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

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

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

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

What is an assumable mortgage?

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

What kinds of mortgages are assumable?

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

FHA loans

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

VA loans

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

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

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

USDA loans

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

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

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

How does an assumable loan work?

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

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

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

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

Pros and cons of assumable mortgages

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

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

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

Assuming a mortgage after death or divorce

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

Costs to assume a mortgage

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

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

What’s next?

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

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

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

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

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

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

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

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

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

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

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

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

When should you consider a reverse mortgage?

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

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

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

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

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

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

What are some of the costs?

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

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

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

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

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

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

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

How do you receive the money from your loan proceeds?

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

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

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

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

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

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

When should you consider a home equity loan?

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

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

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

Do you have enough equity in your home?

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

Can you qualify for a reasonable interest rate?

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

Will you be able to afford the monthly payments

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

Other financing options

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

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

What’s next?

Ask yourself these questions as you review your options.

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

Editors’ take: Acceptance auto insurance seems to target high-risk drivers and may help someone who may need help filing an SR-22 certificate. The insurer offers basic auto insurance coverage options in 15 states and few discount opportunities. Its online quote process can be confusing as it often sends potential customers to third-party sites for quotes. Other high-risk insurers exist and may be better options, so shop around.

Acceptance auto insurance at a glance

Pros

• Offers SR-22 certificates
• Offers TicketProof program that reimburses you after a qualifying ticket

Cons

• Few discount opportunities
• Online quote system may redirect to a third-party insurance marketplace
• Limited coverage options

What you need to know about Acceptance auto insurance

Acceptance is an insurance company that offers auto, motorcycle and RV insurance policies. It also offers commercial, home, life and pet insurance. The company seems to target high-risk drivers who are typically expensive to insure — yet it advertises low rates on car insurance. This is something to watch out for, and a great reason to comparison shop.

Offers SR-22 certificates

Acceptance lists SR-22 documentation among its product offerings. The company also says it sells non-owner insurance, which a person who doesn’t currently own a car might be required to get when applying to reinstate a suspended license. Many insurers don’t highlight these options, so consumers who need an SR-22 or a non-owner policy might be happy to find a company that advertises them.

High number of customer complaints

Data from the National Association of Insurance Commissioners shows that in 2022, Acceptance was the subject of many more customer complaints than expected for a company of its size in the market. We recommend shopping around to see if you can find an insurer that can meet your needs, but with a better complaint record.

Online quotes not always available

Acceptance’s website has an online quote feature, but it doesn’t always give you a quote directly from the company. If you aren’t located in one of the 15 states where Acceptance sells insurance, inputting your ZIP code will redirect you to a third-party insurance marketplace that Acceptance says offers similar products.

Sometimes, even entering a ZIP code from a state where Acceptance operates sends you to the third-party broker instead of generating a quote.

Auto coverage offered by Acceptance

On its web pages for the states where it sells insurance, Acceptance lists its modest coverage choices.

• Basic liability coverage
• Collision coverage
• Comprehensive coverage
• Uninsured motorist coverage

The FAQ section also lists medical payments coverage and personal injury protection, although this is not available in all states where Acceptance operates. And the company offers the option to buy rental car reimbursement coverage in some states.

The company’s educational materials discuss additional types of coverage, such as gap coverage and new car replacement coverage, but it’s unclear whether Acceptance offers these options or which policies might be eligible.

Auto insurance discounts offered by Acceptance

Compared to major car insurers, Acceptance provides little information about discounts. The few that are apparent from the Acceptance online quote generator and website are …

• Discount for paying in full
• Paperless discount
• Multi-policy bundling discounts

FAQs about Acceptance car insurance

Not sure if Acceptance auto insurance is right for you? Consider these alternatives.

• Geico: With this company you can get online quotes in any of the 50 states and submit claims online or via an app.
• Travelers: This insurance company might be a good choice if you want a wide range of coverage types to consider, like loan/lease gap coverage, umbrella coverage and new car replacement coverage.

You won’t find car insurance without a deposit.

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

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

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

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

Can you get car insurance without a deposit?

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

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

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

Is no-deposit car insurance a scam?

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

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

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

How to find low-down-payment car insurance

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

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

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

Tips on how to lower your car insurance premium

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

• Lowering your liability coverage limits: Each state has minimum liability coverage requirements, but if you currently have more than the minimum, you may be able to lower your monthly premium.
• Exploring usage-based insurance programs: If you’re a good driver, signing up for a usage-based insurance program could earn you a hefty discount for your good driving behavior. For example, good drivers could save up to 30% on car insurance when enrolling in Liberty Mutual’s RightTrack program.
• Searching for discounts: The number of car insurance discounts you may receive varies by insurance company, but there are plenty of ways to save. If your current insurer offers limited discount options, companies like Farmers, American Family and Geico have plenty to choose from.
• Signing up for pay-per-mile insurance: If you don’t drive often but still want to keep your vehicle insured, pay-per-mile car insurance could be a good fit. Insurers like Metromile charge a flat monthly rate and an additional rate per mile you drive.

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

FAQs about car insurance down payments

It’s essential to understand your options before you choose auto insurance. Ask the insurer if you have questions about a particular policy.

Editors’ take: Foremost auto insurance could be a good fit for someone interest in insuring multiple specialized vehicles. A part of Farmers Insurance Group, Foremost insures RVs, motorcycles, golf carts, ATVs and scooters. Additionally, high-risk drivers can get SR-22 or FR-44 forms through Foremost’s partner carrier, Bristol West. If you’re looking for a robust mobile app or an online quote experience, you may want to search elsewhere.

Foremost auto insurance at a glance

Pros

• Multipolicy discounts available through partners
• Offers insurance for motorcycles, vintage cars, commercial vehicles and more
• SR-22 or FR-44 may be available

Cons

• No online quoting process
• Lackluster mobile app

What you need to know about Foremost auto insurance

Foremost was founded in 1952, and it started by insuring mobile homes. It expanded its offerings over the years to cover a wide range of vehicles, and today it’s a member of the Farmers Insurance Group. The company says that its focus is selling specialized types of insurance that aren’t widely available elsewhere.

Insures many types of vehicles

Foremost offers specialized policies for RVs, ATVs, golf carts, scooters, and motorcycles. It also offers coverage for collectible cars and commercial vehicles like trucks and delivery vans. So it can likely show you a policy tailored for the type of vehicle you drive, whether you’re a collector, hobbyist, or small-business owner.

May provide SR-22 or FR-44 certificate

Foremost partners with Bristol West to provide coverage to customers with infractions on their driving records. Bristol West will issue an SR-22 or FR-44 to customers who are required to get this certificate. Typically insurance companies view drivers who need an SR-22 or FR-44 as high-risk, so some carriers may not be eager to work with customers in this situation. Foremost might be a good choice if you’re searching for an insurance company that will provide this documentation.

Doesn’t give quotes online

Foremost requires you to call and talk to an agent to get an auto insurance quote. There’s no option to generate a quote automatically on the website, as competitors often allow you to do, which can make it difficult to comparison shop solely online.

Auto coverage offered by Foremost

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

• Uninsured/underinsured motorists — This protects you in case you get in an accident where an uninsured or underinsured driver is responsible.
• Rental reimbursement — This helps cover the cost of renting a car for a certain number of days after a claim.
• Towing and roadside service — If you have car trouble when you’re out driving, Foremost will pay for assistance up to a set limit for your policy.
• Bodily injury and property damage — These coverages help pay your legal liability if you’re found responsible for an accident.
• Medical payments — This coverage helps with medical bills if you’re hurt in an accident.
• Loan/lease — If you’re financing your car and it’s destroyed in an accident or lost to theft, this helps cover the gap between what you owe on the loan or lease and what your insurance pays.
• New vehicle replacement — If a new car is totaled, this coverage helps with the purchase of a comparable car.
• Diminishing deductible — This lowers your annual deductible if you avoid comprehensive or collision claims.

Auto insurance discounts offered by Foremost

Foremost lists just a few auto insurance discounts on its website. There’s no obvious mention on the site that we could find of some of the discounts that are standard among competitors’ offerings, such as discounts for safety equipment, good student discounts, or discounts for avoiding accidents.

Here are the discounts mentioned on the Foremost website.

• Paperless discount — You can save on your premium if you opt to receive bills and documents by email.
• Multicar discount — Your premium might be lower if you buy coverage for more than one car.
• Multipolicy discount — You may qualify for savings if you buy other insurance policies, like homeowners insurance or life insurance, from Farmers Group companies.

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

FAQs about Foremost

Not sure if Foremost auto insurance is right for you? Consider these alternatives.

• Root: This insurance company could be ideal if you’re confident you drive safely and want a telematics-based quote.
• Geico: Geico offers a range of coverage and discount options.

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

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

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

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

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

What are the different types of mortgage insurance?

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

PMI on conventional loans

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

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

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

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

MIP for FHA loans

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

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

USDA guarantee fee

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

VA funding fee

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

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

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

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

How much does mortgage insurance cost?

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

Conventional loans

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

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

FHA loans

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

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

USDA loans

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

VA loans

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

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

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

How long do you need to pay mortgage insurance?

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

Conventional loans

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

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

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

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

FHA loans

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

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

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

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

USDA loans

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

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

VA loans

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

What’s next?

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

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

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

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

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

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

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

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

The following table shows key details to compare.

How home equity loans and personal loans differ

Collateral

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

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

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

Interest rates

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

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

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

Loan amounts

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

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

Repayment terms

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

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

Fees

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

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

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

Shop around and compare potential fees before you decide.

Tax advantages

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

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

Risk to credit

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

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

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

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

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

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

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

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

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

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

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

Does a home equity loan count against your credit scores?

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

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

Next steps: Questions to ask

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

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

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

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

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

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

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

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

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

How to get car insurance without a license

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

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

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

List yourself as an excluded driver

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

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

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

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

Ask about an SR-22 certificate if required by law

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

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

Get parked car coverage

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

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

Why you might need car insurance without a license

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

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

Which companies offer car insurance without a driver’s license?

Major insurers generally don’t advertise this option. Here are a few we found, though there may be others. 

The Hartford

The Hartford says that it may sell car insurance to customers who don’t have driver’s licenses. The company says that rates depend on factors such as your driving history, how much time your car is in use, whether you’ve had continuous coverage, your vehicle and your location. You’ll need to be a member of the AARP to qualify.

OnGuard

OnGuard insurance advertises its access to multiple companies to provide multiple quotes, even those without a license. The company offers nonstandard (high risk) insurance options to those who have never been licensed, those with revoked or suspended licenses and those with a foreign license.

Access

Access auto insurance offers insurance policies to people with suspended licenses, temporary licenses, foreign licenses and no license at all. Note that getting auto insurance without a license through Access doesn’t prevent you from being ticketed for driving without a valid license.

FAQs about car insurance without a driver’s license

If you’re selling real property, you might owe capital gains tax.

Capital gains tax is often due when you sell assets for more than you originally paid. Capital gains tax applies to securities like stocks or bonds and tangible assets like real estate. You pay capital gains tax on the profit you get from selling an asset, which is the price you sell the asset for minus its adjusted basis.

The adjusted basis is a figure that shows how much the asset cost you. It’s the price you paid for the asset, plus or minus some adjustments that reflect how its value has changed over time.

The IRS allows many homeowners to avoid capital gains tax on the sale of their primary residence. But you may have to pay capital gains tax on a second home or rental property. And you might owe capital gains tax on your primary home if you’ve lived in it for less than two years, or if its value has gone up dramatically.

• Capital gains tax on real estate
• When do you have to pay capital gains tax?
• Capital gains tax differences for primary residences vs. rental properties
• How to avoid capital gains tax on real estate
• FAQs

Capital gains tax on real estate

How much capital gains tax you owe from selling property depends on several factors.

• If you’ve owned the property for more than a year, your gains from selling it are generally considered long-term gains, and you may pay a lower rate.
• If you’ve owned the property for less time, your gains are short-term gains, and you pay income tax on them according to your tax bracket, just as you would for other income.

Whether you have long-term or short-term gains, your income level and tax filing status affect the rate you pay.

Exclusion for primary residences

Under some conditions, the IRS lets you avoid capital gains tax on the first $250,000 in gains on the sale of a primary residence (or $500,000 for a married couple filing jointly).

To get this exclusion, you typically need to have owned and used your home as your primary residence for at least two years total out of the last five years before selling it. And you can take this exclusion once every two years at the most.

When do you have to pay capital gains tax?

You may have to pay capital gains tax after selling property if you realize a capital gain. That happens if the price you sell the property for is greater than its adjusted basis.

You might owe capital gains tax if you’re selling your primary home and don’t qualify for the exclusion. That could happen if you’ve owned or lived in the home for less than two of the past five years or excluded gains on a different home sale within the past two years.

You might also owe capital gains tax on the sale of your main home if you previously rented it out. And you could owe capital gains tax on your primary home if your gains are greater than $250,000 (or $500,000 if you’re filing jointly with a spouse).

Capital gains tax differences for primary residences vs. rental properties

While it’s often possible to exclude capital gains on a primary residence, that doesn’t apply to rental property. So selling a rental property may generate a much larger tax bill.

Another difference is that you may have depreciated a rental property or taken an income tax deduction each year to account for the property’s decline in value over time. The IRS requires you to lower the property’s basis by the total amount of depreciation permitted, whether or not you took this deduction.

Reducing the basis increases your gain on the sale. The part of the gain added due to depreciation may be taxed at a 25% rate. Also, you may have to pay Net Investment Income Tax on the sale of a rental property or a second home at a rate of 3.8%. This tax on capital gains and other investment income kicks in if your income exceeds a set limit.

How to avoid capital gains tax on real estate

If it looks like you’re going to be hit with a capital gains tax bill on a real estate sale, you may be able to do some things to reduce the amount you owe or even avoid paying capital gains tax altogether.

If you’re selling a primary home …

If you sell a primary home, you might face capital gains tax because you excluded gains from a home sale in the last two years or haven’t lived in the home long enough. In those cases, it could be worth waiting to sell and using the home as your primary residence to qualify for the exclusion.

Because rates on long-term capital gains are generally lower than short-term gains, simply holding onto a property for at least a year can lower your tax bill compared to selling it before a year ends.

If you’re selling a rental property …

If you’re selling a rental property, you might want to move into it and use it as your primary home until you qualify for the primary residence exclusion. However, you may not enjoy the full benefit of the exclusion because you won’t be allowed to exclude gains that correspond to the period you rented out the property or gains equal to its depreciation.

Alternatively, you might be able to postpone paying capital gains tax on a rental property if you use the proceeds to buy another rental property in the U.S. in a transaction that the IRS calls a like-kind exchange.

For this to work, you must decide which property you’re buying within 45 days of selling your rental, and you must take ownership of the new property by a deadline that will be 180 days out or by the due date of the tax return, whichever is earlier. Remember that you can only make a like-kind exchange for another rental property, so you can’t go this route to buy a home for your own use.

If you’re selling a home or a rental property …

Whether selling a home or a rental property, you could trim your tax liability by adequately adjusting the basis. You can add settlement fees and closing costs from the property’s purchase to the basis. You can also add the cost of additions and improvements. To qualify as an improvement, the work must add value to the property, boost its durability, or allow it to be used for a different purpose. You could add repairs if they were included in a more extensive remodel. Finally, you might consider selling an investment at a loss to cancel out some of your gains from the real estate sale.

Next steps

If you think you’re going to owe capital gains tax on a real estate sale, it makes sense to connect with a financial adviser or a real estate attorney. They can help you understand the tax issues around your sale and answer your questions. Also, you should be aware that you might need to make estimated tax payments if you owe capital gains tax.

FAQs

How is capital gains tax calculated on real estate?

Capital gains tax is calculated as the difference between the sale price of the property and the property’s adjusted basis. The adjusted basis is what you originally paid for the property, plus adjustments that raise or lower that number. This gain is multiplied by the tax rate, which depends on factors like your income tax bracket and how long you owned the property.

What is the capital gains tax rate for 2023 on real estate?

Your tax rate depends on several factors, such as income and filing status. Short-term capital gains are taxed along with the rest of your income according to your tax bracket. Most people won’t pay more than 15% on long-term capital gains, but a 20% rate applies to high earners.

Who is exempt from capital gains?

You might not have to pay capital gains tax on the first $250,000 in gains on the sale of your primary home (or $500,000 if you’re married and filing jointly) as long as you meet specific requirements. You must have owned the property and lived in it as your main home for two of the past five years. And you can’t take advantage of this exclusion more frequently than once every two years.

If you’ve taken out a jumbo loan to buy a house, you might wonder whether it’s a good idea to refinance at some point.

Refinancing means taking out a new loan and using it to pay off your mortgage. You then make monthly payments on the new loan, which might have a different interest rate or term than your previous loan.

Refinancing might give you a better interest rate or a more affordable monthly payment, or it might allow you to pay off your mortgage over a longer or shorter time frame. But there are costs to refinancing, and because these costs go up with the size of the mortgage, they can add up to a significant amount of money for a jumbo loan. We’ll help you think through the pros and cons before deciding whether to refinance a jumbo loan.

• What is a jumbo loan refinance?
• The costs of refinancing a jumbo loan
• Should I refinance a jumbo loan?
• Alternatives to refinancing

What is considered a jumbo refinance loan?

A jumbo loan is a mortgage that’s larger than the conforming loan limit set by the Federal Housing Finance Agency. Lenders can sell loans that are under this limit to Fannie Mae and Freddie Mac, which lowers their risk. Lenders don’t get this protection for jumbo loans, so borrowers usually have to meet tougher standards to qualify for a jumbo mortgage.

The conforming loan limits are updated each year and vary depending on where the home is located.

A jumbo loan refinance is the process of taking out a new loan and using it to repay a jumbo loan. If the new loan also exceeds the relevant loan limits (and is therefore a jumbo loan as well), you can expect higher closing costs and stricter requirements than you’d encounter with a typical refinance.

Before approving you for a jumbo refinance, lenders evaluate your credit scores, monthly income and assets to make sure you’re able to repay a large loan.

The costs of refinancing a jumbo loan

There are several fees you’ll likely have to pay to refinance, such as title search fees and application fees. You may have to pay for a second-opinion appraisal for a jumbo loan.

As with any refinance, if you take out a new loan with a longer term, your total interest costs for the life of the loan are likely to go up because you’ll be making more payments before the loan is paid off. Refinancing a jumbo loan may also affect your taxes. You may be allowed to deduct the interest on a typical home loan, but a jumbo loan could reach a cap on those deductions. If you need to refinance a jumbo loan, it’s best to consider speaking to a tax professional or consulting the IRS for clarification on the current year’s tax laws.

Should I refinance a jumbo loan?

Whether refinancing a jumbo loan makes sense for you depends on your circumstances. These considerations can help you decide whether to move forward with a refinance.

When you may benefit from refinancing

Refinancing may be a good idea if you can get a lower interest rate and if the savings will outweigh the costs of refinancing. You can use a refinance calculator to figure out how many years it’ll take before you make up the refinancing costs.

And if you choose a cash-out refinance, you may be able to draw on your home equity to pay for major expenses like education or health care, or to cover the costs of remodeling.

Refinancing may also allow you to change the type of mortgage you have. There are plenty of scenarios that could justify refinancing, including the need to get into a mortgage that is not a jumbo loan. If you have an adjustable-rate mortgage, you might be able to switch to a fixed rate so you don’t have to worry about payments increasing in the future. Another possibility is switching to an FHA loan, which might have lower closing costs than conventional mortgages and which may allow you to roll the costs of energy efficient upgrades into your loan.

When refinancing may not be worthwhile

It may not make sense to refinance if you don’t meet lender requirements for a jumbo loan. Lenders often want to see higher credit scores to issue a jumbo loan. And they’ll probably have other requirements, such as a debt-to-income ratio of 36% or less.

If you’re going to sell your house soon, you may not benefit from lower payments for long enough to make up for the costs of refinancing.

Also, if you took out your current mortgage many years ago, your mortgage payments are probably mostly going toward principal now. Refinancing would mean that a larger share of each payment would go toward interest and you’d build equity more slowly.

Finally, if your existing mortgage has a prepayment penalty that you’d have to pay to refinance, the penalty might outweigh any savings you’d gain from refinancing.

Alternatives to refinancing

Depending on the reason you want to refinance, there may be alternatives to consider. For example, if you want to pay off your loan faster and build equity more quickly, you can make larger monthly payments on your current mortgage and ask your lender to put the extra money toward the principal.

If you’re having trouble making your mortgage payments because of a temporary hardship, you could ask your mortgage servicer for forbearance. Forbearance allows you to stop making payments or to make smaller payments for several months. Later, you pay to cover the amount you postponed.

Keep in mind that jumbo mortgages that aren’t backed by Fannie Mae, Freddie Mac or a federal agency don’t receive the same forbearance protections as loans guaranteed by the government. But your mortgage servicer might still be willing to work with you.

If your financial circumstances have changed permanently and you won’t be able to make your current mortgage payments from now on, you could try to get your loan modified. Loan modification can lengthen the term of your loan, lower your interest rate or lower the principal you have to repay. Mortgage servicers likely won’t want to offer this option unless you’re at risk of foreclosing on your home.

If you want to refinance to take cash out of your home equity, you could think about applying for a home equity loan or a home equity line of credit. Those options also allow you to borrow against your equity.

If you don’t qualify for a jumbo refinance and you’ve decided you can’t afford to stay in your home, you could sell the home. With this option, you’d no longer need to make mortgage payments, but you’d have to find a new place to live. If your home would sell for less than the remaining mortgage balance, you should first check whether your state law requires you to make up the difference. Some lenders may agree to give you a waiver stating that you’re not responsible for the portion of the mortgage that isn’t paid off by the sale.

Next steps

If you believe refinancing a jumbo loan may be the right choice for you, you’ll want to take a look at your finances to see if you’re likely to qualify. It’s a good idea to review your recent credit reports and credit scores and gather documentation of your income and compare it to your outgoing debt.

Consider getting quotes from multiple lenders so you can compare offers and choose the best mortgage offer for you. Don’t forget to ask the lender that issued your existing mortgage about refinance options. Sometimes lenders are willing to waive certain fees if you took out a mortgage from them fairly recently.

If you’re thinking about remodeling your kitchen, you might wonder how much value a remodel could add to your home.

The answer may depend on what shape your kitchen is in before you start work, how it compares to kitchens in other homes in your neighborhood and what you have done.

Remodeling’s 2023 Cost vs. Value Report provides estimates of how different home improvement projects may affect a home’s value, and it can be a good starting point for investigating how much value a remodel could contribute.

• How much value does a kitchen remodel add?
• What adds value to a kitchen?
• How can I pay for a kitchen remodel?
• Should I remodel my kitchen?

How much value does a kitchen remodel add?

Home improvement projects may not raise a home’s resale value by as much as they cost. Remodels typically bump up a home’s value by a percentage of what the homeowner spends on them, but that percentage might not be as high as you expect.

When considering a remodel, it makes sense to evaluate a project’s price tag by the portion of the cost that you’re likely to recoup when you sell.

Remodeling’s 2023 Cost vs. Value Report analyzes the cost of kitchen improvement projects for both minor and major remodels. Minor remodels make limited changes and leave many features in place, while major remodels can significantly alter a room.

The report includes the average cost of the following three kitchen remodels — along with the value added to the home by these updates. Keep in mind that returns aren’t guaranteed and that they may vary from the national average depending on where you live.

• Midrange minor kitchen remodel: A 86% return on an average investment of about $27,000
• Midrange major kitchen remodel: A 42% return on an average spend of about $78,000
• Upscale major kitchen remodel: A 32% return on average spending of about $154,000

What adds value to a kitchen?

Before deciding to remodel, you’ll want to think about which features of your kitchen you plan to change and which you plan to leave in place. It’s a good idea to set a budget, get quotes and figure out how much the work will cost before deciding to proceed with a project.

The following alterations may add value to your home and could be worth considering if you choose to remodel your kitchen.

Changing the size/configuration

Expanding and improving a kitchen can add value to a home. Reconfiguring a room can be an expensive undertaking, though. If your budget won’t support a full renovation, you may want to consider a smaller addition or less costly tweaks to the layout, such as adding a small island.

Replacing outdated/inefficient features

If some kitchen features are old or no longer working well, you may be able to add value by replacing them. You could consider installing new appliances or upgrading to energy-efficient windows.

Adding accessibility features

Making a kitchen more accessible and easier for older adults or people with disabilities to use can increase its value.

Possible improvements include replacing knobs with easy-to-grab handles, adding pull-out boards or turntables that allow convenient access to items in storage, and installing countertops that can withstand heat near cooking areas. Lowering cabinets, opening up knee space under sinks and workspaces, and leaving adequate clearance for wheelchairs or walkers can make a kitchen more accessible for people with limited mobility.

Cosmetic features

Another way you could add value to a kitchen is to spruce up its appearance. You may want to consider installing an attractive backsplash, updating cabinets or adding decorative lights. Other possibilities include upgrading the kitchen sink with a newer model and replacing the countertops.

Should you do it yourself?

If you’re good with repairs, you might be able to make some improvements — such as replacing knobs and handles or painting cabinets —yourself. But if your goal is an extensive remodel, you’re usually better off hiring a professional to do the work.

A contractor who knows what they’re doing can help you avoid mistakes, get the work done faster and save money. Also, some aspects of a remodel, like plumbing and electrical work, are highly specialized and are best left to the experts.

How can I pay for a kitchen remodel?

If you aren’t paying for a kitchen remodel in cash, you have a few options for financing the work.

• Home equity line of credit — A home equity line of credit, or HELOC, allows you to borrow repeatedly against your home equity up to an approved amount. It could give you the flexibility you need to finance ongoing home renovations. But it can put your home at risk if you aren’t able to pay it back since your home acts as collateral.
• Home equity loan — A home equity loan lets you tap into home equity by borrowing a lump sum and then paying it back on a predetermined schedule. Taking out a home equity loan could make sense when you’re more certain of the total amount you want to spend and you’re looking for a way to borrow what you need all at once. Your home will be used as the collateral for the loan, so it’s smart to be certain you can repay the loan on time before going with this option.
• Cash out refinance — If you’re planning to refinance your mortgage, you could apply for a cash out refinance to get money to spend on your kitchen remodel. This method may make more sense if you’re refinancing anyway, as you’ll typically pay 3% to 6% in closing costs on the new mortgage.
• Credit card — Some home improvement stores offer credit cards that have discounts or other perks. An advantage of using a credit card is that you aren’t borrowing against your home, so it may be a good choice if you don’t have much equity or don’t want to use your home as collateral. But interest rates on credit cards are typically higher than on other financing methods, so you should weigh whether that extra cost is worth it.
• Personal loan — An unsecured personal loan doesn’t use your home as collateral and could be a good option if you don’t want to borrow against your home. Interest rates are often higher with this type of home improvement loan than on secured loans. This choice might be best for small projects that you expect to pay off quickly.

Should I remodel my kitchen?

Remodeling can be an expensive undertaking, so you’ll want to think it through before committing to a project.

• What’s your motivation for remodeling? For example, do you want to improve your home’s market prospects, boost energy efficiency or make your kitchen more accessible?
• What’s your budget, and what can you realistically achieve for that amount of money? Keep in mind that home improvements often end up costing more than expected, as you may run into surprises like additional items that need to be repaired or replaced.
• What’s your timeline? Be aware that a kitchen remodel is not a quick fix and may take weeks or months to complete.
• How will your life and finances be affected while your kitchen is unavailable for daily use?
• How long do you plan to stay in your home after remodeling? Do you plan to sell soon or do you want to keep the home and enjoy the upgrades? If your remodeling needs aren’t urgent, you may want to consider doing the upgrades in stages to spread out the expense over time.

© 2023 Zonda Media, a Delaware Corporation. Complete data from the Remodeling 2021 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.

If you’re thinking about refinancing your mortgage, you might wonder whether you can get a no-closing-costs refinance.

It’s possible to refinance a mortgage without paying out-of-pocket costs at closing, but you generally end up paying more in other ways. For instance, a lender may pay the closing costs but increase the interest rate you pay on the loan. Alternatively, lenders can roll the closing costs into your loan principal so that you have a larger amount to repay.

But refinancing without paying upfront closing costs isn’t always an option. The choices you’ll have depend on the type of refinance and your lender’s requirements.

• How does a no-closing-cost refinance work?
• What are the benefits of a no-closing-cost refinance?
• What are the disadvantages of a no-closing-cost refinance?
• Should I get a no-cost refinance?

How does a no-closing-cost refinance work?

A lender might offer you a no-closing-cost refinance with lender credits. Lender credits represent money the lender provides upfront to cover closing costs in exchange for charging you a higher interest rate over the life of the loan. Lender credits are also called negative points, and they’re found in Section J on the second page of your Loan Estimate.

If you accept more lender credits, you pay a higher interest rate on the loan. The interest rate you’re offered can depend on your credit, the lender and conditions in the economy.

On the other hand, lenders offering no-closing-cost refinances may instead add the closing costs to your loan balance. This means you’ll have a larger loan to pay back, and you’ll probably pay more in interest than you would’ve otherwise because the interest is applied to a larger balance. Having a larger loan could also result in being charged a higher interest rate.

Keep in mind that if you’re refinancing through a government program, these methods for avoiding upfront closing costs may not be available depending on the program’s rules.

Here are a few examples.

• A VA IRRRL (also known as a VA streamline refinance) allows either lender credits or closing costs to be added to the loan.
• A nonstreamlined USDA refinance allows closing costs to be rolled into the loan as long as this doesn’t put the amount of the loan above the home’s appraised value. Closing costs can also be added to the loan balance for streamlined and streamlined assist USDA refinances.
• An FHA refinance loan allows the one-time mortgage insurance premium payment to be rolled into the loan, but that doesn’t represent all potential closing costs. Lender credits are allowed for FHA streamline refinances.

What are the benefits of a no-closing-cost refinance?

The main benefit of a no-closing-cost refi is that you don’t have to make a lump-sum payment on your closing expenses when you finalize the loan. Refinancing costs vary depending on how much you owe on your mortgage and where your home is located. On average, a mortgage refinance costs about $5,000, according to Freddie Mac, the federally chartered mortgage investor. That’s a significant amount of money.

If you’d otherwise have to save up for a while to pay closing costs, a no-closing-cost loan could allow you to refinance right away, which could help you save money in the long run.

If interest rates are lower now than when you took out your mortgage or if your credit scores have gone up, you might be able to refinance with a lower interest rate and start saving money immediately. If you have an adjustable-rate mortgage and your rate is about to rise, you might be able to avoid paying more in interest if you refinance with a fixed-rate mortgage or an ARM with a lower cap before that adjustment takes effect.

Another potential benefit is that if you don’t have a prepayment penalty and you’re planning to move within five years, refinancing without closing costs may help you skip the upfront payment while you’ll only pay a bit more each month for a few years.

What are the disadvantages of a no-closing-cost refinance?

One downside of a no-closing-cost refinance is that you typically have a higher monthly mortgage payment, either because your interest rate is higher or because you have to repay a larger principal. That can make it harder to fit your mortgage payment into your budget, and it may also mean that you ultimately pay more over the course of the loan. (You’ll have to weigh if any savings from a lower rate or shorter loan term offset that.)

Another disadvantage is that if your lender imposes a prepayment penalty, you’ll have to pay a fee if you refinance or sell your home within the time period set by your lender. If you’re subject to a prepayment penalty, it’s typically in effect for the first three or five years after your refinance.

Should I get a no-cost refinance?

If you’re not sure whether a no-cost refinance is right for you, ask yourself these questions.

• How long am I planning to stay in my home? If you expect to sell in the next five years, not paying upfront closing costs in exchange for a slightly higher monthly payment than you’d otherwise owe might be worthwhile. But you should find out if your lender will charge a prepayment penalty.
• Do I want to remodel or update my home in the near future? If you’re deciding between taking out a home equity loan versus getting a no-cost refinance and using the money you would’ve spent on upfront closing costs, a home equity loan may be a more expensive way to finance work on your home.
• How will the loan principal, interest rate and monthly payment change if I don’t pay closing costs upfront? Remember that a no-closing-cost refinance isn’t actually “free” — you’ll generally have to pay more later to cover the closing costs.
• How much interest will I pay over the life of the loan? If avoiding upfront closing costs results in a higher total interest bill over time, it may not be worth it.
• How long would it take me to save up for closing costs? If you can save up enough to pay for closing in a few months, you might prefer to wait rather than accept higher monthly payments in the long term. On the other hand, if there’s a reason you want to refinance immediately (for example, the rate on your adjustable rate mortgage is about to rise), you may decide it makes more sense to go with a no-closing-cost refi now.