Buying a home for the first time is exciting, but it can also be overwhelming and affect your finances for years.

Loans designed for first-time home buyers can help make the process more manageable by reducing the amount of cash you have to come up with upfront, providing credits for one-time expenses and reducing fees.

We’ve rounded up our top picks of the best first-time home buyer loans to help you find one that may meet your needs.

• Best for no lender fees: Ally Bank
• Best for access to grants: Bank of America
• Best for flexible credit guidelines: Chase
• Best for multiple loan types: New American Funding
• Best for no PMI: PNC Bank
• How to apply for a first-time home buyer loan
• What kind of credit scores do I need to get a house for the first time?
• Which loan is harder to get: FHA or conventional?
• Our methodology: How we picked these home loans

Best for no lender fees: Ally Bank

Here’s why: Ally Bank doesn’t charge application, origination, processing or underwriting fees on its mortgages. The company offers Fannie Mae’s HomeReady® mortgage — which requires a down payment of as little as 3% of the home’s purchase price and credit scores as low as 620. 

You also can quickly see if you prequalify with no impact to your credit scores. Just keep in mind that if you apply, you’ll get a hard inquiry, which typically has a small impact.

Ally Bank mortgages at a glance

Read more about Ally Bank mortgage loans.

Best for access to grants: Bank of America

Here’s why: Bank of America offers two types of grants to first-time home buyers. Qualified applicants may receive a credit of up to $7,500 for closing costs or up to $10,000 in down payment assistance in certain markets. And you can use the bank’s real estate center to help you find a home that’s eligible for grants. 

Bank of America also has an Affordable Loan Solution® mortgage that requires down payments as low as 3%. 

Read more about Bank of America’s mortgage loans.

Best for flexible credit guidelines: Chase

Here’s why: Chase’s DreaMaker℠ Mortgage and FHA loans have flexible credit guidelines and low down payment requirements of 3% and 3.5%, respectively. When you get a Chase DreaMaker Mortgage, you can receive $500 to use for closing costs after completing a home buying education course. 

The bank also offers grants of up to $7,500 that you can use for points, closing costs and/or down payment assistance on eligible homes. 

Chase at a glance

Read more about Chase mortgage loans.

Best for multiple loan types: New American Funding

Here’s why: New American Funding offers multiple loan types that may be ideal for first-time home buyers, including FHA, VA, USDA, conventional and I CAN loans.  

Qualified applicants can put as little as 0% to 3.5% down — depending on the loan type — and may be able to get a lower interest rate during the first one, two or three years of the loan term to help offset the cost of homeownership.

New American Funding at a glance

Read more about New American Funding mortgage loans.

Best for no PMI: PNC Bank

Here’s why: With a PNC community loan, you don’t need private mortgage insurance (PMI) even if you don’t put down 20%. You may only have to put 3% down and you can use gift funds for part of your down payment. 
The bank offers homeownership grants of up to $5,000, and its Home Insight® planner tool can help you find a house that fits your budget.

PNC at a glance

Read more about PNC mortgage loans.

How to apply for a first-time home buyer loan

Applying for a mortgage can be overwhelming if you don’t know what to expect. Here’s what you need to know to prepare.

1. Check your credit. It’s important to review your credit reports and resolve any errors before submitting your application. Minimum credit scores vary by lender, but some may accept scores as low as 500 if you meet certain criteria. The higher your scores, the easier it will be to qualify and get a lower rate — people with scores in the mid-700s or higher typically receive the lowest available rates. If you have less than stellar credit, you may want to improve it before applying for a loan.
   
2. Decide what you can afford. A general rule of thumb is that your monthly mortgage payments should not exceed 28% of your gross monthly income. The amount you can afford depends on your other living expenses as well. Check out our home affordability calculator.
   
3. Pay down debt. Your debt-to-income ratio (DTI) is one of the factors lenders use to determine whether you can afford your monthly loan payments. You typically need a DTI ratio of 43% or less, however you may be able to qualify with a higher DTI ratio if you meet certain criteria.
4. Set aside your down payment. Loans for first-time home buyers typically require down payments of 0% to 3.5%. You may be able to use gift funds for part or all of your down payment as long as it meets the lender’s requirements and you write a mortgage gift letter explaining where the money came from.
   
5. Save for closing costs. You also need to have money to cover closing costs, which are generally 2% to 5% of the home’s purchase price. As a first-time home buyer, you may be eligible for financial assistance that can help cover these expenses.
   
6. Gather the necessary documents. Applying for a mortgage requires a lot of paperwork. In general, your lender will need the following mortgage documents to process your application: tax returns, proof of income, bank and investment statements, gift letters, photo ID and your renting history (if applicable).

What kind of credit scores do I need to get a house for the first time?

The credit scores you need to buy a house depend on the lender and type of loan you get. The U.S. Department of Veterans Affairs and U.S. Department of Agriculture don’t have minimum credit score requirements for VA loans and USDA loans. However, lenders may require applicants to meet certain credit criteria. 

Federal Housing Administration guidelines allow borrowers with credit scores of 580 and above to get an FHA loan with a down payment as low as 3.5%. You may qualify for an FHA loan with credit scores as low as 500 if you have a down payment of 10% or higher. If you opt for a conventional loan, you’ll likely need scores of 620 or higher. 

Which loan is harder to get: FHA or conventional?

Because FHA loans are backed by the government, they typically have less stringent credit and income requirements and are easier to qualify for than conventional loans.

Our methodology: How we picked these home loans

We reviewed more than a dozen mortgage lenders to come up with our top picks. We considered factors such as credit requirements, down payment and closing cost assistance, the availability of planning tools, PMI requirements and other features designed to help first-time home buyers.

FHA loans are mortgages with low down payment and flexible credit requirements that are insured by the federal government.

They’re popular among first-time home buyers and house hunters with less-than-perfect credit since you don’t need a large down payment and they’re typically easier to qualify for compared to conventional mortgages.

We’ve rounded up our top picks of the best FHA lenders to help you decide if any may be right for you.

• Best for renovations: New American Funding
• Best for home buyer resources: Rocket Mortgage
• Best for access to grants: Bank of America
• Best for low fees: Better Mortgage
• Best for bad credit: Carrington Mortgage
• Best for refinancing: CrossCountry Mortgage
• Best for new construction: Movement Mortgage
• How to apply for an FHA loan
• What credit score do I need for an FHA loan?
• Is it hard to qualify for an FHA loan?
• Our methodology: How we picked these home loans

Best home loan for renovations: New American Funding

Why New American Funding stands out: New American Funding offers FHA 203(k) loans, which allow borrowers to roll certain home improvement expenses into their mortgage. The lender also has a five-year rate protection pledge that allows you to refinance your home loan without paying lender or appraisal fees — if you refinance within five years of your original loan closing. 

New American offers loan terms of 15 or 30 years, and you can check your estimated rate with no impact to your credit scores before submitting a formal loan application. 

New American Funding home loans at a glance

Read more about New American Funding mortgage loans.

Best for home buyer tools: Rocket Mortgage

Why Rocket Mortgage stands out: Rocket Mortgage offers a number of resources to help house hunters simplify the homebuying process. You can search home listings, get a housing market report for the area where you want to buy and get a property report for your house — if you have one to sell. 

When you buy your home with Rocket Homes and Rocket Mortgage, you could save up to $10,000 on closing costs with a 1.5% closing credit.

Rocket Mortgage at a glance

Read more about Rocket Mortgage loans.

Best for homebuyer assistance: Bank of America

Why Bank of America stands out: Bank of America has two programs that help defray the cost of purchasing a home. Its America’s Home Grant® program provides lender credits of up to $7,500 for certain closing costs or to buy down your interest rate. 

Its Down Payment Grant program provides grants of up to 3% (up to $10,000) of a home’s purchase price in eligible areas. The bank also has a Down Payment Center that can help you find other aid programs you may be eligible for.

Bank of America mortgages at a glance

Read more about Bank of America mortgage loans.

Best for low fees: Better mortgage

Why Better mortgage stands out: When you get a home loan from Better mortgage, the company won’t charge commission fees. The lender offers a Better price guarantee, promising to beat any competitor’s offer by $100 or give you $100 if certain conditions are met.

Better mortgage at a glance

Read more about Better Mortgage loans.

Best for bad credit: Carrington Mortgage

Why Carrington Mortgage stands out: Carrington Mortgage accepts applications from people with credit scores as low as 500 for purchase FHA loans and FHA refinance loans, including FHA streamline refinances. You can apply for a mortgage online or by phone.

Carrington Mortgage at a glance

Read more about Carrington Mortgage loans.

Best for refinancing: CrossCountry Mortgage

Why CrossCountry Mortgage stands out: CrossCountry Mortgage offers multiple FHA refinancing options, including standard FHA, FHA Streamline, FHA cash-out and FHA 203(k) refinancing. You can complete your application online. The lender’s FastTrack Credit Approval program can help you in a competitive market. The program can review your financial information to see if you’re preapproved for a home loan and provide you a letter to include with your offer.

CrossCountry Mortgage at a glance

Read more about Cross Country Mortgage loans.

Best for new construction: Movement Mortgage

Why Movement Mortgage stands out: Movement Mortgage offers FHA construction loans, allowing you to build the home of your dreams. The lender offers an extended rate lock — up to 360 days — so you can lock in your rate while you wait. If your application is approved, you’ll receive a fully underwritten preapproval, usually within six hours.

Movement Mortgage at a glance

Read more about Movement Mortgage loans.

How to apply for an FHA home loan

Not all lenders offer FHA loans. After you’ve found one that does, here’s what you need to know.

FHA loan requirements

You must meet the following requirements to qualify for an FHA loan. 

• Down payment. You need a down payment of at least 3.5%, but you may need as much as 10%, depending on your credit scores.
• Credit scores. Your credit scores must be at least 500 if you have a 10% down payment or 580 with a 3.5% down payment, according to FHA guidelines. However, lenders may set higher minimum credit score requirements. 
• Housing type. The property you buy must have one to four units and be your primary residence. 
• Debt-to-income ratio. You typically need a debt-to-income, or DTI, ratio of 43% or lower, but you may qualify with a higher DTI if you meet certain requirements.

FHA loan pros

• Low down payment requirements. You may be able to put as little as 3.5% down.
• Less stringent credit requirements. In general, it’s easier to qualify for an FHA loan than a conventional or jumbo loan.
• Down payment assistance. You can use gift funds from friends or relatives, or aid from local and state agencies for your down payment. 
• Potential closing cost help. Sellers may pay for up to 6% of the buyer’s closing costs.

FHA loan cons

• You may pay more. If you have good credit and can put at least 10% down, FHA loans typically cost more than conventional loans. 
• Mortgage insurance can add up. If you put less than 20% down, you have to pay a one-time fee for mortgage insurance, which is usually equal to 1.75% of the home price. You’ll also have to pay monthly mortgage insurance premiums.
• You may not be able to borrow as much as you want. The Department of Housing and Urban Development (HUD) sets limits on FHA loans based on housing type, state and county where the property is located.
• There are limits to the type of property you can buy. You can only use an FHA loan to finance the purchase of a one- to four-unit primary residence.

What credit score do I need for an FHA loan?

You may qualify for an FHA loan with credit scores as low as 500 if you have a down payment of at least 10%. With a down payment of 3.5%, you need credit scores of at least 580.

Is it hard to qualify for an FHA loan?

In general, it’s easier to qualify for an FHA loan than a conventional loan or jumbo loan because it has less stringent credit requirements. You may also want to consider a VA or USDA loan if you’re eligible. VA loans don’t require mortgage insurance, and you may not need to put any money down. However, you typically need to pay a funding fee at closing. USDA loans don’t require a down payment, but you may have to pay mortgage insurance and a one-time funding fee.

Our methodology: How we picked these home loans

We reviewed more than a dozen FHA lenders to come up with our top picks, taking into account factors such as fees, closing timelines, application process, loan types, assistance programs and other features that may be helpful to home buyers.

Refinancing your mortgage may help you save on interest, reduce your monthly payment or get cash to pay for expenses.

Since you’re replacing your current mortgage with a new one, you’ll need to pay closing costs again. And there’s no guarantee you’ll qualify for a lower rate, especially if rates have risen since you originally financed your home. You’ll want to weigh the pros and cons of refinancing before applying.

We’ve rounded up our list of the six best mortgage refinance companies to help you find the one that’s best for you. 

• Best for multiple refinance loan options: CrossCountry Mortgage
• Best for government-backed mortgage refinancing: Freedom Mortgage
• Best for servicemembers and veterans: Navy Federal
• Best for rate matching: Better
• Best for jumbo refinancing: New American Funding
• Best for repeat refinancing: Loan Depot
• How to refinance a mortgage
• FAQs about refinancing a mortgage 
• Our methodology: How we picked these home loans

Best for multiple refinance loan options: CrossCountry Mortgage

Why CrossCountry Mortgage stands out: CrossCountry Mortgage offers a wide range of loan refinance options, including conventional, FHA cash out, FHA streamline, FHA 203(k), VA loans, VA streamline refinance, USDA streamline refinance and jumbo loan refinancing. The company offers fixed- and adjustable-rate mortgage options, and you can apply online.

CrossCountry Mortgage at a glance

Read our full review of CrossCountry Mortgage home loans.

Best for government-backed mortgage refinancing: Freedom Mortgage

Why Freedom Mortgage stands out: Freedom Mortgage offers a variety of refinancing options for government-backed loans, including FHA cash out, FHA streamline, VA cash out, VA streamline and USDA streamline.

The lender offers the ability to prequalify, so you can see your estimated rate and loan term with no impact to your credit scores. But keep in mind your rate or terms may change if you go through and apply. Freedom Mortgage’s Eagle Eye program will notify you when interest rates drop or the value of your home increases to help you decide if refinancing makes sense for you.

Freedom Mortgage at a glance

Read reviews about Freedom Mortgage home loans.

Best for servicemembers and veterans: Navy Federal

Why Navy Federal stands out: Navy Federal has been serving military members, veterans and their families since 1933. It offers refinancing options that include VA, VA streamline, military choice, conventional and homebuyers choice. 

Navy Federal’s Special Freedom Lock allows you to relock your interest rate at no additional cost if rates drop within 60 days of locking your initial rate (but before closing your loan). The credit union also provides 24/7 customer service to its members to better serve them no matter where they are.

Navy Federal at a glance

Read reviews about Navy Federal Credit Union mortgages.

Best for rate match: Better

Why Better stands out: Better promises to match any competitor’s offer, or give you $100 if it can’t. When you refinance with Better, you can roll your closing costs into the new mortgage, also known as a no-cost refinance. The loan application process is completely digital, and you can check your estimated rate and loan term without affecting your credit scores.

Better Mortgage at a glance

Read reviews about Better mortgage.

Best for jumbo refinancing: New American Funding

Why New American Funding stands out: If you have a mortgage that exceeds the conforming loan limits, you may be able to refinance it with New American Funding. The lender allows potential customers to apply for prequalification, so you can check your estimated rate and loan term without affecting your credit scores. (Keep in mind that your rate and terms may change if you apply.)

New American Funding at a glance

Read more reviews about New American Funding mortgages.

Best for repeat refinancing: LoanDepot

Why LoanDepot stands out: LoanDepot offers a “lifetime guarantee” when you refinance your mortgage — it will waive lender fees for future refinances. LoanDepot offers conventional, VA cash out, VA streamline, FHA cash out and FHA streamline refinances. 

Closing may take 45 to 60 days, though LoanDepot says it can often close loans faster than the industry average.

LoanDepot at a glance

Read more reviews about LoanDepot mortgages. 

How to refinance a mortgage

Refinancing a mortgage is similar to applying for a home loan the first time. Here are a few tips to get you started.

1. Check your credit. When you refinance, you replace your existing loan with a new one. Lenders use your credit scores to help determine whether you qualify. Make sure yours are in good shape and your credit reports are accurate before applying.
   
2. Prepare your paperwork. Your lender needs to verify your identity and ability to repay the loan. Documents you may need to provide include a copy of your driver’s license, tax returns, pay stubs and bank/investment statements.
   
3. Closing costs. In general, when you refinance, you pay closing costs again. Closing costs for a mortgage refinance are typically 3% to 6% of your remaining loan balance.
   
4. Prepare for closing. It often takes three to six weeks to close on a mortgage refinance, but the exact timeline varies by lender.

FAQs about refinancing a mortgage

If you’re thinking about refinancing your mortgage, here are a few things to consider.

Our methodology: How we picked these refinance loans

We reviewed more than a dozen lenders to come up with our top mortgage refinancing companies. We considered factors such as available loan options, application process, closing timeline, the ability to prequalify, rate matching and other features that may be helpful to homeowners looking to refinance.

When you refinance, you replace your existing mortgage with a new one that may have a different rate, term and monthly payment.

Refinancing may be worth considering if you can qualify for a lower rate, want to shorten your loan term or have enough equity to get cash out. But you’ll need to pay closing costs again, and there’s no guarantee you’ll get a lower rate. It’s important to understand how a new mortgage may differ from your current loan before you go through the refinancing process. 

We’ve rounded up our picks of the best banks to refinance a mortgage to help you determine which may be right for you.

• Best for no lender fees: Ally Bank
• Best for rate transparency: Chase
• Best for relationship discounts: Citibank
• Best for high debt-to-income ratios: Fifth Third Bank
• Best for loan options: PNC Bank
• How to apply for a mortgage refinance
• Is it better to go to a bank or mortgage company to refinance?
• Our methodology: How we picked these home loans

Best for no lender fees: Ally Bank

Why Ally Bank stands out: When you refinance your mortgage with Ally Bank, you won’t pay application, origination, processing or underwriting fees. You can get a custom quote, lock your rate and complete your application online, but you must finalize the loan in person.

Ally Bank mortgages at a glance

Read more about Ally Bank mortgage loans.

Best for rate transparency: Chase

Why Chase stands out: Chase publishes its lowest starting mortgage rates online. When you enter your home’s estimated value, where you live and your current loan balance, you can get potential rate quotes for multiple loan types and loan terms.

The bank’s refinancing cost calculator can help you estimate the amount you may pay if you decide to refinance. Its refinance savings calculator lets you see how much you might save each month, what your new payment schedule could be and when you’d hit your break-even point.

Chase mortgages at a glance

Read more about Chase mortgage loans.

Best for relationship discounts: Citibank

Why Citibank stands out: Existing Citibank customers may qualify for lower rates or closing cost credits if they meet qualifications. The bank’s refinance calculator lets you compare your current mortgage payments and potential new mortgage payments to determine whether refinancing would save you money over the life of the new loan. The company’s refinancing guide can help you decide whether refinancing is the right choice for you.

Citibank mortgages at a glance

Read more about Citibank mortgage loans.

Best for applicants with high debt-to-income ratios: Fifth Third Bank

Why Fifth Third Bank stands out: Fifth Third Bank’s Refi Possible® loan is designed for applicants with higher than average debt-to-income (DTI) ratios who may not qualify for refinancing with other products. However, you must speak with a representative to start the application process. You can’t apply or prequalify online.

Fifth Third Bank at a glance

Read more about Fifth Third Bank mortgage loans.

Best for loan options: PNC Bank

Why PNC Bank stands out: PNC offers refinancing for conventional, FHA, VA and jumbo loans. You can see potential rates based on your location and credit scores.

PNC Bank mortgages at a glance

Read more about PNC Bank mortgage loans.

How to apply for a mortgage refinance

When you’re shopping for a home loan, it’s a good idea to compare quotes from multiple lenders to help get the lowest rates and best terms that you may qualify for.

Mortgage refinancing requirements

The process for refinancing is similar to applying for your original mortgage.

• Check your credit. Your credit scores are one of the most important factors lenders review to determine whether you qualify for a loan and what rate you may receive. Check your credit reports and resolve any errors before applying to refinance your loan.
  
  
• Pay down debt. Having too much debt is a signal to lenders that you may not be able to afford your monthly payments. You typically need a debt-to-income ratio (DTI) of 43% or less to refinance your mortgage. If yours is higher, make paying down debt a priority before applying to refinance.
  
  
• Gather the necessary documents. You’ll need to provide many of the same mortgage documents when you refinance as you did when you got your original loan. This includes tax returns, proof of income, bank and investment statements, and a copy of your photo ID.
  
  
• Schedule your appraisal. Lenders may require an appraisal to get an accurate assessment of the value of your home before making a lending decision.

Pros of refinancing

Refinancing your mortgage may be worth it if you can take advantage of some of the potential benefits, including:

• Lowering your interest rate. If your credit has improved or interest rates have dropped since you applied for your current mortgage, you may qualify for a lower rate. Reducing your mortgage rate could save you thousands of dollars over the life of the loan.
  
  
• Lowering your monthly payment. You may be able to lower your monthly payment by extending the term of your loan or refinancing at a lower rate. But keep in mind that if you extend your loan term, you’ll typically pay more in interest over the life of the loan.
  
  
• Eliminating private mortgage insurance, or PMI. If you put less than 20% down when you got your original mortgage, you may have had to get PMI. If the value of your house has increased since you took out your current loan and you have at least 20% equity in your home, you may be able to eliminate PMI by refinancing.
  
  
• Shortening the loan term. Refinancing into a loan with a shorter term will help you pay off your mortgage faster and may reduce the amount of interest you pay over the life of the loan.

• Having predictable monthly payments. If you have a variable rate mortgage, refinancing into a fixed rate loan means you’ll know how much you owe every month throughout the life of the loan.
  
  
• Getting extra cash. If you’ve built up enough equity, you may qualify for a cash-out refinance that lets you tap the equity in your home to get cash for home improvements or other expenses.

Cons of refinancing

While there are potential benefits to refinancing, it’s important to consider the possible downsides as well.

1. You may have higher monthly payments. If you refinance into a shorter-term loan, your monthly payments may increase. Higher payments may be worth it to pay off your loan faster, but it’s important to make sure you can afford them before refinancing.
   
   
2. You may get a higher interest rate. There’s no guarantee you’ll qualify for a lower rate when you refinance. If your rate will be higher, refinancing may not make sense.

• You have to pay closing costs. When you refinance, you must pay closing costs again, which are typically 3% to 6% of your loan balance. Before refinancing, calculate your break-even point to decide if it’s worth it.

• You may pay more interest. Extending the term of your loan can help lower your monthly payments, but you’ll often pay more in interest over the life of the loan.

Is it better to go to a bank or mortgage company to refinance?

The lender that’s best for you depends on your unique financial situation and the type of loan you want to refinance. Loan offerings, rates, terms and credit requirements vary by lender. Banks may have stricter credit requirements than other financial institutions. However, the only way to know if you qualify is to apply.

It’s a good idea to get quotes from multiple lenders and compare rates and terms to help you decide which option is best for you.

Our methodology: How we picked these home loans

We reviewed more than a dozen lenders to come up with our top picks for the best banks to refinance a mortgage. We considered factors such as fees, loan options, rate transparency, discounts and the availability of tools and resources to help applicants decide if refinancing is right for them.

VA loans are government-backed mortgages that are exclusively available to qualifying service members, veterans and their spouses.

In general, VA loans are easier to qualify for and have lower interest rates than conventional mortgages. They don’t usually require a down payment. But VA loans have a one-time funding fee you must pay at closing, and they come with additional restrictions that other types of mortgages may not have.

It’s important to review your options carefully before determining whether this type of home loan is right for you. We’ve rounded up our picks for the best VA loan lenders to help guide your decision.

• Best for people with bad credit: Freedom Mortgage
• Best for fast processing: Movement Mortgage
• Best for rate match: Navy Federal Credit Union
• Best for refinancing: USAA
• Best for multiple VA loan options: Veterans United
• Best for home renovations: CrossCountry Mortgage
• How to apply for a VA loan
• Does the lender matter for a VA loan?
• What credit score do you need for a VA mortgage?
• Our methodology: How we picked these home loans

Best for people with bad credit: Freedom Mortgage

Why Freedom Mortgage stands out: People with credit scores as low as 550 may qualify for a VA loan with Freedom Mortgage. The lender offers VA purchase, VA streamline refinance (also called interest rate reduction refinance, or IRRRL), and VA cash-out refinance loans.

When you sign up for its Eagle Eye Program, you’ll receive texts when interest rates drop to alert you if you may be able to save money by refinancing.

Freedom Mortgage at a glance

Read more about Freedom Mortgage loans.

Best for fast processing: Movement Mortgage

Why Movement Mortgage stands out: According to the lender’s website, Movement Mortgage processes 75% of its loans within seven business days or less once all documents are received. The company offers VA purchase, streamline refinance and cash-out refinance loans, and you can apply online or over the phone with a loan officer.

Movement Mortgage at a glance

Read more about Movement Mortgage loans.

Best for rate match: Navy Federal Credit Union

Why Navy Federal stands out: If you qualify for a lower interest rate with another lender after locking your rate with Navy Federal, the lender will match it if you meet certain conditions. If they can’t, they’ll give you $1,000 after your loan closes with a competing lender.

Navy Federal also offers a Special Freedom Lock program that lets you lock in your rate for 60 days. If interest rates fall during that time, you can relock your rate up to two times for a maximum reduction of 0.50%. If rates increase, your rate stays the same.

Navy Federal mortgages at a glance

Read more about Navy Federal home loans.

Best for refinancing: USAA

Why USAA stands out: USAA offers VA streamline refinance and VA cash-out refinancing loans. When you get a VA streamline refinance loan with USAA, you won’t pay origination, appraisal, title or VA funding fees.

Through the USAA Perks program, you can also save on home services, such as security systems, storage units, truck rentals, cell phone service and more.

USAA mortgage loans at a glance

Read more about USAA mortgage loans.

Best for multiple VA loan options: Veterans United

Why Veterans United stands out: Veterans United offers VA purchase, jumbo, energy efficient, streamline refinance and cash-out refinance loans. Veterans United provides customer service 24 hours a day, and you can access educational content and mortgage calculators through the company’s website.

If you work with a real estate agent from Veterans United Realty — a network of real estate agents who specialize in working with veterans — you may qualify for a rebate to use toward your closing costs or to reduce your interest rate.

Veterans United at a glance

Read more about Veterans United mortgages.

Best for home repairs: CrossCountry Mortgage

Why CrossCountry Mortgage stands out: If you’ve got your heart set on a fixer upper, CrossCountry Mortgage offers VA renovation loans you can use to cover projects with a total cost under $35,000 in non-structural repairs.

Plus, the lenders’ temporary rate buydown program can help make your mortgage more affordable for up to the first three years of your loan.

CrossCountry Mortgage at a glance

Read more about Cross Country Mortgage.

How to apply for a VA home loan

If you’re searching for a new home and think a VA loan might be right for you, here’s what you need to know before applying.

VA loan requirements

You’ll need the following to process your application:

• Certificate of eligibility. A certificate of eligibility is a document provided by the U.S. Department of Veterans Affairs that shows lenders you’re eligible for a VA loan.
• VA appraisal. Appraisals determine the value of a home, so your mortgage can be guaranteed through the VA loan program.
• Prequalification. The VA recommends getting prequalified before submitting an offer.
• Documentation. To process your application, the lender needs documents that verify your identity and finances — including obtaining your driver’s license, pay stubs, W-2s and bank statements.

VA loans pros

• Potential for no down payment. Almost 90% of VA loans are funded without a down payment, according to the Department of Veterans Affairs.
• Flexible credit guidelines. There are no minimum credit score requirements for VA loans, though lenders may have minimum requirements.
• No debt-to-income requirement. Conventional loans typically require applicants to have a debt-to-income, or DTI, ratio of no more than 43%. There’s no DTI limit on VA loans.
• No mortgage insurance required. No matter how little money you put down, you won’t have to pay for private mortgage insurance.
• Limited closing costs. The VA caps the amount of closing costs buyers must pay. Sellers may contribute up to 4% of the closing costs at settlement.

VA loans cons

• VA loan funding fee. You’ll have to pay a one-time VA loan funding fee when you close on your loan. The fee is calculated as a percentage of the loan amount. It varies based on how much money you’re putting down and whether you’ve used your VA loan benefit before.
• Property restrictions. You may only use your VA loan benefit to purchase a primary residence that meets the VA’s property requirements.
• Home appraisal required. You can’t waive your right to a home appraisal if you’re using a VA loan to purchase a home.

Does the lender matter for a VA loan?

Yes. Although VA loans are backed by the federal government, individual lenders are responsible for making loan decisions. Each lender sets credit guidelines, income requirements and interest rates, so it’s a good idea to compare offers from multiple lenders before selecting a loan.

What credit score do you need for a VA mortgage?

The Department of Veterans Affairs doesn’t set minimum credit score requirements for VA loans. However, lenders typically establish credit requirements that applicants must meet to qualify for a VA loan. These requirements vary by lender.

Our methodology: How we picked these home loans

We reviewed more than a dozen VA lenders to come up with our top picks, considering factors such as loan options, closing timelines, application process, fees, loan terms, credit requirements and other features that may be helpful to people buying a home.

If you’re exploring options to finance a house, 15- and 30-year mortgages are two of the most common home loan options.

If you qualify, a 15-year mortgage may help you receive a lower rate and pay less interest overall. But a shorter mortgage term will also likely increase your monthly payment, which may put more strain on your budget.

If you’re trying to decide between a 15- and 30-year mortgage, we’ll review the differences between the two — including the impact on your mortgage rate, monthly payment, total interest, cash flow and buying power. Plus, we’ll offer some alternative home loan options to consider.

• What’s the difference between a 15- vs. 30-year mortgage?
• Am I better off with a 15- or 30-year mortgage?
• What are my alternatives to a 15-year or 30-year mortgage?

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

In the U.S., a 30-year mortgage is the most common home loan term option. The longer timeline makes monthly payments lower and potentially more manageable, freeing up cash that homeowners can use for other expenses or savings goals.

But because of the longer term, a 30-year mortgage typically has a higher interest rate than a 15-year mortgage. The longer term and higher rate mean you’ll pay more interest over the life of the loan.

Let’s look at an example, using data from Credit Karma’s mortgage calculator. The table below shows the difference in the monthly payments and total interest you’d pay with a 15-year vs. 30-year mortgage if you bought a $450,000 house and put 20% down.

(NOTE: These figures represent the principal and interest you may pay. It doesn’t include taxes, insurance and other fees you may have to pay when buying a house.)

Am I better off with a 15- or 30-year mortgage?

It depends. Both options have pluses and minuses. Here’s a closer look at each.

Pros of a 30-year mortgage

• Your monthly payments will be lower. This isbecause you’re spreading out your mortgage payments over a longer period of time and can be especially helpful for first-time homebuyers who may not have a large down payment saved.
• It may improve your cash flow. You may have more wiggle room in your budget to save, invest or pay for other expenses.
• It may be easier to qualify. Since your monthly payments are lower, you may be able to qualify with a lower income.
• You’ll have more buying power. In general, you can afford a larger mortgage when your payments are stretched over 30 years, allowing you to buy a house that costs more.

Cons of a 30-year mortgage

• Your interest rate will be higher. The average interest rate for a 30-year mortgage is typically higher than the average rate for a 15-year mortgage, so you’ll pay more interest overall.
• You’ll have a longer payoff timeline. It will take you twice as long to pay off a 30-year vs. 15-year mortgage if you make all your payments on time. But you can pay off your loan faster by paying extra each month or making lump sum payments. Be sure the lender doesn’t charge a prepayment penalty, and ensure that any extra funds you pay apply to the principal.

Pros of a 15-year mortgage

• You may get a lower interest rate. The average interest rate on a 15-year mortgage is typically lower than the rate on a 30-year mortgage, so you’ll pay less in total interest.
• Shorter repayment period. You’ll pay off your mortgage and own your home sooner than with a 30-year mortgage — if you make all your payments on time.
• You’ll build equity faster. With a 15-year mortgage, more of each monthly payment is applied to the loan principal, allowing you to build equity more quickly.

Cons of a 15-year mortgage

• Your monthly payments will be higher. Even though the interest rate will likely be lower, your monthly payment will be higher due to the shorter term.
• You may have less cash. With more of your money going toward your monthly mortgage payment, you’ll have less left over for savings and expenses.
• It may be more difficult to qualify. Because of the higher monthly payment, you’ll need a higher income.
• You’ll have less buying power. You may need to buy a smaller, less expensive house to keep your monthly payments affordable.

What are my alternatives to a 15-year or 30-year mortgage?

Taking out a 15- or 30-year mortgage isn’t your only option. Some lenders offer home loans with different repayment terms — typically in five-year increments — such as 10-, 20- or 25-year mortgages.

You may even be able to customize the length of your loan term, giving you the flexibility to choose a timeline that fits your unique financial circumstances.

If you’re comfortable with a monthly payment that may fluctuate, adjustable-rate mortgages are also available. ARMs typically have a fixed interest rate for a set period of time at the beginning of the loan — often three, five, seven or 10 years — and a variable interest rate for the remainder of the term. An adjustable-rate mortgage may be a good option if you don’t plan on staying in your home for the long haul.

What’s next?

The impact a 15- vs. 30-year mortgage can have on your finances may be significant. If you’re planning to buy a house and still aren’t sure which option is best, here are some questions to ask yourself.

• What is your monthly housing budget?
• Do you have a fully funded emergency fund?
• How much are you saving for other financial goals such as your children’s education, retirement and other investments? 
• What is your monthly income?
• What is your debt-to-income ratio?
• How is your credit?
• Is your income the same each month or does it fluctuate?
• How long do you plan to stay in your home?

And no matter what type of mortgage you choose, it’s important to get your finances ready to buy a house.

If you’re planning a trip to the States and intend to drive while you’re here, you need car insurance before getting behind the wheel — no matter how long your stay is.

The requirements for obtaining coverage and the type of policy that’s right for you depend on the length of your stay and the state you’re visiting. Read on to learn more about how to get car insurance, the requirements you must meet and your policy options.

• Can foreign visitors get car insurance?
• United States car insurance requirements
• Car insurance for short-term visitors
• Car insurance for long-term visitors
• Which car insurance companies offer car insurance to foreign visitors?
• FAQs about car insurance for foreign visitors

Can foreign visitors get car insurance?

Foreign visitors can purchase car insurance in the United States. You must have a driver’s license from your home country to get coverage, and some states also require foreign drivers to have an international driving permit. You can check with the transportation agency in the state you’re visiting for more information about licensing requirements.

United States car insurance requirements

Nearly every state in the country requires drivers to purchase auto insurance to drive legally, but the type and amount of coverage you need varies by state. You can learn about a state’s insurance requirements from its Department of Motor Vehicles, Department of Transportation or Department of Insurance.

Mandatory auto insurance coverage

Depending on the state you’re visiting, you’ll likely need some combination of the following coverages:

• Bodily injury liability — Pays for other people’s medical bills if you’re at fault in an accident.
• Property damage liability — Pays for repairs to other people’s property if you’re at fault in an accident.
• Uninsured/underinsured motorist — Pays for your medical care and damage to your vehicle if an uninsured or underinsured driver is at fault.
• Personal injury protection (PIP) / Medical payments (Medpay) — Covers the cost of treating your injuries after an accident, regardless of who is at fault.

Optional insurance coverages

You can choose to add optional coverages to your policy for more protection. Here are some common ones.

Car insurance for short-term visitors

Purchasing rental car insurance may be a good option if you’re planning a short visit. When you rent a car, the company provides the minimum coverage the state requires. You can purchase more coverage for added protection, including …

• Additional liability coverage — The state minimum may not be enough to cover injuries and vehicle repairs if you’re in a serious accident.
• Loss damage waiver — Waives your responsibility for vehicle repairs or replacement if the car is damaged or stolen.
• Personal accident insurance — Covers your and your passengers’ medical bills if you’re in an accident.
• Personal effects coverage — Pays to replace items stolen from your car.

Car insurance for long-term visitors

If you’ll be in the country for more than a quick visit, you can buy a policy from an insurance provider based in the U.S. But you may need a U.S. license to get one.

Not all insurers provide coverage to drivers who have a foreign license. Even if you can get car insurance without a U.S. license, it may be worth getting one. Some states require drivers to have a U.S. license if staying for more than a month or two.

If you’re purchasing coverage from a U.S. insurance company, here are a few options.

Traditional car insurance policy

You can start by contacting companies directly to find out if they offer coverage to international visitors. It’s a good idea to check with both national insurers and smaller, local providers to compare your options. Plus, getting car insurance quotes from multiple providers will help you find the lowest rates.

Non-owner policy

Non-owner insurance is liability coverage that applies when you drive cars you don’t own — like if you were to borrow a car from a friend or family member or use a car-sharing service. A non-owner policy may be a good option if you don’t plan on driving your own vehicle. But it doesn’t usually cover damage to the vehicle.

Pay-per-mile auto insurance

With pay-per-mile insurance, you pay a base rate no matter how much you drive, plus a per-mile fee for each mile you drive. A pay-per-mile policy may help you save on your car insurance premium if you won’t be putting many miles on your car.

Which insurance companies offer car insurance to foreign visitors?

If you don’t have a U.S. driver’s license, here are a couple of insurers that may provide coverage without one.

• Progressive — Drivers can get a policy from Progressive if they have a license from their home country or an international driving permit.
• State Farm — Foreign visitors can purchase insurance from State Farm if they meet the driving requirements of the state they’re visiting.

FAQs about car insurance for foreign visitors

If you plan to drive in the United States, you’ll likely need insurance before getting behind the wheel. Here are answers to some commonly asked questions about purchasing car insurance for foreign visitors.

What’s next?

If you’ll be visiting the U.S., here are a few questions to ask yourself before arriving so you can get the type of auto insurance coverage that’s right for you.

• How long do you plan to stay?
• How much do you plan to drive?
• What type of policy and coverage will provide the financial protection you need?
• Will insurance from a rental car company provide adequate protection for your needs?
• What state are you visiting? Do you need an international driving permit to get insurance in that state? Does the state require a U.S. driver’s license before purchasing coverage?

This offer is no longer available on our site: Aven Home Equity Credit Card

A HELOC is a revolving line of credit that allows you to tap into your home equity and get cash to cover expenses like home improvements, tuition or medical bills.

Unlike an installment loan that you get in a single lump sum, a HELOC lets you borrow money — up to your credit limit — repeatedly. Because a HELOC is secured by your home, interest rates are typically lower than what you’d pay with a personal loan or credit card. But keep in mind that HELOCs usually have variable interest rates, meaning they can fluctuate over time along with changes in the market.

We’ve rounded up our picks for the six best HELOC lenders to help you find one that fits with your situation.

• Best for rewards: Aven Home Equity Credit Card
• Best for potential rate discounts: Bank of America
• Best for small loan amounts: Citizens Bank
• Best for military members: Navy Federal Credit Union
• Best for a range of loan amounts: PNC
• Best for low rates: Third Federal Savings & Loan
• Is there a better option than a HELOC?
• Are banks no longer offering HELOCs?
• Our methodology: How we picked these HELOCs

Best for rewards: Aven Home Equity Credit Card

Why Aven Home Equity Credit Card stands out: Aven Home Equity Credit Card is a credit card secured by the equity in your home, giving you the flexibility of a traditional credit card and the lower rates of a HELOC. Every time you use your card to make a purchase, you earn 2% cash back.

Aven doesn’t charge many common closing fees. But this lender does charge late, balance transfer and cash-out fees. You can complete the entire application process, including loan closing, online.

Aven Home Equity Credit Card at a glance

Read more about the Aven Home Equity Credit Card.

Best for potential rate discounts: Bank of America

Why Bank of America stands out: When you get a HELOC from Bank of America, you could be eligible for autopay, initial withdrawal and Preferred Rewards member discounts. Loan amounts range from $15,000 to $1 million, depending on where you live.

The bank also offers a special introductory rate for the first six months your credit line is open. Bank of America doesn’t charge application, closing or annual fees, and you can access your funds by check, phone, online banking or at one of the bank’s financial centers.

Read more about Bank of America HELOCs.

Best for small loan amounts: Citizens Bank

Why Citizens Bank stands out: With Citizen Bank’s Goal Builder HELOC, you can access loan amounts as little as $5,000. There are no application fees or closing costs, and the bank waives the $50 annual fee the first year your account is open.

Citizens Bank offers the ability to prequalify, so you can check your estimated loan amount and interest rate with no impact to your credit scores.

Read more about Citizens Bank HELOCs.

Best for military members: Navy Federal Credit Union

Why Navy Federal stands out: Navy Federal has been serving military members and their families since 1933. The lender offers HELOCs ranging from $10,000 to $500,000, in amounts up to 95% of your home’s value for primary and secondary residences and 70% for investment properties.

The credit union doesn’t charge some common fees, but you may have to pay closing costs.

Read more about Navy Federal HELOCs.

Best for a wide range of loan amounts: PNC

Why PNC stands out: PNC offers HELOCs in amounts up to $1 million with a loan-to-value ratio (LTV) of 80% to 89.9%, depending where you live. You can get a rate discount of 0.25% when you sign up for autopay from an eligible PNC checking account.

The bank does charge an annual fee for HELOC accounts, and you’ll have to repay part of closing costs if you close your credit line within 36 months of opening it.

Read more about PNC HELOCs.

Best for low rates: Third Federal Savings & Loan

Why Third Federal stands out: Third Federal guarantees to beat a competitor’s rate or pay you $1,000 through its lowest rate guarantee program if you qualify. It doesn’t charge origination fees, application fees, prepayment penalties or closing costs, and the annual fee is waived the first year.

The lender offers HELOCs ranging from $10,000 to $200,000 — up to an LTV of 80%.

Read more about Third Federal HELOCs.

Is there a better option than a HELOC?

It depends on how you plan to use the money. Here are a few other options to consider if you need extra cash to pay for expenses.

Home equity loan

A home equity loan also lets you get cash to pay for home improvements or other expenses by borrowing against the equity you’ve built in your home. Sometimes called a second mortgage, home equity loans are paid out in a lump sum.

Keep in mind that you won’t be able to borrow money repeatedly to pay for ongoing expenses like you can with a HELOC.

Cash-out refinance

With a cash-out refinance, you replace your existing mortgage with a new, larger loan and keep the difference in cash to use. You’ll only have one loan to repay instead of two, but you should typically only explore this option if you can get a lower interest rate on your primary mortgage.  You’ll usually have to pay closing costs again.

Personal loan

Since personal loans are often unsecured, they typically have higher interest rates than HELOCs.  They are paid out in a lump sum, so you won’t be able to borrow repeatedly.

But they may come in smaller loan amounts than HELOCs, so they could be a good option for smaller, one-time expenses.

Are banks no longer offering HELOCs?

It depends on the bank. Many financial institutions continue to offer HELOCs to qualified customers.

However, some well-known banks, including Chase, Wells Fargo and Citi have stopped accepting applications for HELOCs. If you’re interested in getting a HELOC, check with your preferred bank to find out if they are available.

Our methodology: How we picked these HELOCs

We reviewed more than a dozen HELOC lenders to come up with our top picks. We considered factors such as availability, rate discounts, rewards, loan amounts, funding options, application process, fees and other features that may be attractive to someone considering a HELOC.

Mortgage applications give lenders the information they need to decide if an applicant is eligible for a home loan

The application includes financial information lenders use to evaluate your ability to repay a loan on time. It gives the lender permission to pull your credit reports so they can see how you’ve managed credit in the past.

If your application is approved, the information you provide also helps lenders determine the interest rate you qualify for.

Let’s take a closer look at what type of information the application includes, which documents you need to provide and what you can expect after submitting your application.

• What is the 1003 loan application?
• Mortgage application requirements
• Other documents you need for a mortgage
• What happens after you submit your application?
• FAQs about mortgage applications

What is the 1003 loan application?

Also known as the Uniform Residential Loan Application, or URLA, Form 1003 is a common mortgage application that lenders use to approve or deny someone for a home loan. Freddie Mac calls it Form 65.

It’s the most common mortgage application lenders use. But you may receive a different application depending on the type of loan you apply for. For example, lenders use Fannie Mae form 1009 for reverse mortgages.

Mortgage application requirements

There are eight sections in the Uniform Residential Loan Application that you must complete before the lender can process it. Here’s an overview of each section.

Section 1: Borrower information

This section includes basic personal information about the borrower, such as name, date of birth, Social Security number and address. You also need to provide your employment history and information about all the sources of income you receive. This may include income from an employer, child support, alimony, disability benefits and more.

Section 2: Financial information — assets and liabilities

Section 2 asks you to list your assets and liabilities. Your assets may include money in bank and retirement accounts, proceeds you received from the sale of property, rental income and more. Liabilities include amounts you owe on anything other than real estate, such as credit cards, personal loans, auto loans, alimony, child support and other debts you’re currently repaying.

Section 3: Financial information — real estate

In this part of the application, you need to list all the properties you own, the amount you owe on each, your monthly mortgage payments and the type of loan you have on each property. You must also indicate whether each property is a primary residence, second home or investment property, and whether you receive rental income from it.

Section 4: Loan and property information

This section includes information about the property you want to purchase, the loan amount you’re requesting, and gifts or grants you’ve received to purchase the property. It also asks whether you plan to use the property as a primary residence, second home or investment property, and if you expect to receive rental income from it.

Section 5: Declarations

In this part of the application, you’ll answer questions about the property you’re buying, prior real estate purchases, past foreclosures and your finances.

Section 6: Acknowledgements and agreements

This section outlines your legal obligations if you apply. You affirm that all the information you provided was accurate and that the lender has certain rights. This also indicates that you give the lender permission to pull your credit report and tax information.

By signing this section, you acknowledge that the lender may report your payment information to the credit bureaus — if your application is approved and the loan is finalized.

Section 7: Military service

If you or your spouse are currently serving, or previously served in the military, you’ll indicate it here.

Section 8: Demographic information

This section includes information about your race, ethnicity and sex. Federal law requires lenders to ask about this information, but you aren’t required to provide it. It is illegal for lenders to discriminate based on these factors.

Other documents you need for a mortgage

When you apply for a mortgage, the lender must verify the information you provide in the application. To do this, the lender will ask you to provide various documents with your application — such as a copy of your photo ID, bank and investment account statements, gift letters and more.

What happens after you submit your application?

Your lender must provide a loan estimate within three business days of receiving your application. The loan estimate shows the estimated closing costs and what interest rate and monthly mortgage payment the lender thinks it can offer if you decide to move forward with the loan. It’s not a loan approval.

If you proceed with the loan, the lender will conditionally approve or deny your application. If you receive conditional approval, a few things typically need to happen before you go to closing.

1. The lender will order an appraisal. An appraiser will review the sale of recent homes in the area and visit the property you want to purchase to determine its fair market value.
2. The lender will order a title search. This helps identify any liens or claims on the property.
3. You must purchase homeowner’s insurance. You must show the lender proof of insurance before they’ll issue a final home loan approval.
4. You will receive a closing disclosure. Once you meet the conditions of the loan and your application receives final approval, your lender must provide a closing disclosure at least three days before you close on your mortgage. This includes your loan terms, estimated monthly payment and closing costs. Review it carefully. If you have questions, ask your lender before you go to closing.
5. Get your down payment and closing costs together. You will need to bring these funds to closing.

Your lender may ask for additional information while you’re waiting to close on your loan. They’ll help you navigate the loan closing process and answer questions you have along the way.

FAQs about mortgage applications

An adjustable-rate mortgage, or ARM, is a home loan with an interest rate that fluctuates over the life of the loan based on market conditions.

At the beginning of the term, ARMs typically have interest rates that are lower than what you’d get with a fixed-rate loan. But they don’t last.

When the introductory interest rate period ends, the rate on the loan resets. Your interest rate and monthly payment could increase substantially — even if mortgage rates haven’t increased.

It’s important to understand how ARMs work and what types are available before determining whether this type of loan may be right for you.

• How does an adjustable-rate mortgage work?
• Types of ARM loans
• Is an ARM a good idea?
• FAQs about adjustable-rate mortgages

How does an adjustable-rate mortgage work?

Adjustable-rate mortgages have interest rates that change over the life of the loan — after an introductory period where the rate remains the same. The number of times the rate can reset — and by how much — depends on the type of ARM you have. Here’s how it works.

Index

An index is a benchmark interest rate that increases and decreases based on market conditions. The interest rate on an adjustable-rate mortgage is tied to an index, and it fluctuates in line with the index.

Margin

A margin is the number of percentage points added to the index rate to determine the new rate on your mortgage. Like interest rates, margins vary by lender. Comparing offers from multiple lenders can help you find the lowest margin you may qualify for.

Interest rate cap

Rate changes on ARMs are capped to help prevent significant increases or decreases in the interest rate. Interest rate adjustments are typically restricted in two ways.

• An annual rate cap limits how much your interest rate can change in a year.
• A lifetime cap limits how much it can change over the life of the loan.

Conforming vs. nonconforming ARMs

Adjustable-rate mortgages can be either conforming or nonconforming loans. Conforming loans meet guidelines established by Fannie Mae and Freddie Mac — and don’t exceed loan amounts set by the Federal Housing Finance Agency, or FHFA. Because these loans comply with the agencies’ standards, lenders can sell them to Fannie Mae or Freddie Mac.

ARMs that don’t meet these guidelines are nonconforming.

Types of ARM loans

There are several common types of ARM loans to choose from. Here’s an overview of each.

3/1, 5/1, 7/1 and 10/1 ARMs

These loans have a fixed interest rate for an introductory period that may reset periodically after the initial fixed-rate period ends. The first number tells you how many years the rate is fixed.

The second number tells you how often — in this case, once per year — the rate may adjust after the introductory fixed-rate period ends.

3/6, 5/6, 7/6, 10/6 ARMs

These loans are similar to 3/1, 5/1, 7/1 and 10/1 ARMs where the first number tells you how many years the rate will remain fixed. But instead of adjusting once per year, the interest rate on these loans may adjust every six months.

Hybrid ARMs

Hybrid ARMs have a fixed interest rate for a set number of years at the beginning of the loan term. After that, the interest rate may adjust based on changes to the index linked to the ARM.

Interest-only ARMs

With an interest-only ARM, you make interest-only payments for a set time period — usually three to 10 years. The interest rate may or may not adjust during the interest-only period.

At the end of the interest-only period, you must begin making principal and interest payments. That means your monthly payments will increase even if the interest rate doesn’t.

Payment-option ARMs

Payment-option ARMs allow you to make different types of payments each month. For example, one month you can make a principal and interest payment, and the next month you can make an interest-only payment.

These types of ARMs may also allow you to make a limited-interest payment, which doesn’t cover the entire amount of interest due. If you make a limited-interest payment, the interest you don’t pay gets added to the principal.

If you make limited-interest payments on an ARM, you may have to make a larger one-time payment — known as a balloon payment — at the end of the loan term.

Is an ARM a good idea?

Whether an ARM is right for you depends on multiple factors, including your current and future financial circumstances, the length of time you plan to stay in your home and more.

Advantages of ARMs

• Lower initial interest rate — In general, the rate you get at the beginning of an ARM is lower than the rate you’d get with a fixed-rate mortgage.
• Potential rate decreases — If interest rates are generally decreasing, your rate may go down throughout the life of the loan.

Disadvantages of ARMs

• Teaser rates — Many lenders offer rates for the beginning of the term that are lower than the fully indexed rate. When your interest rate resets, the rate on your loan may increase even if the index rate hasn’t.
• Uncertainty — There’s no way to know for sure what your interest rate will be in the future. Your monthly payment could become unaffordable even with rate caps in place. And, because rates fluctuate, you won’t know how much interest you must pay over the life of the loan until you pay off the entire loan balance.
• Prepayment penalties — Some ARMs have prepayment penalties if you pay them off or refinance your mortgage within a certain time frame after opening the loan.
• Refinancing may be a challenge — You may not be able to refinance to a fixed-rate mortgage if the value of your home decreases or your financial situation changes.
• Balloon payments — Depending on the type of loan you have and the payments you make during the initial phase of the loan, you may owe a larger one-time payment — known as a balloon payment — at the end of the term.

What’s next?

If you’re trying to determine whether an ARM is right for you, asking yourself the following questions can help you decide.

• How long do you plan to stay in your home?
• Can you afford your monthly payment if the interest rate increases to the maximum amount allowed under your mortgage contract?
• What do you expect your future income to be?
• Do you plan to pay off your loan early?
• What are market conditions like? In general, are interest rates rising or falling?
• Do you plan to refinance to a fixed-rate mortgage?

FAQs about adjustable-rate mortgages

A HELOC is a revolving line of credit that’s secured by your home, and that allows you to borrow money up to the line’s credit limit and repay it — with interest — over time.

HELOCs typically have variable interest rates, meaning they fluctuate as market conditions change. But with a fixed-rate HELOC, part or all of the money you draw from the credit line has a  fixed interest rate, protecting you from potential interest rate increases.

Fixed-rate HELOCs are less common and may have different requirements than HELOCs with variable rates. We’ll look at how fixed-rate HELOCs work and review some lenders that offer them to help you decide if one is right for you.

• Are HELOC rates fixed or variable?
• Can I get a HELOC with a fixed rate?
• 5 HELOCs with a fixed-rate option
• Should I get a fixed-rate HELOC?

Are HELOC rates fixed or variable?

In general, interest rates on HELOCs are variable. But some lenders let you lock in a fixed interest rate for part or all of your credit line. With a variable-rate HELOC, interest rates fluctuate in line with the prime rate and may increase or decrease while the credit line is open.

Because your rate can change, your monthly payment may not be the same every month. When rates increase, your monthly payment goes up, and when they drop, your monthly payment goes down.

A HELOC’s variable rate is one of the features that sets it apart from a home equity loan. Both allow you to borrow against the equity in your home, but home equity loans typically have fixed interest rates. You borrow a single, lump sum and repay it in equal monthly installments — with interest — over the life of the loan.

A fixed-rate HELOC is a cross between the two, giving you the predictability of a home equity loan and the flexibility of a HELOC.

Can I get a HELOC with a fixed rate?

Yes, some — not all — lenders offer fixed-rate options. Lenders that do may allow you to get a fixed-rate option right away or convert portions of your variable rate HELOC to a fixed rate when you make a withdrawal.

To qualify for a fixed rate, you typically need to meet a minimum draw requirement. So if the amount you withdraw is below the lender’s minimum, you’ll have to pay the line’s variable rate.

If you choose a fixed-rate option, your interest rate may be higher than it would if you went with the variable rate — at least at first. But if the variable rate of the HELOC rises in the future, you’ll be protected from those rate increases.

Lenders may limit the number of fixed-rate loans you can have at one time and may charge a rate lock fee. But some will complete the conversion at no charge. Once you’ve locked in your interest rate, you may be able to unlock and relock it to take advantage of future rate decreases.

Whatever amounts you don’t convert to a fixed rate will accrue interest at the HELOC’s variable rate.

5 HELOCs with a fixed-rate option

Fixed-rate HELOCs are less common than variable rate options. Here’s a look at some lenders that offer fixed-rate HELOCs.

Bank of America HELOCs

With a HELOC from Bank of America, you can convert a minimum of $5,000 up to a maximum of 90% of your credit line from a variable rate to a fixed rate and vice versa. There are no conversion fees, and you can have up to three rate locks at the same time.

This bank doesn’t charge application fees, annual fees or closing costs, and it offers autopay, initial withdrawal and Preferred Rewards member discounts.

Read our Bank of America HELOC review to learn more.

Figure

Figure offers fixed-rate HELOCs upfront — no need to convert from a variable to a fixed rate. You’ll receive the full loan amount (minus an origination fee) at loan closing.

As you pay off the balance, you can redraw up to 100% of the credit line and lock in a lower rate if interest rates fall. Figure offers credit lines ranging from $15,000 to $400,000, and you can pre-qualify to see what your estimated loan amount and rate would be without affecting your credit scores.

Read our Figure HELOC review to learn more.

U.S. Bank HELOCs

With a HELOC from U.S. Bank, you can lock in a fixed rate on some or all of the money you borrow when you draw at least $2,000 from your credit line. The bank doesn’t charge a fee to unlock and relock your rate during the draw period, and you can have up to three rate locks at one time.

Read our U.S. Bank HELOC review to learn more.

BECU

BECU offers HELOCs of up to $500,000. You can lock your rate on amounts of $5,000 or more and have up to three rate locks at a time. There are no locking or unlocking fees. When you lock your rate, you can choose from repayment terms of one to 15 years.

BECU doesn’t charge application, origination, annual or prepayment fees, but you must pay a reconveyance fee when the HELOC ends.

Read our BECU HELOC review to learn more.

Truist

At this large bank, you can have up to five fixed rate draws at a time on amounts of at least $5,000. Each rate lock has a $15 setup fee, and you can choose from repayment terms of five, 10, 15, 20 or 30 years.

Read our Truist HELOC review to learn more.

Should I get a fixed-rate HELOC?

In a rising-rate environment, locking in a fixed rate can help protect you from future rate increases.

If you’ve built up equity in your home and need cash for a renovation or other expense, a fixed-rate HELOC may be worth considering. Here are some questions to help you figure out if a fixed-rate HELOC may be a good choice.

• How much equity do you have in your home?
• How much do you need to borrow? Does it meet the minimum draw requirements for a fixed rate?
• How do you plan to use the money?
• Does a HELOC, home equity loan or personal loan make more sense?
• Are you comfortable with uncertainty or do you prefer predictable monthly payments?
• What is your credit history like?

Rising interest rates and home prices have put a damper on the real estate market in recent months.

In fact, only 17% of respondents think it’s a good time to buy a house, according to the January 2023 Fannie Mae Home Purchase Sentiment Index.

Whether now is the right time for you to buy depends on multiple factors, including your credit, down payment size, debt-to-income ratio, local housing market conditions and future plans.

Nationwide, low inventory, high home values and increasing mortgage rates have made buying a home less affordable. But home sales and price increases did decline across the country at the end of 2022 — a sign that the market could be stabilizing.

The Western U.S. experienced the biggest decrease in home sales and price increases, while the Midwest, Northeast and South had more-modest declines — an important reminder that inventory and home values can vary significantly based on where you live.

We’ll look at where mortgage rates and home prices seem to be going, plus factors to consider when deciding whether it’s the right time for you to buy.

• Will mortgage interest rates go down?
• Are house prices beginning to drop?
• When is the best time to buy a house?

Will mortgage interest rates go down?

After nearly a year of steady increases, mortgage rates seem to be leveling off — at least for now. Rates started increasing in the first quarter of 2022 when the Federal Reserve began raising the target range for the federal funds rate — the rate banks charge each other to borrow money on a short-term basis.

The Fed doesn’t set mortgage rates but increasing the federal funds rate increases the cost of borrowing for banks and other organizations. Financial institutions may pass the additional cost to their customers by raising the rates they charge.

The Fed raised the federal funds rate seven times in 2022 to help combat inflation, and the average rate for a 30-year fixed rate mortgage more than doubled. It peaked at 7.08% in the weeks ending October 27 and November 10 — its highest point in more than 20 years.

Since then, rates have slowly declined but are still nearly double what they were at the beginning of 2022. Whether rates will go down is impossible to predict.

Regardless of how rates fluctuate, maintaining solid credit and shopping around for a mortgage are the best ways to ensure you get the lowest rate possible. Rates vary among lenders and people with stronger credit generally qualify for lower rates.

Are house prices beginning to drop?

After sharply rising prices between 2020 to 2022, there are signs in 2023 that the housing market is beginning to cool. The median existing home value for all housing types increased by just 3.5% from November 2021 to November 2022 as demand eased and homes stayed on the market longer.

Mortgage purchase applications decreased by 40% year-over-over for the week ending December 4, 2022, according to Redfin data. It took 37 days for the typical home to sell — up from 28 days the prior year and 17 days from June 2022.

Despite these trends, inventory remains low, making it unlikely that home prices will decline significantly like they did in 2008 and 2009 during the Great Recession. If you’re thinking about buying, it’s important to look closely at what’s happening where you want to live because real estate trends can vary significantly from market to market.

When is the best time to buy a house?

Examining your lifestyle and financial situation can help you determine the best time to buy. Here are some things to consider.

Down payment

Although zero- and low-down payment programs exist, you can borrow less when you have more money to put down, making your monthly payments more affordable. With a larger down payment, you’ll start with more home equity, and with conventional loans, if you put at least 20% down, you can avoid paying private mortgage insurance (or PMI). Applicants with larger down payments may also qualify for lower rates.

Credit

One of the most important factors lenders use to determine your interest rate are your credit scores. Applicants with scores in the mid-700s and above typically qualify for the lowest available rates. If your credit is on shaky ground, improving it could save you hundreds of dollars a month.

Let’s look at an example. If you get a $300,000 30-year fixed rate mortgage with an APR of 7%, your monthly mortgage payment would be about $2,000 (not including property taxes and homeowner’s insurance). But if you qualify for a rate of 6%, your payment would only be about $1,800/month.

Debt-to-income ratio

In general, lenders want applicants to have a debt-to-income ratio of 43% or less. If your debt load is higher, paying off some of it may improve your chances of qualifying for a mortgage.

Future plans

If you’re not planning to stay put, buying might not be your best option. Some experts recommending living in your home for at least five years before selling it. That’s how long it typically takes to build enough equity to recoup interest charges, closing costs, moving expenses and other fees you pay when buying a home.

Budget

Before buying a house, it’s important to decide what you can comfortably afford, based on what home values and interest rates are like now, not a year or two ago. If you decide to buy a house this year, rising rates may mean you can afford less than you would have previously.

Don’t forget to include closing costs, homeowner’s insurance, property taxes and home maintenance costs in your calculation.

If you’re on solid financial footing, buying may be a good option, especially if you’re planning to stay in your home for several years. But if your finances are shaky or you plan to move soon, it may be better to wait.

Try our home affordability calculator to see how much you may be able to afford.

Next steps

Purchasing a house is a major decision with the potential to affect your financial health for decades. Here are some questions you can ask to help you decide if you’re ready to buy a home this year.

• How much money do you have for a down payment?
• How is your credit?
• How long do you plan to stay in your home?
• How secure is your job?
• How much can you afford to pay for a mortgage each month?
• How much inventory is available in your area?
• What is the average cost of a home in your area?