financial

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A newly named company called Noah (formerly Patch Homes) lets you access up to $300,000 of your home equity in exchange for future home price appreciation.

The arrangement requires no monthly payments or interest, and all they ask is that you pay them back in 10 years.

They refer to it as a “home equity sharing product,” which actually could make a lot of sense during a crisis such as the coronavirus (COVID-19) epidemic currently ravaging the world.

It allows homeowners to access cash without being burdened with payments, something that may come in handy if a borrower were temporarily laid off or experienced a similar loss of income.

How Noah Works

Noah’s home equity sharing product allows homeowners to tap into their equity without having to execute a cash out refinance or apply for a HELOC or home equity loan.

In doing so, no monthly payments or interest are due. However, in exchange for access to that cash, you must part with a percentage of your home price appreciation, which can range between 15% and 40%.

So while you get the money today, you get less in the future when you sell your home, similar to how a reverse mortgage works.

If the property happens to decrease in value during the 10-year term, Noah will also share in the losses, assuming you don’t exit the contract within the first three years.

In the example on their website (pictured above), a property with an adjusted price of $900,000 rises to $1,343,916 after a decade.

Noah would get $233,175 in this scenario, with $100,000 being their initial investment, and $133,175 being their profit via appreciation. It appears to be a 15% share in this example.

If the home falls in value, Noah would only receive $51,227 of its original $100,000 investment back.

Both these scenarios assume the homeowner exits the contract on the expiration date of a 10-year term.

Their business model is similar to EquityKey, Point, and Unison Home, all of which give homeowners access to funds without payments in exchange for future profits.

How You Pay Noah Back

  • You can use proceeds from a cash out refinance
  • You can sell your home
  • You can pay it off with a home equity loan, HELOC, or reverse mortgage
  • Or simply pay them back with your own funds on hand

As noted, Noah makes money by receiving a portion of your home price appreciation.

This is based on either the sales price if you sell, or the appraised value when you choose to buy them out.

They say the majority of their homeowner partners share between 15% to 40% of future appreciation, with no cap or floor amount.

My assumption is the more you borrow, the more appreciation you must share.

You’ll need to pay that percentage plus the original amount borrowed to satisfy your exit.

In order to pay Noah back, you’ve got four main options.

You can refinance your mortgage with a traditional lender and use the proceeds to pay it off.

You can take out a home-equity loan, HELOC, or a reverse mortgage, and use the funds to pay Noah.

You can sell your home, and have Noah paid directly via escrow with the proceeds.

Or, you can simply use your cash savings on hand to pay them back.

It’s also possible to refinance your Noah agreement into a new Noah agreement.

Applying with Noah

  • Get an estimate by entering your home address and some basic details
  • Complete an online application and get your credit pulled
  • Schedule a home appraisal to determine value
  • Sign your documents and receive your funds

First, you request an estimate by entering your property address into their online form.

It will pull your home value automatically and ask you some basic questions, such as what you currently owe, along with your credit score.

Assuming you want to proceed, you enter basic contact information and then submit a full application online.

This process will be similar to applying for a mortgage, requiring a credit check and the uploading of relevant income/asset documentation.

Next, an appraiser will visit your home to provide an independent assessment of its value.

However, Noah only uses that valuation as a baseline – they then adjust for “appraisal variance, lack of liquidity, and market risk.”

In other words, the appraiser may say the home is worth $500,000, but Noah could adjust it down to $450,000 when all is said is done.

They will then make a final funding offer that outlines how much you’ll receive and the percentage of future appreciation you’ll share with Noah.

Once you sign closing documents with a notary, they’ll transfer the funds within a few days. Noah estimates that the process can take as little as 15 days.

Noah Fees

It’s important to note that Noah does charge fees, despite not charging interest or requiring monthly payments.

Their servicing fee, which is basically a loan origination fee, is $2,000 or 3% of the financing amount, whichever is higher. It covers the processing and underwriting of the loan.

Additionally, third-party fees also apply, including the following:

• Title and escrow: ranges between $520 and $750
• Title insurance: $400
• Home appraisal: $299
• Affordable housing fees: between $150 and $225
• Notary fee: $100

Note: For a limited time (now until May 1st, 2020), they are offering all new customers a $1,000 discount on fees at closing.

Who Is Eligible for Noah?

  • Most property types including single-family homes, condos, and townhouses
  • Primary, second homes, and investment properties
  • Must have a minimum 600 FICO score and clean credit history
  • Property must be valued between $300,000 and $3 million in an eligible area
  • Homeowners typically take out 5% to 20% of their property value
  • Financing amount is capped at a maximum of 80% LTV

Not everyone is eligible for Noah, just like not everyone qualifies for a mortgage. There are many different requirements that you must meet, including property and borrower-specific items.

First off, you need a minimum FICO score of 600, which is below subprime. They use the average of the three credit bureaus, just like traditional mortgage lenders do.

Next, you can’t have multiple 60-day or 90-day delinquencies on your credit report, nor can you be in active bankruptcy or foreclosure proceedings.

You’ll also need sufficient income/savings to cover current debt obligations.

They allow a very flexible 60% max DTI, but anything above that will require that you use Noah proceeds to pay down debt.

With regard to the property itself, it must be valued between $300,000 and $3 million, and you must have at least 25% equity at the time of application.

It can be a single-family home or a condo/townhouse. They also consider tenancy in common (TICs) units and co-ops on a case-by-case basis.

Noah is available on primary residences, second homes, and investment properties.

You cannot have more than three liens on the property, but if you do, Noah proceeds can be used to pay them down/off.

Any private mortgages or loans from private money lenders must be paid off if you partner with Noah.

Lastly, your property should not be involved in any sort of major construction beyond minor home repairs or renovations, and it must be located in one of their service areas.

Where Is Noah Available?

At the moment, Noah isn’t available nationwide, but there are plans to expand across the country later this year, including major East Coast cities.

Currently, Noah is available in 20 metro areas across five states, including:

– Boulder
– Colorado Springs
– Denver
– Fort Collins
– Los Angeles
– Ogden
– Portland
– Provo
– Salt Lake City
– San Diego
– San Francisco
– San Luis Obispo
– San Jose
– Santa Barbara
– Santa Cruz
– Santa Rosa
– Seattle
– Tacoma
– Vancouver (WA)
– West Riverside

Noah’s Homeowner Protection Program

As a Noah homeowner partner, you also have access to “protective advances” via their Homeowner Protection Program.

If you run into financial difficulty, they are able to provide additional funds for things like emergency repairs, or simply to make mortgage and/or property tax payments.

They can provide up to $10,000 based on your property profile, and the term matches your Noah contract. It takes 3-5 days to receive your funds.

The difference here is interest does accrue on the amount borrowed (unclear on APR, it may vary), and there is a processing fee of $500.

While you can pay it back at any time to limit interest charges, you must pay it off in full, no partial payments are accepted.

Note: Noah is waiving all administrative/processing fees for the HPP until May 1st, 2020, and all protective advances offered via the program until May 1st will be interest-free for the first 90 days.

Is Noah a Good Option for Homeowners?

  • May be a good alternative to a home equity line/loan or reverse mortgage
  • Or for someone who has trouble qualifying for a traditional mortgage
  • Just be sure to consider the upfront fees and how much appreciation they ask for in exchange
  • Other companies offer similar arrangements so still comparison shop!

Like anything else, it really depends on your unique financial situation and your needs.

Those with limited assets in need of cash, or those who have trouble qualifying for a traditional mortgage or home equity product might be a good fit.

The same goes for those on a fixed income who want to tap into their equity, but don’t want a reverse mortgage.

While you could part with quite a bit of your home price appreciation in the future, you aren’t on the hook for monthly payments. And the cash could come in handy if you’re in a pinch.

The current coronavirus outbreak and related economic disruption is a perfect example of how this type of arrangement could benefit homeowners in need of money when an unexpected emergency strikes.

Noah also shares in some of the downside risk, assuming home prices fall during the 10-year term (and you buy them out after the first 3 years).

Tip: There are now several companies offering these types of partnerships, so if you do go down this road, be sure to compare costs and offers to determine who has the best deal.

(photo: Marco Verch)

Source: thetruthaboutmortgage.com

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Homebridge Financial Quick Facts

    • Headquartered in Iselin, New Jersey
    • Founded in 1989
    • Top-10 privately held nonbank mortgage lender
    • Operates two wholesale mortgage divisions
    • Funded more than $11 billion in home loans in 2018
    • Has roughly 1,000 mortgage loan originators
    • Licensed in all 50 states and the District of Columbia

Today we’ll review Homebridge Financial, which through recent acquisitions has grown to be a top-20 mortgage lender in the United States.

In mid-2019, they acquired HomeStreet Bank’s home loan centers and its personnel, and two years earlier the operating assets of Prospect Mortgage.

They consider themselves one of the largest privately held, non-bank lenders in the United States (in the top-10).

Aside from being a direct-to-consumer retail mortgage lender, they also operate two wholesale mortgage operations.

They include Homebridge Wholesale and REMN Wholesale, so it’s possible you could get a home loan from Homebridge via a mortgage broker.

For the record, REMN stands for Real Estate Mortgage Network.

How to Apply for a Mortgage with Homebridge Financial

When it comes to applying for a mortgage, you can visit a Homebridge branch if there’s one nearby or use their loan originator directory if you’ve been referred by someone.

Or you can simply input some basic information on their website and a loan originator will get back to you.

If you know the name of the individual you want to work with, you can also enter it via the short form on the Homebridge website to ensure you’re paired with the right person.

Homebridge has physical branches in the following states: AL, AZ, CA, CO, CT, FL, GA, HI, ID, IL, MA, MD, ME, MO, NC, NJ, NV, NY, OH, OR, PA, RI, SC, TX, VA, VT, WA.

While many so-called digital lenders allow you to complete much of the loan process online without speaking to anyone (think Rocket Mortgage or Better Mortgage), Homebridge appears to be big on building relationships.

And they feel that “using an online mortgage lender just doesn’t provide the same kind of personalized service.”

Unfortunately, there’s no mention of a digital loan process. So for those who like convenience over all else, Homebridge might be lacking somewhat.

But for those interested in a human touch, they could be a good choice.

What Homebridge Financial Offers

  • Home purchase loans and refinance loans
  • Conforming, jumbo, government, and interest-only loans
  • Fixed-rate and adjustable-rate loan programs
  • Renovation loans including FHA 203k and Fannie Mae HomeStyle
  • Mortgages on second homes and investment properties
  • Reverse mortgages
  • Energy Efficient Mortgages
  • Mixed use and Commercial loans
  • VA 100% cash out
  • Non-warrantable condos

Homebridge allows you to purchase a home, renovate one, or refinance an existing mortgage, including the option to pull cash out.

They offer all the usual loan types, including conventional, FHA, USDA, and VA loans.

Loan programs include fixed-rate mortgages like the 30-year and 15-year, along with adjustable-rate mortgages such as the 5/1 ARM.

You can also get a jumbo and even a super jumbo loan with them, along with a interest-only home loan, reverse mortgage, or a renovation loan (FHA 203k or Fannie Mae HomeStyle).

In terms of niche offerings, you can get a VA 100% cash out loan, a construction-to-perm loan, an energy efficient mortgage, mixed use and commercial, and even financing on a non-warrantable condo.

They also have a builder division devoted to helping real estate agents and home builders sell more homes, with extended rate locks and a dedicated condo/co-op approval process.

Homebridge Financial Mortgage Rates

With regard to their mortgage rates, we’re in the dark here because they don’t openly advertise them on their website or elsewhere.

That’s not to say they’re bad or just average. In fact, they could be really good, we just don’t know because they don’t have a page on their website dedicated to them.

Additionally, we don’t know much about their lender fees because those are also nowhere to be seen.

Again, they could be in line with industry averages, lower, or higher. But they seem to keep this information to themselves.

So if you’ve gotten a mortgage quote from Homebridge, be sure to compare the rate and closing costs to those of other lenders. Otherwise you won’t know how competitive they are.

Homebridge Home Rewards

One perk offered by Homebridge is the “Homebridge Home Rewards” program, which provides customers with a gift card valued at up to $595.00 for taking out a home purchase loan or mortgage refinance loan.

You must make the gift card request prior to loan origination, and your mortgage must be either an FHA loan, VA loan, or a conventional conforming loan.

The following types of borrowers are eligible:

  • Members or employees of an approved Affinity company
  • Members, volunteers, donors or sponsors of an approved non-profit
  • Military
  • Law Enforcement
  • Teachers
  • Firefighters/Emergency Medical Technicians

For non-profits, eligible borrowers will receive a gift card for up to $250.00 and a $250.00 donation will be made in the borrower’s name to the non-profit.

The minimum loan amount in order to be eligible is $100,000. It is not available in the state of Utah.

Homebridge Financial Reviews

They have a 4.6 out of 5 star rating on Trustpilot, which is considered excellent. It’s based on over 1,650 reviews.

At Zillow, they have a 4.97 out of 5 star rating on nearly 3,000 reviews, which is pretty hard to beat.

Many of the reviews say both the interest rate and fees/closing costs were lower than expected.

They are not an accredited business with the Better Business Bureau (BBB), not that it necessarily matters.

Homebridge Financial Pros and Cons

The Good

  • Excellent customer reviews
  • Free mortgage calculators
  • Licensed in all 50 states and D.C.
  • Tons of loan programs to choose from
  • Homebridge Home Rewards program
  • They service their loans

The Possible Bad

  • Can’t apply for a mortgage directly online
  • Do not advertise their mortgage rates
  • Do not disclose lender fees on their website
  • No digital mortgage process
  • No smartphone app

(photo: Andrew Kearns)

Source: thetruthaboutmortgage.com

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Representatives of federal enforcement and regulatory agencies, including the Consumer Financial Protection Bureau (CFPB), Department of Justice (DOJ), Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC) are warning that the emergence of artificial intelligence (AI) technology do not give license to break existing laws pertaining to civil rights, fair competition, consumer protection and equal opportunity.

In a joint statement, the Civil Rights Division of the DOJ, CFPB, FTC, and EEOC outlined a commitment to enforcement of existing laws and regulations despite a lack of regulatory oversight currently in place regarding emerging AI technologies.

“Private and public entities use these [emerging A.I.] systems to make critical decisions that impact individuals’ rights and opportunities, including fair and equal access to a job, housing, credit opportunities, and other goods and services,” the joint statement notes. “These automated systems are often advertised as providing insights and breakthroughs, increasing efficiencies and cost-savings, and modernizing existing practices. Although many of these tools offer the promise of advancement, their use also has the potential to perpetuate unlawful bias, automate unlawful discrimination, and produce other harmful outcomes.”

Potentially discriminatory outcomes in the CFPB’s areas of focus are a chief concern, according to Rohit Chopra, the agency’s director.

“Technology marketed as AI has spread to every corner of the economy, and regulators need to stay ahead of its growth to prevent discriminatory outcomes that threaten families’ financial stability,” Chopra said. “Today’s joint statement makes it clear that the CFPB will work with its partner enforcement agencies to root out discrimination caused by any tool or system that enables unlawful decision making.”

These agencies have all had to address the rise of AI recently.

Last year, the CFPB published a circular confirming that consumer protection laws remain in place for its covered industries — regardless of the technology being used to serve consumers.

The DOJ’s Civil Rights division in January published a statement of interest in federal court explaining that the Fair Housing Act applies to algorithm-based tenant screening services after a lawsuit in Massachusetts alleged that the use of an algorithm-based scoring system to screen tenants discriminated against Black and Hispanic rental applicants.

Last year, the EEOC published a technical assistance document that detailed how the Americans with Disabilities Act (ADA) applies to the use of software and algorithms, including AI, to make employment-related decisions about job applicants and employees.

The FTC published a report last June warning about harms that could come from AI platforms, including inaccuracy, bias, discrimination, and “commercial surveillance creep.”

In prepared remarks during the interagency announcement, Director Chopra cited the potential harm that could come from A.I. systems as it pertains to the mortgage space.

“While machines crunching numbers might seem capable of taking human bias out of the equation, that’s not what is happening,” Chopra said. “Findings from academic studies and news reporting raise serious questions about algorithmic bias. For example, a statistical analysis of 2 million mortgage applications found that Black families were 80% more likely to be denied by an algorithm when compared to white families with similar financial and credit backgrounds.”

Source: housingwire.com

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Northwestern Mutual Study Finds Americans Who Carry Personal Debt Owe an Average of $21,800 Exclusive of Mortgages Overall average is $8,000 lower than it was in 2019, but 35% of Americans say they’re carrying close to or at their highest level of debt ever while 43% say their debt is close to or at a … [Read more…]

Apache is functioning normally

About a year ago, at the advice of GRS readers, I started an experiment. I took all of the shirts and sweaters from my clothes closet and moved them into our spare room. Whenever I needed something to wear, I checked the clothes closet first. If what I needed wasn’t there (as was often the case at first), I went to the spare room to find it. After I’d worn a shirt or sweater once, it was allowed to return to its home in the main clothes closet.

The results of this experiment probably won’t be very surprising. After a couple of weeks during which I was reclaiming my favorite shirts, most of the rest remained unused. For an entire year.

On Tuesday, I gritted my teeth, grabbed the 37 shirts and sweaters still left in the spare room, and took them to a local thrift store. Some of the things I donated had never been worn (or had been worn just a couple of times). It hurt to part with those clothes. I probably spent more than $750 to purchase them (remember, I buy a lot of clothes at thrift stores), so in a way it felt like I was throwing away $750.

But it occurred to me that’s the wrong way to look at it. I’m not throwing that money away now. I threw away that $750 years ago when I bought the clothes I wasn’t ever going to wear. (Plus, I’ve managed to get rid of a bunch of Stuff, which was the whole point of this project in the first place.)

Over the past few weeks, I’ve bought a handful of new shirts to fill some gaps in my wardrobe. But I’ve made a vow to myself: I never want to buy clothes compulsively again. It used to be I’d go into Costco or Goodwill or wherever, and if I saw a shirt or sweater I liked, I’d buy it — even if I didn’t have a need for it. Now, though, I want to apply my new-found financial discipline to my wardrobe. Instead of buying lots of cheap stuff, I’m going to allow myself to purchase nice stuff (I like the clothes at REI), but only when I have a need for something.

Caveat: I’m losing weight right now. If all goes according to plan, I will have lost 50 pounds by the end of the year. There’s no way I’m going to pay full price for an entirely new wardrobe. As needed, I’ll build the foundation of my new skinnier wardrobe by shopping at thrift stores instead of paying full price at a department store.

Now that this project is over, it’s made me think:

    • I wonder if there’s a way to make this an ongoing thing. Is there a way for me to tag which clothes I’ve worn most recently, and which I haven’t? Maybe if I hang the freshly cleaned clothes at one end of the closet, then I’d know the clothes at the other end had gone the longest since being worn. In this way, I could be constantly getting rid of the items I no longer wear.
    • I also think it might be interesting to apply this method to other parts of my life. What about my CD and DVD collections? My books? The garden tools that are spilling out of our shed? In my war on Stuff, I’m always looking for new paths to victory, and this method could be one.

My guess is that of the things I own, probably 20% of the Stuff gets 80% of the use. While a part of me wants to be brave and simply pare down what I own to just the bare essentials, I haven’t reached that mental space yet. I’m too attached. But maybe I’ll get there in a few years. For now, I’m just happy to have trimmed my wardrobe down to a manageable size.

Source: getrichslowly.org

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It’s been a fairly eventful week with a key speaking engagement from the chair of the Federal Reserve (which didn’t disappoint). Then yesterday President Trump came out and started to talk about imposing tariffs on steel and aluminum, which sent stocks reeling and put some upward pressure on mortgage rates. Read on for more details.

[embedded content]

Market Recap 3.2.18 from Total Mortgage on Vimeo.

Where are mortgage rates going?                           

Trump roils markets with trade war talk

President Trump stated on Thursday that he is getting ready to implement tariffs on imported steel and aluminum products. The stock market did not take well to the conversation, with the Dow Jones Industrial Average falling 420 points on the day.

Today, those concerns are staying front and center for market participants, with all of the major market indexes trading lower by about 1.00%. These investors are fleeing stocks for the perceived safety of precious metals and government bonds.

The yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) is currently sitting at 2.83%. That’s up almost two basis points from the start of the day, but below where it started the week at 2.88%.

Mortgage rates typically move in the same direction as the 10-year yield, so rates are up a little bit on the day but flat to slightly lower on the week.

It’s true that mortgage rates did rise for the eighth consecutive week in the Freddie Mac Primary Mortgage Market Survey (PMMS), but data for that survey is collected early on in the week.

We’ve been on a mostly downward trajectory since Wednesday, so the PMMS doesn’t reflect current market conditions. There’s no doubt, though, that mortgage rates are still poised for move higher in the coming weeks and months.

Fed Chair Jerome Powell did paint a very optimistic picture of the U.S. economy, leading many financial market participants to believe that three rate hikes are definitely in the cards for 2018–with a strong maybe for four rate hikes.

It’s not a direct relationship but the Fed increasing the nation’s benchmark interest rate–the federal funds rate–will result in mortgage rates moving higher.

Rate/Float Recommendation                

Lock in a rate now before rates jump

The average rate on a 30-year fixed rate, according to the Freddie Mac PMMS, has risen forty-eight basis points since the start of the year. Market analysts are calling for another fifty basis point increase before the year is over.

Learn what you can do to get the best interest rate possible. 

It doesn’t take a seasoned home buyer to understand that you don’t want your rate to be higher by a half a percentage point. The bottom line here is that the longer you wait to lock in your rate on a purchase or refinance, the greater the likelihood you’re going to get a higher rate.

Today’s economic data:                                 

Consumer Sentiment 

The final reading for consumer sentiment in February came in at 99.7.

Notable events this week:                

Monday: 

  • Fedspeak
  • Chicago Fed National Activity Index
  • New Home Sales
  • Dallas Fed Mfg Survey

Tuesday:    

  • Durable Goods Orders
  • International Trade in Goods
  • Jerome Powell Testimony
  • FHFA House Price Index
  • Consumer Confidence
  • Richmond Fed Manufacturing Index

Wednesday:      

  • GDP
  • Chicago PMI
  • Pending Home Sales Index
  • EIA Petroleum Status Report

Thursday:        

  • Jobless Claims
  • Personal Income and Outlays
  • PMI Manufacturing Index
  • ISM Mfg Index
  • Construction Spending
  • Fedspeak
  • Jerome Powell Testimony

Friday:       

  • Consumer Sentiment

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A credit card is a type of revolving credit account in which the cardholder is given a spending threshold, and as they pay their debt off, the credit is automatically renewed. A charge card has no spending limit and doesn’t charge interest but has to be paid off in full every pay period, usually monthly.

Do you know what a charge card is? While a charge card and a credit card are often thought to be similar, they actually aren’t interchangeable terms. A credit card is a type of revolving credit account in which the cardholder is given a spending threshold, and as they pay their debt off, the credit is automatically renewed. In comparison, a charge card has no spending limit and doesn’t charge interest but has to be paid off in full every pay period, usually monthly.

If you need a new card and are deciding between these two types, this guide will help walk you through the credit card vs. charge card comparison. 

What is a credit card?

A credit card is a type of revolving credit account. Cardholders are given a maximum spending limit, which resets as they pay off the charges on the account. Credit cards charge interest on any purchases left unpaid past the due date and sometimes come with annual fees. Many individuals choose their credit cards based on the benefits they may receive, such as cashback rewards, points, vouchers, travel perks, and more. 

You have to apply for a credit card and are approved based on your creditworthiness. Individuals with higher credit often get access to credit cards with better benefits and—sometimes—lower interest rates. Still, there are credit card options available for everyone, including those with bad credit.

What is a charge card?

A charge card isn’t a revolving credit account because it requires the cardholder to pay off the balance in full, usually every month. Charge cards don’t come with credit limits and don’t charge interest on purchases. Many people gravitate toward charge cards because of their perks. However, charge cards often come with very high annual fees and are only offered to those with excellent credit. 

Individuals who don’t pay off their charge card in full by the due date are subject to enormous fees and penalties. 

In recent years, charge cards have become rare, with companies opting to offer premium credit cards instead. 

How do charge cards work?

A card that has no spending limit and charges no interest sounds too good to be true to most. So you might be wondering how charge cards work and what their catch is. A charge card looks like a credit card and acts similarly—in some aspects. You can make purchases on the card and often earn rewards. And unlike a credit card, charge cards typically don’t have a credit limit.

A charge card promises that you’ll avoid paying interest on purchases. But charge cards require the balance to be paid in full by the due date or there are significant consequences. Failure to pay on time incurs tremendous fees and penalties and often results in missed payments being reported to the credit bureaus. 

Lastly, since charge cards aren’t made to carry a balance (unlike credit cards), 0 percent interest promotions, minimum payments, and balance transfers are never offered.  

Charge cards used to be very popular with retailers, but now most stores have replaced this option with credit cards instead.

Key differences between credit cards and charge cards

Here are some of the primary differences between credit cards and charge cards.

Spending limits

A credit card has a maximum spending limit and usually stops working if you exceed that limit. In fact, many cards allow cardholders to go slightly above their credit limit but will charge an over-limit fee for doing so. 

In comparison, a charge card has no preset limit. This means you can often spend a lot on a charge card without worrying about your credit utilization ratio. Charge cards are great for big purchases, as you don’t have to worry about meeting or exceeding your monthly limit. Many business owners who frequently make large purchases may benefit from a charge card. 

Not having a preset credit limit doesn’t mean a charge card comes with an unlimited spending threshold. Instead, the limit on your card changes depending on certain factors, such as your payment history, use of the card, creditworthiness, income, debts, and more. 

Payment requirements

The main difference between charge cards and credit cards is the ability to carry a balance. With a credit card, you can maintain a balance from month to month. As long as you pay the minimum payment, your credit card will charge you some interest but allow you to continue using the card and carrying a balance forward. 

A charge card requires the balance to be paid in full (usually monthly). If a charge card isn’t paid in full for its pay cycle, the cardholder will incur hefty fees, the account may immediately be closed and the company may report the missed payment to the credit bureaus. 

In some ways, the inability to carry a balance is an advantage of a charge card. This ensures the cardholder can’t keep spending and accruing a balance while only making a minimum payment. 

Fees and interest

The fees and interest structures for charge cards and credit cards are quite different. Credit cards can come with an annual fee and other fees (over-limit fee, late payment fee, cash advance fee, etc.). Credit cards also charge an interest rate on purchases not paid by the monthly due date. As of January 2022, the average credit card interest rate for Americans was 16.13 percent, but it can go as high as 30 percent.

Charge cards typically have a high annual fee because they offer excellent rewards or perks. A charge card doesn’t charge interest, but there are exorbitant fees for not paying the entire balance every month. In comparison, a credit card won’t charge you late payment fees as long as you make the minimum payment every month. 

Credit score impact

Both credit cards and charge cards can hurt or help your credit. For example, credit cards and charge cards both typically affect your payment history, which is the most important factor in your credit health. On-time payments are beneficial, while late or missed payments can really hurt your credit.

Similarly, both a credit card and a charge card require you to apply for them, which will result in a hard inquiry into your account. A hard inquiry often temporarily lowers your credit score by a few points. However, as long as you avoid multiple hard inquiries in a short period, your credit should recover within six to twelve months. 

Credit cards and charge cards can both also play a role in your credit mix and credit age, two other main credit factors.

When it comes to credit utilization, though, credit cards and charge cards are different. When you have a credit card, you want to avoid using too much of your available limit, as that can negatively impact your credit utilization ratio. But with a charge card, there’s no preset credit limit, so you don’t have to worry about how your purchases on that card will impact your credit utilization. 

Which is the best option for you?

When looking at the credit card vs. charge card debate, there’s no universal answer on which type of card is best. Ultimately, you have to weigh the pros and cons of each option and decide what factors are most important to you.

Someone responsible with their budget might opt for a charge card and take advantage of the rewards, knowing they can keep up with their payments. Alternatively, if you know you tend to overspend, having a preset credit limit and the ability to make minimum payments may be more beneficial. You also have to keep in mind that not many lenders offer charge cards now, so you might not have many options in that vein.

Regardless of the card you choose, it’s essential to be responsible when using credit. When it comes to using credit cards, always remember to:

  • Keep your spending to 30 percent or less of the available credit 
  • Pay your bills on time and in full
  • Set up autopay so you never have a missed or late payment
  • Spend within your budget 

Remember that being accountable with your credit and having healthy credit is essential for your financial health. Excellent credit can save you money and give you access to more financial opportunities when you need them. If you’re concerned about your credit, let Lexington Law Firm help. Our credit repair consultants will review your credit and help you on the credit repair journey. 

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Paola Bergauer

Associate Attorney

Paola Bergauer was born in San Jose, California then moved with her family to Hawaii and later Arizona.

In 2012 she earned a Bachelor’s degree in both Psychology and Political Science. In 2014 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, she had the opportunity to participate in externships where she was able to assist in the representation of clients who were pleading asylum in front of Immigration Court. Paola was also a senior staff editor in her law school’s Law Review. Prior to joining Lexington Law, Paola has worked in Immigration, Criminal Defense, and Personal Injury. Paola is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.

Source: lexingtonlaw.com

Apache is functioning normally

Consumers struggling to pay college bills could face more financial difficulties with legal challenges impeding attempts at student debt cancellation and forbearance for federal loans of this type ending, but some things will minimize mortgage impacts.

When interest-free federal student-loan forbearance ends later this year, borrowers will have a 12-month reprieve between Oct. 1 and Sept. 30 of next year from late fees, adverse credit reporting or referrals to debt collection agencies. Some loans may have more payment flexibility.

“Borrowers are going to have a little bit of time to pull things together and get back into positive habits for repayment without their credit being impacted,” said Sara Parrish, president of CampusDoor, an Incenter company that provides white-labeled private student-loan services.

“It may just kick that can down the road just a little bit but I do feel that given that amount of time to get used to it again, as long as that’s implemented in a way that does encourage people to get back into the swing of repayment, that’s going to lessen the blow,” she added.

Given these measures and the fact the overall economy remains strong, some think the resumption of student loan payments won’t probably do much more than lift consumer-debt delinquency rates among more credit-sensitive borrowers half a percentage point at most. 

“I’m sure there will be 50 articles written [saying that] we’re falling off a cliff and we’re going into recession. In reality, it’ll be a lot to do about nothing,” said Vadim Verkhoglayad, vice president and head of research at dv01, a data management, reporting and analytics platform for lending markets.

Mortgage performance in particular may be insulated because, with rare exceptions, borrowers generally prioritize loans they pay to keep a roof over their heads before other obligations.

The other question for mortgage companies has to do with the impact on lending prospects given that the Biden administration had hoped to offer up to $20,000 in student debt cancellation for more than 40 million borrowers earning less than $125,000 per year.

All along, many home lending professionals have been cautious about counting on that broader forgiveness as a source of potential mortgage leads, focusing instead on more limited student loan relief that actually has materialized to some degree in the past year or so.

While some of the relief like interest-free forbearance has been temporary, mortgage companies may not see a big change in who qualifies for mortgages when it ends in the fall because even borrowers with payment suspensions were assessed as if their full debt obligation was in force.

“We’ve never stopped counting as a monthly payment for a student loan, even though it was in forbearance,” said Melissa Cohn, regional vice president at William Raveis Mortgage.

However, there are some questions about how the resumption of interest and payments will affect overall debt-to-income ratios that can be a determining factor in whether a consumer can qualify for a mortgage. More than $1.7 trillion in U.S. student debt is outstanding.

While putting student loan payments in interest-free forbearance theoretically could have allowed borrowers involved to potentially direct the suspended payments into paydowns of other types of debt, find likely did or could.

“In many cases, it was not spent to bring down the outstanding debt that they have,” Parrish said.

There could also be complications for mortgage companies considering that student loan servicers have been through consolidation. Some borrowers might have trouble identifying which one is currently handling their loan.

“It is a very good chance that you’re not making your payment to the same servicer that you were making your payment to when these student loans went into forbearance,” said Parrish, whose company provides student loan services to nonbank and depository mortgage lenders.

Mortgage companies as well as borrowers might want to be careful about communications involving student loan servicers for that reason, particularly given that misinformation that leads to an undisclosed debt in home loan underwriting could result in repurchase risk.

While all these student loan developments can challenge mortgage companies, legal barriers to widespread forgiveness for education debt and end of forbearance also have an upside in reducing payment disincentives on the part of some people not afforded relief.

Cohn said limiting debt cancellation to groups like public servants with good loan-performance track-records reduces resentment among those left out of relief, who have raised questions like, “Why should our taxpayer dollars support others and why can’t I get forgiven?”

Source: nationalmortgagenews.com

Apache is functioning normally

Most people probably expect to use a mortgage to purchase a home, but what if you have enough to pay in cash?

In a hot housing market, an all-cash offer can give homebuyers a significant competitive edge over those whose bids are contingent on getting a mortgage. And who wouldn’t want to avoid monthly house payments if they could?

Does it really make sense, though, to forgo getting a home loan — especially when you could invest the money and potentially earn a higher return?

Cash vs. Mortgage: A Quick Overview

According to the National Association of Realtors®, 28% of home sales in December 2022 were cash deals.

Those buyers undoubtedly had a mix of motivations when they decided to pay with cash. Some people don’t like the idea of carrying a big debt — or paying the interest on that debt. Others might want to skip some of the lending costs and nerve-wracking processes (approvals, appraisals, inspections, etc.) that are required when taking out a home loan.

And, yes, a cash offer can be an attention-getter when there are multiple offers on a house.

But it’s also important to look at the advantages of having a mortgage.

Before you move forward with a home purchase, here are some of the pros and cons of buying a house with cash vs. a mortgage.

Pros of Buying a House With Cash

There are some clear benefits to paying cash for a house, including:

Beating Out Other Buyers

A cash offer can help you compete more effectively with real estate investors who are able to pay cash for properties of interest.

Or you may be able to negotiate a better price with a seller who’s looking for a quick closing. If your seller already had an offer or two fall through because of contingency issues, it’s possible you’ll be perceived even more favorably.

Speeding Up the Buying Process

When you use a mortgage to buy a home, you can expect to spend a few anxious days working on your loan application, pulling together your paperwork, and waiting for the lender’s approval.

Then you’ll have to wait for a property appraisal, a title search, and other steps that let the lender know the collateral being used for the loan is solid.

With cash, you might be able to avoid some of those steps — and the costs that go with them. (You still may want to follow through, though, with procedures meant to ensure that your purchase is sound, even if they aren’t required. Otherwise, undiscovered issues could come back to bite you if you refinance or sell the home in the future.)

Buying When the Appraised Value Isn’t Market Value

Paying cash for a house can allow you to purchase a home that won’t appraise for the seller’s asking price (or the price the average buyer may be willing to pay). If you understand the problems and plan to make necessary improvements, you may still decide it’s the house you want.

No Monthly Payment and Fewer Long-Term Costs

With a cash purchase, you won’t have a monthly mortgage payment in your budget, which can feel quite freeing. And you can avoid some of the long-term costs associated with a mortgage, including interest and private mortgage insurance.

Cons of Buying a Home With Cash

Drawbacks also exist when paying cash for a house. Here are a few:

Losing Out on Investing Potential

Yes, if you pay cash, you’ll save by not paying interest, but could you make more money year to year by investing your money elsewhere? If you can lock in a low interest rate on a mortgage, it could free up cash for other purposes, including saving for retirement. (Plus, diversifying your portfolio is recommended in most cases. If you put most of your cash into your house, that’s just one asset — the opposite of diversification.)

Remember, diversification can help reduce some investment risk. However, it cannot guarantee nor fully protect in a down market.

Keep in mind also that if you liquidate assets to help pay for the home, you won’t just lose out on the earnings potential. If those assets have gone up in value since you purchased them, you also may trigger capital gains taxes.

Using Up All Your Cash

If purchasing your home with cash takes a big chunk out of your savings, you might not have the money you’ll need later for unexpected expenses or home improvements.

And if you end up using a credit card for those costs, the interest rate will likely be higher than it would be for a mortgage. The average rate in 2023 is 22.38% for new offers.

Cash Isn’t Always Better

An all-cash offer is a power move, but it won’t necessarily win the day. Though the thought of a quicker and easier closing will probably get the attention of the seller, they may still go with the highest offer, even if it includes a mortgage contingency.

Missing Out on the Mortgage Tax Deduction

If you itemize on your federal taxes, you won’t be able to deduct your mortgage interest if you pay cash for your home. Depending on what you’d pay in interest each year and what your tax bracket is, this could be a significant consideration.

The deduction can also be taken on loan interest for second homes, as long as it stays within the limits.

If you are looking to purchase your house
with a mortgage loan, SoFi
offers competitive rates.

How to Buy a House With Cash

If you like the idea of being an all-cash buyer and you’re wondering what that process involves, here are some next steps to consider.

Consolidate Your Cash

Getting your cash together in one place could take a while, so give yourself some time. If you’re ready to buy, you may want to move your money from savings accounts, and any investments and other assets you’ve liquidated, to one easy-to-access account.

If you already own a home and plan to sell it, you’ll have to factor that into this process, as well, especially if you need the cash from the sale of your current home to put toward the purchase of your new home.

Negotiate the Price and Sign the Contract

Once you know how much cash you have to work with, you can make an offer on a home. Be prepared to provide proof that you have enough money to make the purchase. If the offer is accepted, you’ll sign a contract.

Consider the Worth of an Inspection

If you’re paying cash, a home inspection won’t be required. However, it’s a good way to protect yourself in case there are hidden issues. The same goes for getting an appraisal, owner’s title insurance, a termite inspection, and homeowners insurance.

Prepare for the Closing

The closing is when you’ll seal the deal and pay the seller. You may be asked to provide a cashier’s check for the amount you owe, or you might be able to pay with an electronic transfer.

How to Obtain a Mortgage

If you’ve decided that buying a house — or a second home — with cash isn’t doable or practical, then you’ll need to know how much you can afford to borrow.

Getting prequalified and preapproved are basics in securing a mortgage. The first provides a ballpark estimate of how much you may be able to borrow and at what rates, and the other will tell you exactly how much you can probably borrow and at what terms.

When getting preapproved, lenders will review things like your credit scores, employment history, earnings, assets, and debt to make sure you can meet your mortgage payment obligations.

You’ll need to consider if your savings are enough for your down payment, closing costs, moving costs, and home repairs. Even if a 20% down payment is ideal, that’s not always realistic or required.

Recommended: What is the Average Down Payment on a Home?

Delayed Financing: An Option for Cash Buyers

Delayed financing is a way to combine the benefits of cash and mortgage home buying. In short, it’s a way for you to buy a house with cash but then refinance the property within the first six months to get some of your cash investment back.

This route gives you the advantages of being a cash buyer but the ability to regain some of your sacrificed liquidity.

The cash-out amount can vary by loan program and there are specific eligibility requirements. For example, lenders generally require that the purchase was an arm’s-length transaction. This means the buyer and seller do not have any relationship outside of this transaction.

The stipulation is included to help ensure that each party is acting without pressure from the other and that both have access to the same information about the deal.

You may also need to show the lender a copy of your settlement statement showing the home was purchased with cash, a title report showing that you are the owner and that there are no liens on the property, and proof that your own money was used to make the purchase (no borrowed, gifted, or business funds).

The Takeaway

Paying cash for a house can be a good way to get attention in a hot seller’s market. And the idea of avoiding a monthly mortgage payment — and interest — can be appealing. But there are potential downsides to an all-cash deal.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: Simple, smart, and so affordable.

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com