In August 2020, Taylor Lopez and her husband Joseph bought their home for $180,000 in the fast-growing city of Anna.
They bought the three-bedroom house built in 1966 with a loan carrying a 3.8% mortgage rate. “From an investment standpoint, it felt like a good choice,” said Lopez, 36, a real estate manager for restaurant chain Wingstop.
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Dallas-Fort Worth home sales, prices only take slight hit from higher mortgage rates
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After more than two years in the home, they’ve been thinking about selling. Joseph works in Lewisville and Taylor works in Addison, so they would like to find a place offering a shorter commute.
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But, like many other would-be upsizers in Dallas-Fort Worth, the couple feels locked into their current home.
Although they could get a good return on a sale, they would have to shop in a dramatically more expensive housing market than when they first purchased and sacrifice their current loan for a new one at a much higher rate.
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After a wave of low-rate homebuying and refinancing from 2020 to 2022, more than half of outstanding Texas mortgages have rates of less than 4%, according to Federal Housing Finance Agency data.
Since last fall, the average rate for a 30-year, fixed-rate mortgage has been hovering between 6% and 7%.
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“There are people that want to sell, but that is what is keeping them there at their house,” said Misty Michael, a real estate agent in the Sachse and Plano area.
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The Lopez family said any home they would want to buy, in school districts they want to be in and that wouldn’t require a lot of work, would start in the $400,000 range.
“It doesn’t make sense when you weigh out all the pros and cons, so we’re continuing to drive about an hour each way to work,” Lopez said. “We could always purchase a home at a higher interest rate, then refinance it if the interest rates go down, but that’s an if and when situation.
“When you’re playing with that much money, it doesn’t seem like a risk I’m willing to take right now.”
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Joseph (left) and Taylor Lopez purchased their home in Anna in 2020 for less than $200,000 with lower mortgage rates and are now waiting out higher rates and prices as they look to sell. (Liesbeth Powers / Special Contributor)
Changing math
Since the start of 2020, the median price of a single-family home in Dallas-Fort Worth has risen more than 50%, according to North Texas Real Estate Information Systems and the Texas Real Estate Research Center at Texas A&M University.
On top of that, the Federal Reserve has aggressively increased its federal funds rate for more than a year, indirectly driving up mortgage rates. Freddie Mac recorded an average 30-year mortgage rate of 6.96% on July 13.
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The result: The monthly principal and interest payment for a median-priced Dallas-Fort Worth home at the average rate with a 20% down payment, before insurance or property taxes, was about $980 in January 2020. In June, it was more than $2,100.
For buyers who purchased a $300,000 home at the record low of 2.65% in January 2021, just buying a house at the same price again at today’s average rate would add almost $900 to their monthly payments before taxes and insurance.
Purchasing a bigger or nicer home would add significantly more to that already-elevated payment, so people with job promotions or babies on the way looking to upgrade to bigger homes may not find a good enough deal to justify it financially.
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“It now is significantly more expensive to make these marginal changes that you might have been planning,” said Texas A&M economist Adam Perdue. He and his wife are expecting a baby soon and have considered getting a bigger home, but they too have a low rate on their home in Brazos County and don’t want to take on higher monthly payments.
While prices are declining slightly year to year, Texas A&M economists don’t expect them to return to where they were at the beginning of 2020. Rates are also expected to decline, but not back down to the record lows. Mortgage Bankers Association forecasts rates in the 5% range by 2024.
Still buying and selling
As mortgage rates rose and sellers held back, new single-family home listings in Dallas-Fort Worth dropped 22% between June 2022 to June 2023, limiting options for people looking to buy.
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Buyers with an immediate need to move are still purchasing homes, and people continue to move to Texas from other parts of the country. Local home sales recorded in June were down only slightly from a year before.
“We have a ton of buyers that are wanting to buy a home,” Michael said, adding that buyers may choose to refinance later. “You have people getting married, having babies, kids going to college.”
More casual buyers without an immediate need to move may no longer be shopping, said Drew Kayes, who heads up homebuying company Opendoor’s operations in Dallas-Fort Worth and Houston.
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“A lot of those folks right now are not in the market because they’re locked into a sub-4% rate, and that’s more of a luxury move than a necessity move,” Kayes said.
An open house sign beckons buyers outside of a home in Plano. (Shafkat Anowar / Staff Photographer)
Jason Dickson, co-owner of North Texas-based Nuwave Lending, said while it may be hard for homeowners to leave their current home, it may be worth it for them to tap into equity they’ve built up during the pandemic to pay off credit card debt or auto loans.
“They’ll gladly sign up for the higher interest rate in the new house if they have the benefit of taking that equity and improving their overall financial position,” he said.
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A silver lining
Nipun Gadhok, development manager for the Nehemiah Company, is looking to move from Fort Worth to buy a home in Mesquite next year.(Liesbeth Powers / Special Contributor)
Nipun Gadhok, 31, doesn’t want to lose his 3% rate but hopes to purchase a new home for him and his girlfriend next year.
Gadhok, a development manager for the Nehemiah Co., a local firm behind residential communities throughout Dallas-Fort Worth, purchased his five-bedroom home in Fort Worth’s Augusta Meadows neighborhood in 2021.
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He’s looking to buy a home along the outskirts of the metro area, potentially in one of his company’s developments on the east end of Mesquite. Knowing he has a rate he may never get again, he’s not planning to sell his Fort Worth house.
He intends to keep it as a rental property and is already renting out rooms to four other tenants. With mortgage rates causing many people to rent, that’s turning out to be a good side hustle.
“People are choosing to rent, they are not as much inclined to buy,” Gadhok said. “The rates really helped me out in the way that I’m not having problems with finding tenants.”
Read more stories about the D-FW housing market
Here’s how much profit Dallas-Fort Worth home sellers are making
Home sellers in North Texas are pocketing some of the highest gains on record, even though profit is down from last summer’s peak.
Apartments set to start construction this fall on Plano’s Haggard farm
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Dallas-Fort Worth leads Texas in home sales with more than 27,000 properties trading in the second quarter.
USAA Mortgage, technically known as USAA Bank Home Loans, is one of the larger mortgage lenders out there, though not quite in the top 10.
They’re probably best described as a top 25 mortgage lender, but they’ve got a great website (per my opinion) and good customer service, per J.D. Power, so I figured it would be prudent to take a closer look.
For the record, USAA stands for United Services Automobile Association, an outfit based out of San Antonio, Texas.
The company has that name because they started out in the insurance business, helping military members get auto insurance coverage, then gradually began offering more financial services, including auto loans, personal loans, credit cards, and home loans.
They’re basically a full-fledged bank today, but let’s learn more about those mortgage offerings, including USAA’s mortgage rates, shall we.
What USAA Mortgage Offers
Mainly conforming loans that meet Fannie/Freddie guidelines
Also VA loans for military and their families
Don’t offer FHA or USDA loans
Must be a USAA member to get a mortgage from them
First off, USAA offer plenty of loan options, including conforming loans that meet the underwriting guidelines of Fannie Mae and Freddie Mac, along with VA loans, which are available for active duty military and veterans and their families.
Additionally, they offer jumbo loans on loan amounts as high as $3 million, which should satisfy most home buyers, and even jumbo VA loans.
Notably absent from their mortgage product lineup are FHA loans and USDA loans, but seeing that USAA is geared toward those who serve, it makes sense.
Speaking of, you need to be a member of USAA in order to get a mortgage from them, which can be obtained if you’re active duty, a veteran, have a spouse that is/was, or a parent that is a USAA member.
Back to those loan programs. In the conforming department, they offer the 97% LTV home loan program that requires just 3% down payment, a home loan offered by both Fannie Mae and Freddie Mac. They actually refer to it as the “30-year first-time homebuyer” loan though it may not actually be limited to just first-timers.
There is an assumption that first-time home buyers can’t come up with large down payments, but this isn’t necessarily true.
It’s also fairly common for these home buyers to put down 20% to avoid mortgage insurance and the higher mortgage rates that come at high LTVs.
While the down payment requirement is low, it is only available on primary residences and the only loan option is the 30-year fixed. Still, that should fit most borrowers’ needs.
If you’re able to put down at least 5%, you can get your hands on a 10-year, 15-year, or even a 20-year fixed mortgage.
If you’re looking for a mortgage with no down payment, USAA also offers VA loans, which don’t require any money down or a minimum credit score. However, USAA seems to require credit scores of 620 or higher to qualify, which is a pretty common threshold.
These are available in a variety of different terms, including 10-, 15-, 20-, and 30-year loan terms. You can also get a 5/1 ARM, which is fixed for the first five years of the loan term before becoming annually adjustable.
The ARM option only appears to be available for VA loans, not on conventional USAA loans.
With regard to their jumbo loans, you can get a 30-year fixed or 15-year fixed if you go the conventional route, with a minimum 20% down payment. This means you also avoid PMI.
If you need a jumbo VA loan, you can go with a 30-year fixed or a 5/1 ARM.
USAA also offers home loans on vacation homes (second homes) and investment properties, which I believe are limited to fixed-rate mortgages only.
USAA Mortgage Rates
Their advertised mortgage rates seem to be on par
With what you’ll see elsewhere
Not noticeably higher or lower than the competition
So customer service might be the deciding factor
This always seems to be top of mind, but is a moving target as well because mortgage rates can change daily.
But I can say that USAA’s mortgage rates seem to be pretty competitive and on par with what you’ll see advertised elsewhere.
And a sweet spot might be their 20-year fixed, which at the moment, is priced a half a percentage point below the 30-year fixed.
It also comes with a lender credit, whereas the 30-year fixed requires a fraction of mortgage points to be paid to obtain the advertised rate.
If you can afford it (and want to pay off your mortgage earlier), it could be a good choice. Not all lenders offer the 20-year fixed, so USAA has that going for them too.
USAA Mortgage Refinance Options
You can get a rate and term refinance
Or a cash out refinance
They also offer the VA streamline refinance
But it appears you can only choose a fixed-rate mortgage
Aside from home purchase mortgages, USAA also offers refinance loans if you already have a mortgage and happen to be looking for a lower interest rate or cash out.
They offer both rate and term refinances, which are intended to lower rates and/or shorten loan terms, and cash out refinances, which allow borrowers to tap into their available home equity.
If you’re refinancing a VA loan, they offer Interest Rate Reduction Refinancing Loan (IRRRL) streamlined refinances.
All refinance options offered by USAA Mortgage seem to be limited to 30-year and 15-year fixed mortgages only. It doesn’t appear adjustable-rate mortgages are an option here.
Occasionally, USAA has loan specials, such as no origination fee charged on VA loans, which could sway your decision to use them over a competitor.
Why Choose USAA Mortgage?
Current members might as well check them out
And include them in their home loan search
But you should also gather quotes from the competition
To ensure you land the lowest rate and closing costs
If you’re already a member of USAA, it’s certainly worth checking out their home loan offerings if you’re in the market to buy a home or refinance your mortgage.
I say that because you should broaden your search in general to see what’s out there, and if it’s with a banking institution you already have a relationship with, the loan process might be a bit smoother.
You may have also established trust, which can be a big plus in terms of putting yourself at ease during what is often a stressful time.
On the other hand, just because you have a checking account or homeowners insurance policy with USAA doesn’t mean you should get your mortgage there too.
There might be a better fit elsewhere based on rate, closing costs, service, or a combination of all those things.
Another plus of going with USAA is that they’re probably well-versed in VA loans, seeing that their members are also members of the military and/or their families.
My assumption is they originate a lot of VA loans for their military family of customers, so if that’s what you’re looking for, it might make for a smoother process compared to a general home loan lender.
Of course, there are lots of other lenders out there that specialize in VA mortgages as well, so they aren’t necessarily the be all, end all for your home purchase or refinance needs.
As always, take the time to shop mortgage rates and look at the interest rate, closing costs, points required, and the track record of the company you ultimately do business with.
While cost is certainly important, a competent lender is a must as well to ensure your home loan actually closes!
On Q Financial added loan originators to its biggest markets including Arizona, Washington and California as well as other states – Tennessee, Nevada, Utah and Colorado.
Some LOs get hired into an existing branch but typically, LOs who were working in the same branches are placed together in a new physical branch.
Licensed in 46 states, On Q Financial originated $2 billion in 2022 — 85% of the volume coming from its retail channel and 15% coming from the correspondent and wholesale channel, according to Lamb.
Following one major layoff and furlough in 2022, the Arizona-based lender eliminated costs and is positioned to grow revenue, executives said.
“The way I look at it is, most of us on the lending side have at this point cut or right sized or eliminated as much as we possibly can on the cost side of the business last year,” Lamb said.
“Most of what we’re adding is production headcount. There are some rent expenses that go with it (…) We’re bringing on production that will generate new revenue for us. We’re being very careful in adding any expense associated with that production.”
The lender has brought on furloughed producers and operations staff on a selective basis as it grows production.
Tapping into homebuilders’ network
“We have a really long and strong history of working with homebuilders. We work with a number of them where we have very strong preferred and very tight relationships with home builders,” Lamb said.
New builds are a bright spot in a bleak housing market as buyers seek new builds due to the lack of resale inventory.
In April, On Q Financial and HomeCo Partners formed a joint venture named Partners United Mortgage – a consortium of real estate brokerages and a builder, HousingWire previously reported.
The goal of the JV is to enable smaller real estate firms and homebuilders to get into the mortgage side of the business by becoming one of the partners in the JV.
On Q Financial aims to have a relationship where its loan officers can cultivate relationships with small builders and real estate brokerage partners by helping a first-time homebuyer transaction or existing lending transactions.
Lamb noted mortgage application activity is better than rate lock and funding activity, which implies that buyers haven’t been able to find homes yet.
“We’re engaged with other potential partners to go into that JV and expand it,” Lamb said.
U.K. Prime Minister Rishi Sunak conceded shortly after the BOE’s rate hike that the government’s mission to halve inflation to 5% by the end of the year had recently become more difficult.
Wpa Pool | Getty Images News | Getty Images
There is intensifying pressure on Britain’s government to do more to help struggling households, with the country’s shadow finance minister warning of a “mortgage catastrophe” as millions are pushed to the brink of insolvency.
The Bank of England last week hiked interest rates by 50 basis points to 5%, a bigger increase than many had expected. The BOE’s 13th consecutive rate rise takes the base rate to the highest level since 2008.
The surprise move — which is designed to lower inflation — will affect millions of homeowners as the interest rates on many mortgages in the U.K. are directly linked to the central bank’s base rate. Renters, too, are likely to see their payments increase as buy-to-let landlords pass on higher mortgage repayments.
Research by the National Institute of Economic and Social Research, a leading independent think tank, estimated that the BOE’s latest interest rate hike would see 1.2 million U.K. households (4% of households nationwide) run out of savings by the end of the year because of higher mortgage repayments.
That would take the proportion of insolvent households to nearly 30% (roughly 7.8 million), the NIESR said last week, with the largest impact set to be incurred in Wales and the northeast of England.
“The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency,” said Max Mosley, an economist at the NIESR. “No lender would expect a household to withstand a shock of this magnitude, so the government shouldn’t either.”
Credit scores and grace periods
U.K. Finance Minister Jeremy Hunt on Friday met with major banks and building societies to discuss the deepening mortgage crisis in the country.
Hunt said Friday that three measures had been agreed with the banks, mortgage lenders and the Financial Conduct Authority, including a temporary change to mortgage terms and a promise that consumers’ credit scores would not be affected by discussions with their lender.
The minister also said that for those at risk of losing their home, lenders agreed to a 12-month grace period before there’s a repossession without consent.
The Resolution Foundation says current market pricing suggests that households remortgaging in 2024 are poised for an annual mortgage bill rise of approximately £3,000 ($3,813) or more on average.
Christopher Furlong | Getty Images News | Getty Images
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty,” Hunt said.
“We won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses,” he added.
Rachel Reeves, shadow finance minister for the opposition Labour Party, criticized what she described as the government’s “chaotic approach” to the mortgage crisis.
“Unlike this government, Labour will not stand by as millions face a mortgage catastrophe made by the Tories in Downing Street,” Reeves said via Twitter on Thursday.
There’s a lot of mortgage pain coming, and much of it will arrive during the run-up to a 2024 election.
Torsten Bell
Chief executive of the Resolution Foundation
U.K. Prime Minister Rishi Sunak conceded shortly after the BOE’s rate hike that the government’s mission to halve inflation to 5% by the end of the year had become more difficult.
“I always said this would be hard — and clearly it’s got harder over the past few months — but it’s important that we do do that,” Sunak said Thursday at The Times CEO Summit.
“The government is going to remain steadfast in its course and stick to its plan,” he added.
‘There’s a lot of mortgage pain coming’
BOE Governor Andrew Bailey said Thursday’s interest rate rise was necessary to continue the fight against stubbornly high inflation.
Official figures published ahead of the BOE’s meeting showed annual inflation rose by 8.7% in May, exceeding expectations. It means consumer prices remain at a level far above the BOE’s 2% target.
“We know this is hard — many people with mortgages or loans will be understandably worried about what this means for them,” Bailey said. “But if we don’t raise rates now, it could be worse later.”
The Resolution Foundation, a think tank focused on issues facing low- and middle-income households, has since warned that even with the latest rate rise, the problems for borrowers are far from over.
It says current market pricing suggests that households remortgaging in 2024 are poised for an annual mortgage bill rise of approximately £3,000 ($3,813) or more on average.
“There’s a lot of mortgage pain coming, and much of it will arrive during the run-up to a 2024 election,” said Torsten Bell, chief executive of the Resolution Foundation.
The Mortgage Bankers Association (MBA) this week submitted a letter to the Financial Stability Oversight Council (FSOC) in the U.S. Department of the Treasury urging several additional considerations in its plans to classify more non-bank entities as systemically important financial institutions (SIFIs).
One of the points made in the letter, submitted by MBA President Bob Broeksmit, is that a SIFI designation on a nonbank entity could cause material harm to that company attempting to compete in the marketplace.
“In proceeding with a non-bank SIFI designation, FSOC should conduct a deep and thorough analysis, including weighing the cost and benefit of such designation to the U.S. financial system as a whole and the likelihood the financial company in question will experience material financial distress as a result of the designation,” the letter said.
If FSOC is concerned about the core banking activities taking place outside the purview of prudential bank regulation, FSOC’s should “reconsider the regulatory environment” that has caused more traditional depository institutions from competing in the marketplace such nonbanks are attempting to do business in, Broeksmit said.
“As a general matter, FSOC should consider less costly alternatives to designation of a non-bank financial entity – especially where such an entity is already subject to regulation by an FSOC-constituent member and the perceived risk to financial stability associated with that entity can be, or perhaps already has been, adequately addressed through targeted programmatic changes by that regulator,” he said.
FSOC should also consider the potential costs and benefits of designating nonbanks as SIFIs, since the current proposal “eliminates any evaluation of the costs and benefits of non-bank designation and dispenses with assessing the likelihood that a firm would experience material financial distress,” Broeksmit said.
Additionally, since many “core traditional” banking activities are now operating outside of regulatory purview, MBA urges FSOC to “consider and address whether existing regulations are driving core banking activities outside the regulatory perimeter,” the letter said.
“With respect to residential mortgage lending, banks’ share of origination and servicing volume has consistently declined during the fifteen years following the global financial crisis,” Broeksmit said. “Some of the decline may reflect a re-assessment of the economic returns available in mortgage lending and a shifting of resources into business lines that have better prospects.”
But based on conversations with MBA’s bank members, it also reflects “regulations specific to banks which reduce the returns on capital from mortgage lending,” Broeksmit said.
This has led to non-bank servicers becoming more prevalent in the servicing market, leading to increased scrutiny from FHFA and Ginnie Mae.
“This example highlights what is the critical question: if bank regulations are so punitive that they discourage banks from effectively competing in markets for core banking services, shouldn’t FSOC first re-examine the regulatory regime that caused this change?,” the letter said.
Last November, Biden administration officials began a push that would target nonbanks with increased regulatory scrutiny. In an op-ed published by HousingWire, former FHA Commissioner David Stevens said that increased regulation of IMBs was not needed.
“The fact is that the invaluable role that IMBs play is deserving of a counterattack to push back against the ‘throwing the baby out with the bath water’ mentality that could be overtaking Washington,” Stevens wrote in November 2022. “The Mortgage Bankers Association authored a valuable piece on IMBs that should be required reading for all policymakers as they consider trying to fix something that is simply not broken.”
FSOC announced a proposal for tightening regulation of nonbanks in April.
Eating well is one of the small pleasures that I decided not to forego when I dug myself out of credit card debt. I’m a busy bachelor with an active social life and an absorbing job; I like food with a lot of flavor to it; and I live in a rural area without a lot of shopping or coupon options. These three things don’t usually go hand-in-hand with eating well or cheaply.
To meet my financial goals, I had to keep my food budget under $100 per month — that’s $25 a week to feed one or two people (since I often cook for dates and friends). It’s been a challenge. Luckily, in Texas and many other states, there is no sales tax on unprepared foods. Using a few simple strategies I managed to meet my goal and then some. I didn’t eat rice and beans for the entire month (unlike Morgan Spurlock), I don’t waste time digging through supermarket circulars, and I don’t spend hours in the kitchen every night. This is definitely the lazy man’s approach to groceries on a budget.
Here’s a quick rundown of my method:
I joined discount clubs at the supermarkets I frequented, and I gave them my real address. Kroger sends me coupons once a month.
I shop for fresh vegetables at the Farmer’s Market. Produce at our farmer’s market is literally half the price as the grocery store.
I have family members send me coupons. (This is also a great way to keep in touch with my grandparents, who don’t have email and who I don’t get to talk to all that often.)
Where it makes sense, I buy store brands to save money.
I make a large shopping run at the beginning of the month, and then only go to the farmer’s market for fresh vegetables during the rest of the month. If I don’t have an ingredient, I make something else. This forces me to get creative and use what I do have.
I plan my meals to use the same or similar ingredients. That way I can buy in bulk and I rarely have to get creative.
I buy staples in larger “family” quantities, and I also shop the short-dated bins for meats, which I usually grill immediately.
The most important thing by far has been getting creative with leftovers. I don’t let anything go to waste, and that’s saying something considering the quantities I buy.
For instance, I typically will buy a 12-pack of fresh thick-cut boneless pork chops at the grocery store near the beginning of the month. (I always compare prices between the butcher’s counter and the meat aisle — you’d be surprised how often the butcher’s counter is cheaper!) For the week after I grill, I have meals that feature pork chops: plain pork chops with various sides, pork chops on top of fresh salads, pork chop slices with barbecue sauce and cheese in a tortilla. You get the idea.
Another perennial favorite is taco meat. A frozen one-pound tube of ground turkey is $2. Taco seasoning from the bulk aisle is $5 per pound (though a pound will last longer than I’ll live!). Besides tacos, taquitos, and nachos, taco meat goes great on fresh salads or mixed with another side dish like beans and rice. That’s five or six meals right there without any repeats. The base ingredient is about $3 for those five meals.
Tacos use the same ingredients as a salad: olives, tomatoes, lettuce, and cheese. Soups, stews, and Spaghetti sauce are in the same category. I make my own spaghetti sauce to an old family recipe using canned tomato sauce and a pound of ground turkey. It freezes well, costs less than $5 to make in a batch, and takes only a minute to reheat. I generally make it once a month.
Don’t buy ingredients that work for only a single meal. A friend of mine loves an arugula salad that I make with lemon balsamic dressing, but I don’t make it for her regularly because you can’t really use the arugula before it goes bad.
On the other hand, one of the few products I buy from my grocery store’s produce section is bagged whole romaine hearts. They come three to a plastic bag for $3. Romaine hearts will keep for at least two weeks fresh in the bag, and it only takes a minute to wash and chop them into salad. (Use the entire heart, of course. Don’t peel the green leaves off. The paler parts are very sweet and juicy!) Don’t buy bagged, pre-cut lettuce — it’s soggy and unappetizing after less than a week.
Be careful with coupons. Make sure you carry a calculator (I use the one on my cell phone) to figure out if it’s really a good deal versus the store brands. You’ll usually find, like I do, that store brands are cheaper. On the other hand, you can find things are a better value — buying lunch meat in the re-useable containers has actually proven to be a good value because you can wash and keep the container. At my grocery store it’s more expensive to buy the containers than it is to buy the half-pound of lunch meat that comes in them!
It seems my grandparents’ lessons are always the best. “Waste not, want not.” I watch my neighbors’ trashcans and shake my head every week. I hardly throw out anything, but some of them seem to fill their trashcans to the brim with kitchen waste every week. How can you get rich (slowly or not!) if you’re throwing out that much food?
For more about eating well for less, check out these past articles at Get Rich Slowly:
Images by Jesse Michael Nix and desi.italy. This article is not associated with Lazy Man and Money, but you should visit his site anyhow.
Farm loans help farmers and ranchers start, grow or maintain their farming businesses. These small-business loans can be used to cover operating expenses, purchase livestock, buy farm machinery and agricultural equipment, as well as construct farm buildings, among other purposes.
Loans for farms are available from a range of sources, including government agencies and lenders that specialize in agriculture. The best farm financing for your business will be the most affordable option you can qualify for that meets your needs.
How Much Do You Need?
with Fundera by NerdWallet
Best farm loan options for agricultural businesses
1. Farm Service Agency (FSA) loans
Best for: Low interest rates; the variety of loan options.
Through the U.S. Department of Agriculture (USDA), the FSA offers several types of farm loans. FSA loans can be a good choice for first-time and established farmers alike. These loans have competitive interest rates, long repayment terms and can be used for a range of different purposes. Here are your options:
Direct operating loans. These loans can be used to cover daily operating costs and family living expenses. They can also be used to purchase livestock, seed and equipment. Loans are available in amounts up to $400,000 with repayment terms up to seven years. The FSA sets monthly interest rates — and as of July 2023, the interest rate on these loans is 4.5%
. No down payment is required.
Direct ownership loans. Farm ownership loans are used to buy or expand a farm or ranch. These loans are available in amounts up to $600,000 with repayment terms up to 40 years. As of July 2023, the interest rate on these loans is 4.875%.
Microloans. FSA microloans are designed to provide financing to small and beginning farmers, as well as niche and nontraditional farm operations, such as truck farms, farms participating in direct marketing and sales, and Community Supported Agriculture (CSA). You can choose between an ownership and operating microloan; interest rates and eligible use cases mirror their standard loan counterparts. Funding amounts for either microloan max out at $50,000.
Guaranteed loans. Unlike FSA direct loans, which are issued directly from the agency to the farmer, FSA guaranteed loans work similarly to the SBA loan program. With these farm loans, the FSA guarantees up to 95% of the financing, and the loans are issued by USDA-approved commercial lenders. Rates and terms are negotiated between you and your lender, subject to the FSA’s maximums.
Additional loans. The FSA also offers youth loans, Native American tribal loans and emergency loans. Rates, repayment terms and maximum funding amounts vary based on the individual program.
To qualify for one of these FSA farm loans, you’ll need to meet a variety of industry- and loan-specific requirements. You’ll need to prove your operation is an eligible farm enterprise, show your managerial experience, as well as describe your acceptable loan purpose.
As a borrower, you’ll need to show your ability to repay the loan. Although the FSA doesn’t rely on credit scores to make eligibility determinations, it’s helpful to have a good credit history. However, the FSA will not deny applications based on credit problems or a lack of credit history.
Applications for these government business loans will require extensive documentation. You have the option to apply online through the e-Gov system, by mail, in person at your local FSA office or by phone. You can expect to receive funding within 60 days after the FSA has received your application and corresponding paperwork.
2. SBA loans
Best for: Established businesses with good credit.
Like FSA farm loans, SBA loans offer long repayment terms and competitive interest rates. Plus, SBA loans have larger maximum funding amounts — up to $5 million.
Although the U.S. Small Business Administration recommends that farms and agricultural businesses look at FSA loans before applying for SBA loans, SBA 7(a) and SBA 504 loans can both be good options for established farmers with strong credit
.
SBA 7(a) loans can be used for a variety of purposes, including working capital, buying inventory and purchasing equipment. Interest rates range from 10.5% to 13%, and repayment terms are up to 10 years for working capital, inventory and equipment purchases and up to 25 years for real estate.
SBA 504 loans, on the other hand, are specifically designed for equipment and real estate purchases. Unlike 7(a) loans, which are issued by banks or credit unions, 504 loans come from three places:
A bank (50%).
A Certified Development Company, or CDC (40%).
The borrower (10%).
Typically, the borrower would provide 10% of the financing, but because farms are considered a “special purpose property” by the SBA, you’re required to provide 15% of the loan amount.
SBA loan rates on 504 loans are tied to the 10-year U.S. Treasury notes. You’ll also have to meet a job and retention requirement to qualify, which is not an element of the 7(a) loan program.
You’ll generally need multiple years in business, good credit and strong finances to qualify for either of these SBA loan options. Although — like FSA loans — SBA loans can be slow to fund, you can expedite the process by working with an SBA preferred lender. These lenders have extensive experience with SBA loan applications and are authorized to accelerate the underwriting process.
3. Farm Credit organizations
Best for: Industry expertise; personalized experience.
Farm Credit is a network of lending institutions across the U.S. that are owned by farmers, ranchers and other agricultural businesses. These institutions are divided into four districts and each district has its own regional wholesale bank.
In each of these districts, you can find organizations that offer loans exclusively for farms and other agricultural businesses. These banks offer farm equipment loans, first-time and beginning farm loans, livestock loans, poultry loans, land loans and lines of credit, among other options.
Loan amounts, repayment terms and interest rates will vary based on the specific institution and loan program — but regardless of which Farm Credit institution you work with, you’ll receive guidance and expertise that’s unique to your industry.
Representatives at these institutions can offer a personalized experience, as well as educational resources and a continuous relationship with your business. If you’re looking to work closely with your bank throughout the loan process and beyond, a local Farm Credit organization may be an option to consider.
4. Farm Plus Financial
Best for: Beginning farmer loans.
Farm Plus Financial is an asset-based lender that offers both farm loans and lines of credit. All of the lender’s available products are secured by agricultural real estate, making it a good choice for newer farmers who may not have the financials to qualify for other options.
Farm loans from Farm Plus Financial are available in amounts that range from $200,000 to $50 million. For term loans, the company can finance up to 75% of the loan-to-value (LTV). For lines of credit, on the other hand, this amount falls to 50% LTV.
Interest rates vary based on the product you choose, your repayment terms and your qualifications, among other factors. You can reach out to a lending representative to receive more information about current interest rates.
Although the value of your farm’s real estate will be one of the most important factors in your business loan application, Farm Plus Financial also requires that all borrowers have a minimum personal credit score of 660 or higher. In addition, your farm property must be five acres or greater to be eligible.
You can start an application by submitting an online inquiry form with basic information about your farm and its financing needs. Once you’ve sent the form, a farm loan specialist will reach out to discuss your options and help you with the application. In general, it can take anywhere from one to three months to get funded.
5. National Funding
Best for: Bad credit; quick access to capital.
If you need capital quickly — or you have bad credit (a personal credit score of 620 or below) — you might consider National Funding for a farm loan. National Funding is an online lender that offers two distinct options: short-term loans and equipment financing.
With National Funding’s short-term loans, you can access up to $400,000 and can use the money to cover working capital needs, inventory purchases and other day-to-day expenses. These loans are available with repayment terms up to 24 months and interest is quoted as a factor rate, which starts at 1.1 for borrowers with strong credit.
The lender’s equipment financing program, on the other hand, provides equipment loans and leases in amounts up to $150,000. You can finance or lease new and used equipment, such as combines, tractors and trucks.
These farm loans have repayment terms up to five years and factor rates that also start at 1.1 for borrowers with strong credit.
Regardless of which option you choose, National Funding offers flexible business loan requirements and a streamlined application process. To qualify, you’ll need to have been in business for at least six months, a personal credit score of 600 or higher and an annual revenue of $250,000 or more.
When you’re ready to apply, you can fill out a simple form on the lender’s website. Next, you’ll talk to a funding specialist who will help you decide which type of farm loan is right for your needs. This representative will also guide you through the application — and once you’re approved, you’ll receive funds in as little as 24 hours.
How to get a farm loan
To get a farm loan for your agriculture business, you can follow these steps:
Understand your financing needs
Think about why you need capital and what you’re going to use it for — this will help you determine which type of financing is right for your business.
You should also consider how much debt you can afford to take on. You should make sure that you’ll be able to handle any potential loan payments based on your current income.
Evaluate typical farm loan requirements
Overall, the farm loan requirements you’ll need to meet will vary based on your loan type and business lender. Most lenders, however, will consider your personal credit score, time in business and annual revenue.
Additionally, as an agriculture business, lenders will likely pay close attention to industry-specific criteria, such as your farm management experience, the amount of land you have, your farm business plan and assets.
Research and compare lenders
With a better understanding of your needs and qualifications, you should be able to focus your lender search to find the options that will be best suited to your business. In general, if you think you may qualify for an FSA loan, you might consider starting your search with these low-interest options.
As you explore different lenders, you should compare them based on factors such as:
Loan types.
Maximum funding amounts.
Repayment terms.
Down payment requirements.
Funding speed.
Application process.
Customer service.
Industry experience.
Lender reputation.
Gather your documentation and apply
Once you’ve found the right lender for your needs, you can gather all of the documentation you need to submit your application. In many cases, you’ll be able to work with a lending representative who will be able to help you through the process and answer any questions you may have.
Once you’ve submitted your application, approval and funding times will vary. Government and commercial lenders tend to have longer timelines, ranging anywhere from several weeks to several months. Online lenders, on the other hand, can fund applications much faster — with some companies providing capital in just 24 hours.
Frequently asked questions
Can I get a farm loan with bad credit?
Yes. Although there may be fewer farm loan options available to borrowers with bad credit, it is still possible to get financing. The FSA, for example, does not exclude its loan applicants for poor or non-existent credit histories. Online lenders are also more likely to accept borrowers with bad credit.
Can you get a loan to buy a farm?
Yes. In fact, the FSA offers a direct farm ownership loan specifically designed to help borrowers buy a farm or ranch. Commercial and online lenders may also issue business loans that can be used to buy a farm.
How can you get a farm loan with no down payment?
If you want a farm loan with no down payment, you can start by looking into FSA loans. Some of the FSA direct farm loans do not require a down payment.
You might also consider online lenders, such as National Funding, many of which don’t require down payments for their loan options. However, to get a loan with no down payment, it will be helpful to have strong qualifications.
And it’s essential to keep in mind that lenders may charge higher interest rates on no-down payment loans than they would if you provided a down payment on your financing.
2022 was a bad year for investors. See the red lines in the graph below? …that’s 2022!
Back in October (around what turned out to be the bottom of the market) I wrote:
2022 is, by far, the worst year for stock/bond portfolios since 1950. We know that stocks can, and will, drop 20%+ in a year. But the fact that bonds are also down 15%+…that’s different.
Now, the real question: what should you do about it?
Should you stop investing? Stocks and bonds are both down…so jump ship altogether?!
No. Definitely not. Remember, “the true cost of long-term investing is psychological.” It hurts to see your portfolio value drop. I know. But success comes from enduring that pain and, if you can, leaning into it. Keep investing.
Should you sell your bonds?
No. It’s too late for that anyway. The leading indicator for future bond returns is the current interest rate. Having bond rates at ~4% right now is a strong signal that you’ll achieve ~4% returns on near-future bonds.
So…should I just sit here and take it?! That’s not advice!
Remember what John Bogle famously said:
My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not ‘Don’t stand there, do something,’ but ‘Don’t do something, stand there!’John Bogle
Don’t do something? Stand there?!
It feels almost inhuman, right? We’re biologically wired for action. We want to do something!
You can consider something like tax-loss harvesting or rebalancing. But you should not consider abandoning your long-term investing plan.
That’s the difference between an emotional investor who reacts to their gut and a rational investor who follows logical rules. Your gut wants to end the pain…to do something. But logic suggests you do otherwise. Will you succumb to your gut? Or listen to the combined logic of many investors far wiser than me or you?
I’m listening to the wise guys.
2022 is a uniquely bad year. It’s understandable to feel glum about it. But you don’t need a uniquely special reaction. Stay the course. Just keep buying. Let the markets and your portfolio recover in the long run.
From the article: Nowhere to Hide: Why 2022 is a Uniquely Bad Investing Year
Back to 2023. Yes, I’m here today to say:
Just kidding! The truth is it’s a little too early to say I told you so. One bad year of investment performance (2022) shouldn’t ruin our moods, and a half year of great performance (2023) shouldn’t make us over-exuberant. We might not be out of the woods completely. I just don’t know. And neither does anyone else.
But if you allowed 2022 to sour your puss and you chose to abandon your investment plan…yikes! Your results aren’t looking too good.
The chart below shows the S&P 500 (dark) and a 60/40 portfolio (light) from October 12, 2022 (the market bottom) to today (7/20/23).
The S&P is up 29% in 9 months. The conservatively diversified 60/40 is up 19% in that period. If you abandoned your portfolio at the end of 2022 and missed those gains…again, I say yikes.
This is Example 1A of why you should stay the course. The headlines at the end of ’22 and the beginning of ’23 were awful. The stock market was taking a dump, the economy was surely headed for recession, and Barbara Walters died.
July 2022, Bloomberg: “Wall Street Says a Recession is Coming. Consumers Say It’s Already Here.”
September 2022, The World Bank: “Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes”
November 2022, CNBC: “Bezos urges consumers and business owners to reduce risk in the face of a likely recession.”
December 2022, NPR: “Barbara Walters, trailblazing journalist, has died at age 93.”
January 2023, Wall Street Journal: “Big Banks Prepare for a Recession”
Who would voluntarily invest in those headwinds?
I know who! Someone who understood market history, had a long-term mindset, and detached emotion from their financial decisions. Not easy, but very possible.
A bunch of The Best Interest readers did phenomenally well these past 9 months. Not because they’re stock-picking wizards, but instead because they buy a diversified set of income-producing assets month after month, then hold those assets for the long term.
Further reading: How I Invest
Investing won’t always feel good. But the times that feel bad are often the best, most important times to stay the course. We’ll never know in the moment, and won’t find out until sufficient time passes. But with the benefit of hindsight, we usually realize, “How about that…the time that felt terrible was the market bottom, and we’ve only gone up from there.”
That’s the lesson so far in 2023.
That lesson might pivot tomorrow. I just don’t know.
But that’s the point. The exact point. I just don’t know. Neither do you, nor the experts writing the headlines.
And that’s why I’ll continue to stay the course.
Thank you for reading! If you enjoyed this article, join 6500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
Disability insurance is the most underrated type of insurance, and one that I routinely would see clients skip. Who ever thinks they will become disabled?
Hard truth – According to some statistics from the Council for Disability Awareness, 1 in 4 workers who are 20 years old will be disabled before they retire. That’s a shocking number for most people to consider. If you can’t perform your job, you can’t earn money, and that’s where a disability insurance plan can save the day.
The best disability insurance companies make it easy to get a quote online. Below you can quickly get a quote from top rated disability insurance companies we recommend, or keep reading to learn more about disability insurance and its uses.
Table of Contents
Quotes From Top Rated Disability Insurance Companies We Recommend
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#1
Quotes from the top disability carriers to ensure you find the best rates
Helps thousands of consumers apply for disability insurance each year
Rated Excellent on TrustPilot
Benefit terms range from 3 months to age 67
Choose your waiting period
Multiple riders add flexibility to your policy
#2
Benefit periods from as little as 2 years or all the way to retirement age
Family care benefit provides coverage for up to a year if policyholder has to take off work to care for a child, spouse, or parent
10% discount to business owners and an additional 10% to preferred occupational classes.
Offers the option of Full Coverage for Mental/Nervous disabilities or a 10% discount for a 2 year limitation.
Rated A (Excellent) by A.M. Best for financial strength
What is Disability Insurance?
The idea behind disability insurance is simple.
It operates similar to a traditional life insurance plan, but instead of paying out upon your death, it pays out if you become disabled.
Coverage for these plans can vary in the size. Just like with other kinds of insurance plans, every disability policy is different.
If you already know what you want and just want to browse different rates from several carriers, click here.
Some plans are going to replace 45 %of your income, while others are going to give more replacement at 65%.
The more replacement coverage you want, the more you’re going to pay for your plan.
The Differences with Workman’s Compensation
When an employee suffers an injury on the job, oftentimes their employer will compensate them through worker’s compensation.
It is important to understand the difference between disability insurance and worker’s compensation – because the two are not the same thing.
The key difference between workers’ compensation and disability insurance is that workers’ compensation (or workers’ comp) pays for injuries that are work-related. Employers will obtain workers’ comp insurance in order to pay for incidents that occur on the job.
If workers sustain injuries on the job, it is oftentimes up to the employer to pay for the person’s medical bills, as well as for the individual’s lost wages if the employee must take time off work because of the injury.
An employee who collects payment via workers’ comp will typically, however, not have a long-term disability, but rather a temporary injury from which he or she will soon return.
On the other hand, disability insurance pays for a percentage of a person’s earnings if the insured is not able to work due to an injury or illness – regardless of whether that injury or accident happened at work or elsewhere.
In addition, if the disability insurance policy is an individual policy (versus an employer-sponsored group plan), the insured will be covered under the policy regardless of who he or she is employed through.
According to the Council for Disability Awareness, less than 5 percent of disabling accidents and illnesses are work related.
This means that the other 95 percent are not – and that these other 95 percent are also not covered by workers’ compensation insurance.
What About Social Security Disability Benefits?
It can be extremely difficult to qualify for Social Security’s disability benefits. For example, Social Security will only pay benefits if a person is considered to be totally disabled. This means that the individual cannot do work that they did previously, nor can they do other jobs either.
In addition, the person’s disability must have lasted, or be expected to last, for at least one year or result in death.
An individual must also have collected enough work credits in order to qualify for Social Security disability benefits.
You can take a look at the 2019 Social Security Administration limits and rates for OASDI and social security here.
The number of credits will be dependent on the age that the individual is when he or she becomes disabled.
With that in mind, the importance of disability insurance becomes even more clear.
This type of insurance can provide you with the additional funds that you need to help pay living expenses – without the need to dip into savings, retirement assets, or worse yet – use credit – for the purpose of paying day to day bills until you are back on the job.
If Social Security deems that a person’s situation qualifies, there is still a five month waiting period before benefits are paid.
This, too, can create a financial hardship for many people in terms of paying living expenses – especially if there are added medical costs due to the illness or injury that has been suffered.
So, we know Social Security won’t give the money you need and workman’s comp probably won’t cover it, so now what?
This is why you should explore a private disability insurance policy.
Types of Disability Insurance
The two main types of coverage are long-term disability and short-term disability.
You can probably guess from the name, but short-term policies are designed to cover employees for a much shorter time, anything shorter than two years.
Long-term disability, on the other hand, is built for anything past two years. A long-term disability insurance policy could continue to pay out for the rest of your life if it’s needed but typically runs from 5-10 years.
Some of the common causes for short-term disability insurance include:
having a baby
a severe illness
a major injury.
Long-term disability could include a lot of things, but some common causes are:
cancer
muscular disorders
cardiovascular complications
or serious injuries
Long-Term Disability vs. Short-Term Disability
Aside from the obvious, there are a few key differences between long-term disability and short-term disability.
One of those is the waiting period for a payout.
With short-term, policyholders can start receiving weekly checks as quickly as a 1 to 7 days after you file a claim for the policy.
With a long-term disability insurance policy, on the other hand, it can be anywhere from 90 days to 180 days.
If you’re looking at the cost difference between the two plans, short-term policies are going to be significantly more affordable than its long-term counterpart. Long-term plans can give you years more coverage which could translate to thousands and thousands of additional coverage from the insurance company.
Another key difference between the two kinds of plans is how you can get the coverage.
A lot of companies offer their employees short-term disability insurance, but almost no companies have a long-term disability insurance program.
If you want to get the long-term coverage, you’ll have to purchase a plan through a private insurance company. If your company offers any type of short-term disability insurance, you should always enroll in the program.
Group, Individual, Multi-life
Inside of the two main types of disability insurance are several “sub-types” of coverage.
One of those is group coverage.
These are policies which are offered through an employer and are offered to all the employees. Group coverage could be either short-term disability or long-term disability.
Employer-sponsored short-term plans are designed to pay for any disabilities which occur outside of the workplace. Short-term disabilities are much more common than long-term disabilities which could impact you for the rest of your life.
Individual Disability Insurance
If your company doesn’t have any sponsored plans, you can purchase a private policy through an insurance company.
You’ll be required to answer some medical questions and depending on the plan, take a medical exam.
Multi-Life Disability Insurance
When you’re shopping around for a disability insurance policy, you’ll probably come across plans being sold as “multi-life plans.”
The idea of these plans is to get several key people in a business (think of several doctors in a practice) to all apply at the same time with their plan.
The insurance company markets these policies as multi-life so they can offer simpler underwriting processes and pass some of the savings onto the policyholders.
Is Group Disability Enough?
For the employees who are lucky enough to get disability insurance through their employer, you still might be lacking. Just because you have a plan through your job, it might not be enough.
Let’s say you’re not able to go to work because of an accident. You can’t get to your job and pull in your paycheck, are you going to be able to pay for all of your monthly bills without having to make any extreme sacrifices.
To determine if your group disability insurance is enough, you’ll need to do some basic math.
Look at your plan and see how much coverage it provides.
For this example, let’s say it pays 50% of your salary. Now, take a look at your bills and expenses.
If the total of those numbers is more than 50% of your income, then your group disability isn’t enough.
If you’ve crunched the numbers and came to the jarring realization your group plan isn’t enough, the best choice is to purchase an additional individual plan.
Both of the policies can work together, and your individual plan can pick up the slack left behind.
What’s the Difference Between Owner-Occupation and Any-Occupation?
One of the most important things to understand about disability insurance plans are the differences between an owner-occupation plan and an any-occupation plan.
They may sound the same, but they completely change how your plan operates and the coverage it will give you.
First, let’s look at owner-occupation (sometimes called own-occupation protection). Policies with this protection will only pay out if you can no longer to the duties and tasks required to you by your job.
If you’re an electrician, but you can not do the simple tasks required on a day-to-day basis, then an own-occupation plan will pay you the benefits.
Any-occupation policies will only pay the benefits of the plan if you can no longer perform any occupation based on your education and work experience.
As you can tell, any-occupation policies have much stricter rules on the circumstances in which they will pay the policyholder.
Type of Disability Insurance
Description of Disability Insurance
Short-term disability insurance
Provides coverage for a limited period of time, usually up to 6 months, and replaces a portion of your income if you are unable to work due to illness or injury.
Long-term disability insurance
Provides coverage for a longer period of time, typically until retirement age, and replaces a portion of your income if you are unable to work due to illness or injury.
Group disability insurance
Provided by an employer as part of a benefits package, group disability insurance offers coverage to all employees and may be offered as short-term or long-term disability insurance.
Individual disability insurance
Purchased by an individual, this type of disability insurance offers customized coverage and can be either short-term or long-term disability insurance.
Own-occupation disability insurance
Offers coverage if you are unable to work in your specific occupation due to illness or injury, even if you are able to work in a different occupation.
Any-occupation disability insurance
Offers coverage only if you are unable to work in any occupation due to illness or injury.
Residual disability insurance
Offers coverage if you are able to work but have a reduction in income due to illness or injury.
How Much Does Disability Insurance Cost?
Now for the part everyone wants to know, how much is a disability insurance plan going to cost you?
Well, there are a lot of different factors which are going to affect how much the premiums are. It’s difficult for me to give an exact number without knowing your exact situation.
For example, the age of the applicant is going to play a major role in the premium rates. If a 25-year old applies for a policy, it’s going to be significantly cheaper than a plan for a 45-year old.
The general rule of thumb for disability insurance is the premiums are going to be anywhere from 1% to 3% of your gross income.
If you are making $100,000, you can budget for $1,000 – $3,000 every year.
As I mentioned, there are dozens of different factors which will completely change how much you pay.
If you’re a smoker, then you’re going to pay much more for your plan.
If you have a riskier job, you’re going to pay more.
The rule of thumb is exactly that.
How Much Disability Insurance Do You Need?
I alluded to the amount of disability insurance earlier in this article, but now let’s take a hard look at how much coverage you should have.
Not having enough disability insurance protection could cause some serious financial strain if something were to happen.
First, let’s look at your living expenses. If you don’t already have a budget, take some time to look at all of your monthly bills (power bill, water bill, mortgage payment, etc.) and your spending (groceries, gas, etc.).
On top of those monthly expenses, add in a few “unexpected” bills as well. You never know when something is going to break or an extra bill is going to pop up.
You want to have some cushion in your budgeting. Otherwise, you end up living paycheck-to-paycheck.
After you have the monthly expenses number, you can do some subtracting.
If you aren’t working, your expenses are going to look very different than they do now. For example, if you aren’t driving to work every day, you probably won’t be spending as much on gas.
You won’t be spending money on work clothes, and you will probably cut out some additional “entertainment expenses” as well.
Now you have a new number, your monthly expenses minus some tweaks.
The next number you want to add to the equation is any income you’ll make from other sources besides your disability insurance plan.
This category can include any money from your investments, money from your spouse or partner’s job (or a second job if they decide to add another job) and any additional disability income you may qualify for.
If you’re the main income earner in your home, then having disability insurance is one of the most important purchases you can make.
Key Man
For most people, they purchase disability insurance for their family and loved ones. for others, they buy a plan to protect their business.
If you’re one of the foundational workers in your business (ex. an owner, CEO, etc.), then you should consider buying a disability insurance policy for your company.
Key man plans operate a little differently than a traditional disability policy. With these policies, the business pays the premiums for the plan, and if something were to happen to you and you couldn’t perform your job, then the business is going to get the money from the payout.
These policies are a way for the companies to protect themselves against financial struggles if a key person in the business were unable to work because of illness or injury.
The company can use this money to outsource those duties or to hire someone to replace the key person while they are out with the disability.
Disability Insurance for High Income Occupations
There is a certain group of people which disability insurance could have some serious problems.
If you are a high-income earner, the standard disability insurance policy simply may not be enough. Just about every insurance company which sells one of these plans is going to have an income limit.
Regardless of the percentage they replace, they are not going to offer more than that limit.
Typically, these are doctors or lawyers who own their own firms, for example.
Some policyholders may find the insurance company’s limit is below the 60% they offer in income insurance.
If you’re one of these people, there are some things you can do to get the protection you need, regardless of how much money you make every year.
One option is to choose a company who offers higher limits. Each company has different coverage limits on their policy. We can help you shop around until you find one with a high enough limit for your needs.
Another route is to buy two separate plans from different companies. Sure, you’ll pay more in premiums every month, but you’ll have the protection in place if you ever need it.
You now know the basics of disability insurance coverage, it’s time to go out and find a policy of your own.
There are more than 40 insurance companies which sell these plans. As I mentioned, they are all different. Some are going to have higher limits, offer a larger percentage, or have cheaper rates.
You need to find a company which suits your needs.
Before you pick a company, compare the rates and plans from several companies. You don’t buy the first house you see, why would you buy the first policy you find?
Sure, you can use your own time to contact those 40+ companies individually, or you can use a tool which will do the dirty work for you.
If you’ve decided you want to get disability insurance or supplement the coverage you already have from work, check out PolicyGenius. They are one of the few companies out there which can gather quotes from dozens of companies for disability insurance, all in one place.
PolicyGenius allows you to tailor your quotes to exactly the kind of policy you’re looking for; the perfect amount of coverage with the proper waiting period.
They know shopping for insurance isn’t easy, but they make it as quick as possible.
FAQs – Best Disability Insurance Quotes
How can I get the best disability insurance quotes?
To get the best disability insurance quotes, it’s important to shop around and compare policies from different insurance companies. You can request quotes online or by speaking with a licensed insurance agent. Be sure to provide accurate information about your occupation, income, and health to receive an accurate quote.
What factors can affect the cost of disability insurance?
The cost of disability insurance can be affected by several factors, including your age, occupation, health status, and the type and amount of coverage you select. Policies with longer benefit periods or more comprehensive coverage may be more expensive.
How much disability insurance coverage do I need?
The amount of disability insurance coverage you need depends on factors such as your income, monthly expenses, and savings. A general guideline is to have enough coverage to replace 60% to 80% of your income, but this may vary depending on your individual circumstances.
Like many of you, we are seeing a significant increase in commercial real estate (“CRE”) loan workouts. The magnitude of the swell in distressed CRE loans remains unclear, although one thing is certain: appreciating the options and remedies for CRE participants, particularly lenders and borrowers, has never been more critical.
A Changing Landscape
Under contemporary commercial real estate finance practices, many CRE loans are typically structured as nonrecourse interest-only loans with balloon payments at maturity. In times of low interest rates and booming property values – the case over the last decade or so – borrowers were generally able to refinance their loans with relative ease.
Unfortunately for borrowers, times have changed dramatically, and the current real estate lending environment has thrown the traditional playbook out the window. In response to persistently high inflation, the Federal Reserve has raised interest rates by 500 basis points since March 2022 (with additional hikes expected this year). Rate hikes, combined with declines or threatened declines in real property values, have resulted in a challenging environment for CRE refinancings.
Borrowers eager to refinance will face higher borrowing costs, and banks, skeptical that property values will recover soon, have grown reluctant to issue new loans. Additionally, many properties (particularly in the office sector) cannot support the carrying costs associated with higher-interest alternative credit providers.
What Lies Ahead
A spike in real estate foreclosures, deeds-in-lieu, and CRE loan modifications is therefore looming (if not already here). Until values stabilize, CRE may become a “hot potato,” with borrowers whose equity values have evaporated uninterested in expending additional resources to retain their properties and lenders reluctant to take them over.
If history is any indication of what’s ahead, we expect the increased activity in loan workouts to result in a mix of mortgage and mezzanine foreclosures, bankruptcy filings, deeds-in-lieu, loan modifications, loan sales, and property short sales.
CRE Loan Workout Outcomes
From “amend and extend” strategies to deeds-in-lieu. there are many potential paths that a loan workout may take. There are tax implications to each outcome that will have to be considered and may drive many of the decisions in a loan workout. Those include cancellation of debt income for recourse loans, capital gains treatment for nonrecourse loans, and a material loan modification being treated for tax purposes as an exchange of debt.
Amend and Extend: In most cases, we expect to see agreements between borrowers and lenders to modify CRE loans permitting the borrower to continue to own and operate property under more favorable loan terms. This “amend and extend” strategy became popular after the 2008 financial crisis when experts expected property values to recover quickly, which ultimately came to pass. It remains to be seen whether lenders will show the same flexibility in the current climate.
Loan modification agreements come in many different flavors. They may simply extend maturity dates on the same terms and conditions. By extending out loan maturity dates to 2025 or later, lenders and borrowers are betting that the additional term will allow sufficient time for interest rates to fall, occupancy rates to rise, and property values to recover enough to allow for a more successful sale or refinancing. Loan modifications can also be used to adjust interest rates, loan covenants, the cash management waterfall, defer capital expenditure requirements, provide additional liquidity, allow for the entry of a new equity partner, and otherwise waive existing defaults. In many cases, to obtain these concessions form the lender, a borrower or its sponsor may be required, in addition to fees, to reduce principal or invest new equity for capital improvements or as a carried interest reserve.
Foreclosures: CRE loans are underwritten based on the value of the underlying collateral. A real property loan is collateralized by a mortgage on the property itself, whereas a mezzanine loan (and sometimes preferred equity) is collateralized by a pledge of the sponsor’s equity in the entity that owns the property. After a loan default, the lender has several enforcement options, including foreclosure. Generally, a successful foreclosure extinguishes all junior liens and encumbrances and removes them from the property’s title.
The foreclosure process differs from state to state and by the type of collateral. Foreclosures of mortgages, leasehold mortgages, or deeds of trust on real property can be judicial or non-judicial. That threshold question will typically determine the duration of the process. A judicial foreclosure takes months or years, depending on the defenses raised by the borrower. A non-judicial foreclosure can be completed in a matter of weeks. Although more common in judicial states, most mortgage loans contain provisions that entitle the lender to the appointment of a receiver early in the case to take control of the property. This remedy may also be available in non-judicial states where the lender commences an action in state court for the appointment of a receiver. A judicial foreclosure provides a borrower that wants to delay or contest the lender’s enforcement of its remedies with a forum to raise defenses and create triable issues of fact. In non-judicial states, the burden is on the borrower to commence an action in court to enjoin or stop the foreclosure. That presents a higher bar to overcome.
In contrast, a foreclosure on a pledge of the membership or partnership interest in the mortgage borrower, either under a mezzanine loan or as additional collateral securing a mortgage loan, is always a non-judicial process. Equity interests in commercial entities are personal property. Thus, a pledge of an equity interest is governed by the Uniform Commercial Code, which expressly contemplates non-judicial foreclosures provided that they are conducted in a commercially reasonable manner.
Unlike the mortgage lender, which can foreclose on the borrower’s fee interest, a mezzanine lender forecloses on the equity interest in the fee owning entity. This means that the mezzanine lender is taking ownership and control of an entity and all of its debts and liabilities, including the mortgage loan. This prospect of having to assume the mortgage loan and provide a replacement guaranty, if any, may deter some mezzanine lenders from foreclosing on their loans.
Bankruptcy: Many CRE loans have been structured as non-recourse, meaning that the lender’s recourse is limited to the property itself. To discourage borrowers (who may have invested relatively limited equity in the property) from filing for bankruptcy protection in an effort to halt foreclosure proceedings and then to try to cramdown their lenders, commercial real estate loans often require a credit-worthy guarantor to provide a springing recourse guaranty (known as a non-recourse carve-out guaranty). Personal liability under the guaranty for the entire loan balance springs into existence – becoming a recourse loan – upon the happening of specified “bad” events, such as a bankruptcy filing by borrower.
The advent of the springing recourse guaranty puts the guarantor in the position of having to repay the entirety of the loan in full if the borrower files for bankruptcy (or triggers certain other defaults). As a result, borrowers generally avoid filing bankruptcy except where: (1) the property’s value exceeds the amount of the guaranty and whatever other obligations may need to be paid in bankruptcy; and (2) the guarantor is insolvent or is itself prepared to file for bankruptcy protection as well, such that the liability exposure under a springing guaranty is less of a threat.
Deeds-In-Lieu: For a variety of reasons, borrowers may prefer to give the property to the lender via a deed-in-lieu, rather than delay the inevitable by forcing the lender to conduct a foreclosure. For borrowers and guarantors, a deed-in-lieu of foreclosure may include a release that will extinguish or reduce liability under any existing guaranties and loan documents (although such releases will typically exclude environmental indemnities). For lenders, a deed-in-lieu should expedite the transfer of the property and allow for a more seamless transition.
A similar method to consensually transfer ownership and control exists under Article 9 of the Uniform Commercial Code. This is known as a “strict foreclosure” and allows for the sponsor to transfer its equity interest in the fee owner to the mezzanine lender.
One complexity here is that the borrower cannot force its lender to take the property. While it may seem counterintuitive, once the default actually occurs the lender may be unwilling to take ownership of the property due to the expenses associated with it, required capital expenditure projects, and cost and time to manage it. The property may also have potential successor liability issues, such as environmental issues, that often deter lenders from accepting title. If the lender has control of the rents through a lockbox and cash management arrangements, a borrower will not be able to cutoff the flow of funds without triggering recourse liability under a springing guaranty. Thus, the lender can continue to receive the cash flow without having to assume the risks of actual fee title ownership. On the other hand, if cash flow is not sufficient to cover the operating, repair and maintenance costs of the property, a lender may have to move quickly to assume ownership and control to preserve the value of its collateral. In that case, a deed-in-lieu of foreclosure may be a desired approach.
A deed-in-lieu may present other issues if a mezzanine loan or loans also exist. In certain cases, depending on the terms of the mezzanine loan documents and any intercreditor agreement between the mortgage lender and mezzanine lender, the consent of the mezzanine lender may be required before a borrower could convey the property to the mortgage lender. That requirement will give the mezzanine lender an opportunity to extract its own concessions in return for its consent.
Other Possible Variations
While beyond the scope of this introductory article, there are numerous other potential paths that a loan workout may travel. For example, the lender may decide to sell its loan to an opportunistic buyer that is willing to exercise remedies to acquire the property.
The borrower and lender may also agree to convert all or a portion of the lender’s loan into equity of the borrower (or a new joint venture), while bringing in another investor to inject needed funds into the project.
The possibilities are numerous, and creative thinking (and counsel) are a must.
2023 Goulston & Storrs PC. National Law Review, Volume XIII, Number 201