order of,” followed by their full name below your signature. Just make sure you trust this person to give you your money.

What do I need to consider before cashing a check without a bank account?

While it may be possible to cash a check without a bank account, you’ll have to provide identification to verify that you’re the person the check is issued to. Acceptable forms of ID may include a driver’s license, state-issued ID, military ID or passport.

There may be a fee to cash a check with a third party. The amount can vary depending on where you cash it, and you’ll likely be charged a flat fee or a percentage of the check. If the fee is a percentage of the check, keep in mind that the larger the check, the higher the fee.

It’s also important to note that some checks may be easier to cash than others. For example, government checks and payroll checks might be accepted while personal checks won’t — or there may be limits on the amount you can cash with a personal check.

What’s next?

Even without a bank account, there are usually ways to cash a check. Unfortunately, those methods can come with hoops to jump through and fees that can add up.

You may want to consider opening a checking or savings account to make it easier to access your money. With various types of banks and financial institutions to choose from, there are more options than ever to find the right fit for you.

If you leave your wallet at home on the way to an ATM, you may still be able to withdraw cash.

Technology has brought big changes to nearly every part of our financial system, and ATMs are no exception. Just like tap-to-pay features have made it easier to run errands without your credit or debit card on hand, cardless ATMs allow you to access your cash with just your phone.

We’ll review how cardless ATMs work and some of the pros and cons to be aware of before you use one.

• What are cardless ATMs?
• How do cardless ATMs work?
• Pros and cons of using a cardless ATM

What are cardless ATMs?

A cardless ATM allows you to withdraw cash without inserting your debit card as you normally would. Instead, you use a mobile app or your phone’s mobile wallet to access ATM features such as withdrawing cash or checking your balance.

In some cases, your bank may require you to download its mobile app to use a cardless ATM. But in other cases, you may already have this ability if you have your card saved in your digital wallet.

How do cardless ATMs work?

In general, a cardless ATM works by receiving your banking information through your mobile device rather than from a debit card that you insert. There are a few different options for making cardless ATM transactions, and the options available to you likely depend on your financial institution and the ATM you’re using.

Tap access

Some financial institutions allow you to access ATM features the same way you would make a contactless card payment in a store. These transactions are done with what’s known as near field communication, or NFC.

Using a mobile wallet such as Apple Pay or Google Pay, you can tap the contactless symbol on the ATM. The ATM will respond as if you’d entered your debit card and will instruct you to enter your PIN.

Keep in mind that you may only be able to use this feature with the ATM of a financial institution where you have a checking account. For example, both Chase and Wells Fargo require that you have one of their debit cards to access the tap feature.

QR code

Another common way that banks allow you to access the card-free ATM feature is through their mobile apps. In this case, you would first download your bank or credit union’s mobile app.

When you’re at the ATM, you’ll select an option for cardless cash and a QR code will appear on the screen. You’ll scan the QR code with your mobile banking app, and then proceed as normal.

With the cardless cash feature, you may or may not have to enter a PIN.

Temporary PIN

Similar to the QR code that some banks use, others use a temporary PIN to connect your mobile banking app to the ATM. When you use this feature, you’ll select the option for cardless ATM access. A code will be displayed on your phone, and you’ll have to enter it into the ATM to access your account or withdraw cash.

Pros and cons of using a cardless ATM

There are some advantages to using a cardless ATM, but also some potential downsides.

Pros

• Convenience: A cardless ATM eliminates the need to carry around your debit card to withdraw cash. And even if you have your card, you don’t have to dig through your purse or wallet to find it — you can just use your phone.
• Security: Cardless ATM access may provide some additional security, making you less vulnerable to thieves using card skimmers trying to steal your card’s information.
• Less contact: Though it may not eliminate contact altogether, a cardless option may require less physical contact with an ATM.

Cons

• They’re not everywhere: Not all ATMs allow for cardless use. And some financial institutions may only allow their own customers to use the feature.
• Phone security risk: Cardless ATM use requires some of your banking information to be on your phone, either in your digital wallet or a mobile app. If you lose your phone and haven’t secured it, someone else might be able to access your account.

What’s next?

Using a cardless ATM has its benefits — you don’t have to carry or dig around for your debit card. But if you go this route, you should take safety measures with your phone. Require a passcode, facial recognition or fingerprint access for both your phone and banking app to ensure that if your phone is lost or stolen, your banking information can’t be accessed.

If you’re considering buying a more expensive home, you’ll want to understand the difference between a conforming loan and a jumbo loan.

When you’re shopping for a home, you may have several different types of mortgage loans to choose from. One of the factors that may help you decide what type of mortgage you apply for is the price of your new home.

In typical cases, borrowers apply for conforming loans, meaning mortgages that fall within the loan limits established by the Federal Housing Finance Agency and guidelines set by government-sponsored entities Fannie Mae and Freddie Mac. But if the home you’re looking at is more expensive, then you may need a jumbo loan, which is a loan that’s larger than the FHFA limits. We’ll go over the key differences between conforming loans and jumbo loans and how to decide which loan type may be right for your situation.

• Conforming loan vs. jumbo loan — what’s the difference?
• Benefits of conforming vs. jumbo loans
• How to qualify for a conforming loan vs. a jumbo loan
• Should I get a conforming loan or a jumbo loan?

Conforming loan vs. jumbo loan — what’s the difference?

The basic difference between a conforming loan and a jumbo loan is the loan amount. Conforming loans are those at or below the county limits for the size of the loan. Jumbo loans exceed those limits. Conforming loans are typically less expensive, while jumbo loans can have added requirements like a bigger down payment because of the size of the mortgage.

Will jumbo loans cost more? Yes. So you should expect to pay more in interest charges for the larger loan. Jumbo loans may also feature higher interest rates and fees compared to a conventional mortgage.

The basics of a conforming loan

A conforming loan is one that meets the loan limits set each year by the Federal Housing Finance Agency, or FHFA. In 2022, the conforming loan limit on a single-unit home was set at $647,200 for most borrowers.

The FHFA also sets separate loan limits for regions with higher costs of living. This accounts for the fact that real estate in those areas can be significantly more expensive. In 2022, the limit for these high-cost areas is $970,800 for a one-unit home, or 150% of the ceiling for the rest of the country.

Government-backed mortgages such as Federal Housing Association loans (FHA loans) also set loan limits based on the FHFA limits. FHA loan limits are calculated as a percentage of the FHFA numbers.

Conforming loans must also meet certain guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that guarantee most U.S. mortgages. These agencies set requirements for the down payment for the house, as well as the credit scores and debt-to-income ratio you need to borrow a conforming loan.

The basics of a jumbo loan

A jumbo loan is one that exceeds the loan limits set by the FHFA. Because Fannie Mae and Freddie Mac don’t purchase jumbo loans from lenders (reducing the lender’s risk), these loans tend to have stricter eligibility requirements. That means the guidelines for jumbo loan approval may vary by lender when it comes to loan limits, credit scores, down payment and DTI.

Historically, jumbo mortgage rates have been higher than those of conforming loans since they don’t have a government guarantee like conforming loans. Because Fannie Mae and Freddie Mac don’t purchase these loans, the lender takes on a bit more risk.

Benefits of conforming vs. jumbo loans

Benefits of a conforming loan

• Qualifying may be easier — One benefit of a conforming loan is that it may be easier to qualify for than a jumbo loan. When a bank underwrites a conforming loan, it can turn around and sell the loan to Fannie Mae and Freddie Mac — reducing risk for the bank.
• Banks take on less risk — Conforming loans are the most common loan type. Less risk for the lender may translate into more freedom to offer loans with lower qualifying requirements. According to 2020 data from the FHFA, roughly 96% of mortgages are considered conforming loans.
• Lower rates — Historically, conforming loans benefit from coming with lower interest rates than the typical jumbo mortgage rate, though this isn’t always the case (it depends on the lender).

Benefits of a jumbo loan

• Bigger loan — A jumbo loan allows you to borrow more money to purchase a more expensive home.
• More homes to choose from — With a jumbo loan (more to spend), your choices won’t be as limited as they are with a conforming loan.
• Better homes to choose from — If you can afford the higher monthly payments of a jumbo mortgage, your pricier home may very well come with better features and amenities than a less expensive home.

How to qualify for a conforming loan vs. a jumbo loan

Qualifying for a conforming loan

To qualify for a conforming loan, you’ll have to meet the eligibility guidelines set by Fannie Mae and Freddie Mac. For government-backed mortgages such as FHA loans, VA loans and USDA loans, you’ll also have to meet those guidelines.

In general, you’ll have to meet the following requirements:

• Credit scores — You must have a minimum credit score of 620 for conventional loans that meet Fannie and Freddie conventional (or conforming) loan guidelines. Government-backed mortgage programs such as FHA, VA and USDA loans requirements vary.
• Down payment — You must make a down payment between 3% and 5% for a single-family unit for a Fannie Mae or Freddie Mac mortgage. FHA and USDA requirements will vary depending on credit scores.
• Debt-to-income ratio — This number, known as your DTI, should typically not exceed 45%, though conventional Fannie Mae loans currently allow up to 50% when other factors can compensate for that additional leverage.

You may be subject to stricter requirements depending on your situation. For example, borrowers with a higher DTI or lower down payment may need higher credit scores to qualify.

Qualifying for a jumbo loan

In general, you’ll find that it’s more difficult to qualify for a jumbo loan, which makes sense given the larger amount of money you’re borrowing.

First, while the down payment on a conforming loan can be as low as 3% to 5%, some lenders require jumbo loan down payments of at least 10%, but possibly as high as 25% to 30%.

Lenders may also require higher credit scores for a jumbo loan. Lenders usually require solid credit to borrow a jumbo loan, with some requiring credit scores in the low to mid 700s or higher. Other requirements to qualify for a jumbo loan are similar to those for qualifying for any other loan. Your lender will consider your DTI, cash reserves, income history and other financial information.

Should I get a conforming loan or a jumbo loan?

Are you wondering whether a jumbo loan is right for you? As of 2020, jumbo loans made up just 3% to 4% of all loans originated. Conforming loans are more common, and generally more affordable.

But jumbo loans are an option to consider for certain homebuyers. You may need to think about applying for a jumbo loan if you’re looking at houses that exceed the conforming loan limit for your area.

Remember that when you’re considering a jumbo loan, you should ask yourself the same questions you would if you were considering any other type of home loan.

• Do I really need a jumbo loan, or would a more affordable house fit better in my budget?
• Can I comfortably afford the monthly payment on the loan?
• Will I meet the stricter borrowing requirements likely associated with a jumbo loan?
• Can I afford the larger down payment likely required with a jumbo loan?

You’ll need a few pieces of information to open a checking account.

A checking account is probably one of the most important financial accounts you’ll own. It’s where you can manage your money, make deposits, and write checks to cover purchases and pay bills.

There are a few key pieces of information you’ll likely need, including photo identification such as a driver’s license, as well as personal contact information such as a phone number, home address and email. You’ll also likely need to provide a Social Security number and birthdate so your bank or credit union can verify your information. Keep reading to learn what to consider when opening a checking account and what information you’ll likely need.

• Choosing a checking account
• What do you need to open a checking account?
• What else to consider when opening a checking account

Choosing a checking account

While gathering required documents and information for your application, you’ll need to decide what type of checking account is right for you. Some potential options: basic checking, interest checking, cash rewards accounts, student accounts and business checking accounts.

There are many banks and credit unions to compare. Benefits, rates and fees can vary.

If you’re opening an account for the first time or haven’t opened a new one in a while, you need to know what’s required.

What do you need to open a checking account?

To open a checking account, you’ll probably have to provide a variety of information and documentation to verify your identity and ensure the bank has all the information it needs to get your account up and running.

Keep in mind that the exact requirements will depend not only on the bank you choose but also the type of account. You’ll probably need to provide the following:

• Photo ID — The financial institution will need to verify your identity. You may have to show a photo ID such as a state-issued driver’s license, passport, military ID or another form of photo ID.
• Identification number — A bank is likely to request your Social Security number or Individual tax identification number (or ITIN), alien ID card number, passport number, and issuing country or another government-issued identification number.
• Contact information — Banks will also require contact information such as your mailing address, email address and phone number.
• Minimum deposit — Banks often require a minimum deposit to open your account. The amount could be as low as $25.
• Business information — If you’re opening a business account, financial institutions are likely to ask for your employer identification number (or EIN), business formation documents, business license and ownership agreements.
• Parent or guardian information — If you’re opening a checking account and are under 18, you may need a parent or legal guardian as an account co-owner. They’ll have to provide the same information.

What else to consider when opening a checking account

Checking account requirements and benefits can vary dramatically. Here are some factors to consider.

• Minimum balance requirements — Some banks may require you to maintain a certain balance to avoid paying monthly charges. Look for those that don’t have minimum balance requirements or those that work for your financial situation.
• Costs — Banks may charge you for maintenance fees, overdrafts, the cost of checks and more. Be sure to compare fees across various banks and look for those with no or low service fees.  
• ATM access — If you regularly get cash from ATMs, you may want a bank that allows free or low-fee ATM transactions.
• Mobile banking — Make sure the bank has the mobile features you want.
• Rewards — Some accounts offer rewards for purchases you make with a debit card, similar to some credit cards. While this can be a nice perk, be sure to weigh it alongside the other pros and cons.
• Interest checking — Some checking accounts allow you to earn interest, like a savings account. Compare the interest rates across different banks and consider whether you’ll be able to maintain the monthly balance some financial institutions require to earn money on your deposits.
• One-stop banking — Some people prefer to do all their banking with one financial institution. If that’s you, consider all of what a bank offers, including savings and money market accounts, certificates of deposit, credit cards and loans.

What’s next?

Gathering the documents you’ll need, figuring out which type of checking account best suits your needs and determining which bank is the right fit for you takes some planning and research. To make the process go smoother, you might want to prepare a checklist, visit bank websites and speak to customer service agents to learn more.

There’s a lot that goes into buying a home, from saving for a down payment and finding the perfect place to lining up your financing.

And one of the biggest decisions you’ll have to make is what type of mortgage to use. In this article, we’ll look at conventional mortgages and FHA loans, what their major differences are and how to choose the right one for you.

• What is a conventional loan?
• What is an FHA loan?
• Basic differences between conventional loans and FHA loans
• Which loan is right for you?
• What’s next?

What is a conventional loan?

Conventional loan is a broad term that describes a mortgage that isn’t guaranteed or insured by a government agency or program. Conventional loans can generally fall into one of two categories: conforming loans and nonconforming loans.

Conforming loans are those that fall within the loan limit set by the Federal Housing Finance Agency and meet requirements set by Fannie Mae and Freddie Mac. Nonconforming loans aren’t bound by those requirements, so there can be a lot of variation in costs and who qualifies, depending on the lender.

What is an FHA loan?

An FHA loan is one that is backed by the Federal Housing Administration. The FHA doesn’t directly lend money to homebuyers. Instead, it guarantees the loans that private lenders provide. The requirements to qualify for an FHA loan are generally more flexible than some conventional loans, which can help to make homeownership more accessible.

Basic differences between conventional loans and FHA loans

Let’s take a look at the key differences between conventional and FHA loans so you can better evaluate what might be best for your next home purchase.

Minimum down payment

FHA borrowers with a credit score of at least 580 may qualify for a loan with as little as 3.5% down. With a credit score below 580, you’ll need a down payment of at least 10%. These are the FHA minimums — additional lender requirements may apply.

In the case of a conforming conventional loan, the down payment must meet the requirements set by Fannie Mae and Freddie Mac. They generally require a minimum down payment of 3% to 5%.

But in the case of nonconforming loans, lenders may set their own down payment requirements. For example, with a nonconforming jumbo loan, lenders may require a larger down payment to compensate for the additional risk they’re taking on.

Credit qualification

To qualify for an FHA loan, FHA guidelines state you’ll need a credit score of at least 500, but it’s important to note that with this credit score, you’ll need a down payment of at least 10%.

To qualify for the maximum financing with a down payment of 3.5%, you’ll need a credit score of at least 580. As mentioned above, these are the FHA standards, and additional lender “overlays,” including FICO® score requirements, may apply depending on the lender.

As with other features of conventional loans, the credit score required depends on whether it’s a conforming or nonconforming loan. To borrow using a Fannie Mae or Freddie Mac conventional conforming loan, you’ll generally need a credit score of at least 620. The rules for nonconforming loans are likely to vary more from one lender to the next and will depend on the type of nonconforming loan.

Mortgage insurance

Regardless of what type of loan you apply for, you may find yourself paying mortgage insurance. On an FHA loan, the insurance is known as a mortgage insurance premium, or MIP.

First, you’ll pay an upfront MIP of 1.75% of the base loan amount. Then you’ll pay an annual MIP, with an amount that depends on the base loan amount and your loan-to-value ratio, or LTV. Annual MIPs range from 0.45% to 1.05% of the base loan amount and last for either 11 years or the entire mortgage term, depending on your down payment.

Conventional mortgages may also require insurance, but in the case of these loans, it’s something known as private mortgage insurance, or PMI. PMI is generally required for conventional loans with a down payment of less than 20%.

Borrowers may only be required to pay PMI until they reach 20% equity in their homes. You can generally avoid it in two ways. First, you can request that your loan servicer cancel PMI once your LTV falls below 80%. Otherwise, PMI should automatically fall off when you’re scheduled to reach 78% LTV as long as you are current on your payments.

Loan uses

Both FHA loans and conventional conforming loans can be used for properties with one, two, three or four units. In the case of an FHA mortgage, FHA loans are only for owners who occupy their homes. You cannot purchase investment property with an FHA single-family home loan. The house you buy must be the one you intend to live in as your primary residence.

Conventional loans can be more flexible, depending on the lender. FHA loans require you to be an owner-occupier using the home as your main address — but with a conventional loan,  government-backed loan requirements like this may not apply. It depends on the lender, the loan and other factors. Some requirements may apply if you seek a conforming loan, but nonconforming loans may offer more options.

Which loan is right for you?

Both conventional loan and FHA loans have their advantages, but there are some general rules of thumb you can think about as you prepare to buy your next home.

FHA loans may be the better option for borrowers without credit scores that qualify for a conventional mortgage or those who don’t have a large down payment. In these cases, an FHA loan may be more affordable and could even be the only option available to you.

But for borrowers with good credit who can afford a larger down payment, a conventional loan is likely a choice worth exploring.

What’s next?

If you’re starting the homebuying process, a mortgage loan officer, mortgage broker or real estate agent can help you compare different loan options and decide which is right for you.

Keep in mind that various loan products have different requirements for down payments, credit scores, debt-to-income ratios and more. Understanding ahead of time what standards you’ll have to meet will help ease the decision-making process.   

Your credit scores play an important role in helping you to achieve many financial milestones, and buying a home is no exception.

When you apply for a mortgage, lenders use your credit scores, among other factors, to decide whether to approve you for a mortgage. Your scores can also help determine your mortgage rate.

So what is a good credit score to buy a house? In general, lenders look for credit scores of at least 620 to qualify borrowers for common mortgages. We’ll break down some of the requirements for different mortgage types and what else you need to know about qualifying for a mortgage.

• What credit scores do you need to buy a house?
• What do lenders consider besides credit scores?
• Can I buy a home with bad credit?
• What factors make up your credit scores?
• How can you improve your credit scores?
• Looking to build your credit? Consider a credit builder loan

What credit scores do you need to buy a house?

While there’s no single credit score that will qualify you for a mortgage, there’s a standard range of scores for the different types of home loans. And each lender can set its own standards. Just because your credit scores are sufficient to qualify for a mortgage on paper doesn’t mean they’re enough to qualify with the lender of your choice.

Conventional loans

A conventional loan is one that isn’t a part of a mortgage loan program through the federal government. Conventional loans can be either conforming or nonconforming. A conforming loan is one that meets standards set by Fannie Mae and Freddie Mac, which are companies chartered by the U.S. government to provide affordable mortgage financing to borrowers. A nonconforming loan doesn’t need to meet those standards.

Fannie Mae requires that homebuyers have credit scores of at least 620 (fixed-rate mortgages) or 640 (adjustable-rate loans) to qualify for a conforming loan. While it may be possible to qualify for a nonconforming loan with scores less than 620, only a small percentage of homebuyers have credit scores lower than that, and those loans tend to have higher interest rates.

FHA loans

FHA loans, which are guaranteed by the Federal Housing Administration, provide an opportunity for people with lower credit scores to buy homes. The FHA Lender’s Handbook says the minimum score to borrow an FHA loan is 500, but you’ll need a down payment of at least 10%. To qualify for the lowest down payment of 3.5% with an FHA loan, you’ll need a credit score of at least 580. Additional lender requirements may also apply.

VA loan

A VA loan is guaranteed by the Department of Veterans Affairs. VA loans are available to military veterans and uniformed service members who have met certain service requirements.  The VA loan program doesn’t have a minimum credit score requirement. Instead, lenders set their own minimum score requirements. That being said, lenders often require credit scores of 620 or higher for these loans.

USDA loan

USDA loans are available for low- to moderate-income households living in rural areas. There are two loan programs under the USDA. In one, the U.S. Department of Agriculture guarantees loans provided by approved lenders. In the other, the USDA lends the money directly. There are no USDA-established minimum credit scores required to borrow, but there are income eligibility rules. It’s possible to earn too much money to qualify for a USDA mortgage.

What do lenders consider besides credit scores?

Your credit scores are important, but they’re not the only factor that lenders consider when you apply for a mortgage. There are several other things lenders will look at when deciding whether to approve you for a mortgage, how much you may be able to borrow, and what your potential interest rate will be.

Debt-to-income ratio

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward debt. For conventional loans, some lenders may require that your DTI be no higher than 36%, but may go up to 45% for borrowers who meet other credit score and cash reserve requirements.

And you may find that some lenders have a different tolerance for debt ratios. The Consumer Financial Protection Bureau reports that it’s even possible to get a qualified mortgage (what the CFPB describes as a “more stable” and affordable mortgage loan) with a debt-to-income ratio higher than 43%.

Down payment

The down payment you need depends on the type of loan and your other financial factors. For VA and USDA loans, you can buy a home with as little as 0% down. For conventional mortgages, your down payment may be as low as 3% for certain types of loan programs. In general, you’ll need a down payment of at least 20% on conventional mortgages if you want to avoid private mortgage insurance.

Cash reserves

Lenders want to make sure you have savings in place when you buy a home so you can properly maintain the house and continue making your payments if there’s a disruption to your income. Acceptable cash reserves can include money in your checking or savings account, the value of other financial investments like stocks and bonds, the amount vested in your retirement account and the cash value of a vested life insurance policy.

The amount of cash reserves you’ll need to qualify for a mortgage will depend on multiple factors, including your DTI and the down payment you’re able to provide.

Employment history

When you buy a home, lenders want to know you’ll have a source of reliable income to make your loan payments. Lenders prefer that you have at least two years of employment income, though they can approve someone with just one year of employment if they have reason to believe your income is stable.

In the case of self-employed individuals, you’ll usually need to prove two years of earnings. But lenders can make an exception for borrowers with at least one year of self-employment income who previously worked in a similar field and who have maintained a stable or increasing income.

Can I buy a home with bad credit?

Lower credit scores may not stop you from buying a home, but there are likely other hurdles you’ll have to overcome to make it happen.

First, borrowers with lower scores generally end up with higher interest rates, which can cost you big over the course of your loan. In fact, the difference of just a single percentage point in your interest rate can mean the difference of thousands of dollars in interest over the lifetime of the loan.

Another consequence of lower credit scores could be that your lender requires a larger down payment. For example, an FHA loan allows borrowers to get a loan for as little as 3.5% down — as long as they have a credit score of 580 or greater. But borrowers with credit scores below 580 must put at least 10% down.

What factors make up your credit scores?

To understand how your credit scores affect your ability to get a loan and how you can improve your scores, you first have to understand what goes into your credit scores. There are five primary factors that affect your credit scores.

• Payment history — Do you pay your bills on time and repay money that you’ve borrowed?
• Credit utilization — What percentage of your total available credit are you using?
• Length of credit history — Do you have longstanding accounts? Or only new ones?
• New credit history — How often do you request new loans or lines of credit?
• Types of credit used — Do you have different types of credit on your report like revolving credit card accounts and installment loans?

How can you improve your credit scores?

If your credit is holding you back from buying a home or getting a good interest rate, then consider taking some time to improve it before you apply for a mortgage. Here are a few things you can do.

• Check your credit reports for errors: According to the Federal Trade Commission, as many as one in five consumers have at least one error on one of their credit reports. If there are errors on your credit report, they could be affecting your credit scores. You can dispute errors directly with the credit bureaus.
• Pay your bills on time: Your payment history is the most significant factor that affects your credit scores. Paying your bills consistently and on time is an effective way to increase your scores.
• Pay off existing debt: Your credit scores can be affected by your total amount of debt and the percentage of your available credit that you’re using, known as your credit utilization. A utilization rate below 30% is ideal.
• Avoid applying for new credit: Hard inquiries can negatively affect your credit in the short term. Avoid applying for new credit accounts or loans before applying for a mortgage.
• Keep your credit cards open: Closing a credit card account can hurt your scores if it reduces the length or average age of your credit history.

Looking to build your credit? Consider a credit builder loan.

Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores. 

When you get a credit builder loan, the lender typically puts the money you’ve borrowed into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds. 

Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.

You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.

What’s next?

Your credit scores are an important factor that lenders will use when evaluating your mortgage application. Because there are several types of home loans, there’s not necessarily one specific credit score requirement you’ll have to meet.

No matter the type of loan, higher credit scores are beneficial not only for qualifying for a loan, but also for getting the lowest interest rate and best loan terms. If you’re planning to buy a home in the near future — or even the not-so-near future — now is a great time to start boosting your credit health to increase your odds of approval.

Want to learn more? Check out some of our top mortgage lenders for first-time homebuyers.

• Homebridge Mortgage: Homebridge offers resources that specifically cater to first-time homebuyers.
• Rocket Mortgage: Consider Rocket Mortgage if you’d prefer an online-first experience.
• PennyMac Mortgage: PennyMac offers a wide variety of home loans and shares current rates on its site, which can be helpful for people looking to buy their first home.
• USAA Mortgage: USAA is a good option for military members and their families. 

Updated January 17, 2024

This date may not reflect recent changes in individual terms.

Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

Written by: Erin Gobler

Navy Federal Credit Union mortgage loans at a glance

• Conventional loans: Yes
• FHA loans: No
• VA loans: Yes
• Refinancing: Yes
• Jumbo loans: Yes
• Adjustable rates: Yes
• Fixed rates: Yes

Navy Federal Credit Union was founded in 1933 by employees of the Navy who wanted to help themselves and their co-workers strengthen their finances. Today, the credit union serves more than 10 million members.

Navy Federal is a full-service credit union that offers deposit accounts, retirement savings, credit cards and a variety loan options, including mortgages. It has more than 340 branches around the world, but you have to meet its membership requirements to join.

Pros

• VA loan expertise
• Rate match guarantee
• No down payment loans available

Cons

• Limited to members
• No FHA or USDA loans

5 things to know about Navy Federal mortgage loans

1. VA loan expertise

Navy Federal Credit Union specializes in serving current and former military members, bringing a certain level of expertise when it comes to VA loans and other related benefits available to veterans.

Eligible borrowers may find the VA loan borrowing process smoother with NFCU than a lender with less VA loan experience.

2. Rate match guarantee

Navy Federal has a rate match guarantee, meaning it’ll match a better rate offered by another lender. And if it doesn’t match the rate, it’ll give you $1,000.

This offer is only available for a first mortgage purchase or refinance, and some loans may not qualify.

3. No down payment loans available

Navy Federal offers several mortgage options that don’t require a down payment or private mortgage insurance.

These include:

• VA loans
• Military Choice loans (which don’t require a down payment or PMI and are available to current and former service members who have exhausted their VA loan benefits)
• Homebuyers Choice loans (available to other qualified borrowers with no down payment and no PMI).

4. Limited to members

Like many credit unions, Navy Federal limits membership to individuals of a certain community. To become a member of Navy Federal and qualify for a mortgage, you’ll need to fall into one of the following groups:

• Active duty or former military members
• Family members of current and former military members
• Department of Defense civilian personnel
• Department of Defense retirees

5. No FHA or USDA loans

Though Navy Federal offers VA loans, it doesn’t offer other specialty government loans like FHA loans and USDA loans. Borrowers who don’t qualify for a VA loan and want to take advantage of one of these government loans will have to look elsewhere.

Who is a Navy Federal mortgage good for?

Because of its membership requirements, Navy Federal Credit Union is a good option for current and former service members, current and former Department of Defense employees, and family members of eligible individuals.

Navy Federal is also a good option for someone looking for a loan with no down payment. VA loans and Navy Federal’s Military Choice loans are both available to eligible service members and veterans. But nonmilitary borrowers can get some of the same perks with Navy Federal’s Homebuyers Choice loan.

The one downside of these loan options is that, with the exception of the VA loan, Navy Federal’s no down payment loans may have higher starting interest rates than its other mortgages.

Finally, Navy Federal is a good option for people who want the convenience of robust digital tools with the personal touch that comes with in-person banking.

Navy Federal has more than 340 branches around the world, and it has an easy-to-navigate website and digital tools. The website also includes all the information you’ll want when shopping for a loan, including current interest rates and payment calculators.

How to apply with Navy Federal

Navy Federal’s HomeSquad tool allows you to complete the entire mortgage application process online. You can apply online, track the status of your loan application and get personalized guidance from a team of Navy Federal loan professionals.

And once you close on your loan, HomeSquad will be your mortgage hub where you can pay your bill, view payment history, request forbearance, and more.

First, Navy Federal allows you to apply for preapproval for a loan based on your credit scores, income and other financial information. Your preapproval letter will be good for between 30 and 90 days as you shop for a home.

Once you find your home, you can contact your home loan adviser and start the verification process by providing additional information and documentation. You can upload all of the necessary info to HomeSquad, where you can track your loan status.

Keep in mind that Navy Federal offers several mortgage options, and not all borrowers will be eligible for all of the loans. If you aren’t sure which loan you qualify for or best fits your financial situation, you can visit the guide on the credit union’s website or call Navy Federal to speak with a mortgage specialist.

Not sure if Navy Federal Credit Union is for you? Consider these alternatives.

When you’re shopping for a mortgage, it might be in your best interests to shop around to make sure you’re getting the best rate. Keep in mind that you have a window of time — typically 14 days — where multiple credit inquiries by lenders for the same type of loan will count as just one. Here are a couple of other lenders to consider.

• Bank of America: Check out Bank of America for loan options including adjustable-rate mortgages and home equity lines of credit. This lender also offers full-service banking.
• Rocket Mortgage: Rocket Mortgage provides a variety of mortgage options and is transparent about its current mortgage rates.