The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But forgiven student loan debt is different.
The American Rescue Plan (ARP) Act specifies that student loan debt discharged between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.
This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, non-federal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans also qualify.
However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about which discharged student debt is taxable and by whom.
Different Student Loan Forgiveness Programs
Federal student debt can be canceled via an income-driven repayment plan (IDR) or forgiveness programs.
While President Joe Biden’s plan to offer federal debt cancellation of up to $20,000 to those with qualifying income failed — struck down by the U.S. Supreme Court — other forms of student loan forgiveness have been strengthened.
In October 2023, the White House announced at least $127 billion in student loan relief for nearly 3.6 million Americans:
• $5.2 billion in additional debt relief for 53,000 borrowers under Public Service Loan Forgiveness programs.
• Nearly $2.8 billion in new debt relief for nearly 51,000 borrowers through fixes to income-driven repayment. These are borrowers who made 20 years or more of payments but never got the relief they were entitled to.
• $1.2 billion for nearly 22,000 borrowers who have a total or permanent disability who have been identified and approved for discharge through a data match with the Social Security Administration.
Recommended: Guide to Student Loan Forgiveness
Whose Student Loan Cancellation Is Not Federally Taxed?
As stated earlier, under the provisions of the ARP Act, any student debt (private or federal) for post-secondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that the borrowers just listed above were not required to report their discharged loan amount as earned income, and therefore taxable.
Outside of the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness also don’t have to worry about paying taxes on the canceled amount. The program explicitly states that earned forgiveness through PSLF is not considered taxable income.
Recommended: A Look Into the Public Service Loan Forgiveness Program
Whose Student Loan Cancellation Is Federally Taxed?
Borrowers who receive loan cancellation after participating fully in an income-driven loan repayment plan can generally expect to pay taxes. Again, those whose debt was discharged in 2021 and 2022, or will be discharged in 2023, 2024, or 2025, will not need to pay federal taxes on their forgiven loans.
Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation. 💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Which States Have Said They Will Tax Forgiven Student Loans?
Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.
As of October 2023, the states that say forgiven loans are taxable are Mississippi, North Carolina, Indiana, Wisconsin, and possibly Arkansas, depending on an upcoming vote in its legislature. More states could decide to do so.
It’s important to consult a qualified tax accountant or someone knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.
Preparing to Pay Discharged Student Loan Taxes
If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take today to get ready.
Step 1: Estimate Your Bill
The first step when bracing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This factor can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.
To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.
Step 2: Choose the Right Plan
Enrolling your federal student loans into an IDR plan can help you keep your monthly payments to a manageable amount while you’re awaiting loan forgiveness. All of these repayment plans calculate your monthly payment based on your income and family size.
The newest IDR program is the Saving on a Valuable Education (SAVE) plan, which offers unique benefits that will lower payments for many borrowers, to as low as 5% of disposable income in 2024 for those who qualify.
Recommended: The SAVE Plan: What Student Loan Borrowers Need to Know
Step 3: Prioritize Saving
If you’re expecting loan forgiveness after 2025, it might be advantageous to allocate extra cash flow toward a dedicated tax savings fund. Incrementally setting money aside over multiple years can ease the burden of a sudden lump sum tax bill down the line.
Paying Taxes on Canceled Student Loan
If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest will likely accrue. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
The Takeaway
Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due, depending on where the borrower lives.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Is loan repayment considered taxable income?
If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the Cares Act, loan forgiveness payments — and employer assistance loan payments up to $5,250 — made each year from 2021 through 2025 are tax-free.
Will refinancing my student loans help me avoid taxes?
Student loan refinancing simply involves reworking one or more existing student loans into a new private loan with more favorable terms. It’s a repayment strategy that does not incur a tax liability.
Photo credit: iStock/fizkes
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
When you owe a large amount of unpaid debt, you risk becoming a target for untrustworthy creditors and debt collectors.
The Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) provide a legal framework for your rights and responsibilities as a borrower in debt.
However, it’s important to fully understand these two federal laws and recognize potential illegal debt collection activities before they affect you.
Re-aging debt can be a confusing process because, in some instances, it’s legal and beneficial to you. However, in other instances, it can be detrimental, not to mention illegal.
We’ll walk you through the ups and downs of re-aged accounts. We’ll also help you identify other common tricks debt collectors may attempt to pull on you.
What is Debt Re-aging?
What does it mean when a debt is re-aged? For credit reporting purposes, a debt is considered re-aged when the date of first delinquency is moved forward. So, for example, a debt that was originally past due in August 2015 may be “re-aged” to show that it was originally past due in August 2016 or even later.
This process can also be known as “curing” or a “rollback.” Occasionally, this can help your credit score, while other times, it’s simply a way for debt collectors to gain more time in collecting payments from you. Let’s break down the details into two different categories: positive re-aging and negative re-aging.
Positive Account Re-aging
Positive re-aging occurs when you work directly with a credit card company or lender to make payments and minimize the damage done to your consumer credit reports. This typically comes as part of a debt repayment plan.
That’s because your unpaid debt can still be reported as late every month, even if you’re making payments and attempting to catch up. In addition, each of these rolling late payments works against your credit score.
“Paid On Time”
As part of a repayment plan, your creditor may agree to re-age the credit account so that it is reported as “paid on time.” They can either bring past payments up to date or re-age all your payments going forward.
This is a helpful way to get yourself out of a cycle of debt. You might also consider enrolling in a debt management plan. A credit counselor can help negotiate the specifics of your agreement.
In many situations, the credit card companies will agree to re-age your accounts once you’ve made a few consecutive months of on-time payments. It’s a good incentive for both parties to actively get your unpaid debt under control.
Negative Account Re-aging
Unfortunately, there is another type of “re-aged” debt. When your past-due bills are charged off by the original creditor, they are oftentimes sold to debt collectors.
These collection agencies pay mere pennies on the dollar to acquire these debts. Then, they attempt to collect and make a profit. Sometimes, unscrupulous debt collectors will “re-age” this newly purchased debt. This is a major problem for two reasons:
Re-aging makes the debt look like a new debt that is delinquent, rather than the same old debt simply owned by a new creditor.
Re-aging gives the debt collector additional time to attempt to collect the debt, even if the debt is too old to legally collect.
The additional delinquent account will cause your credit scores to take another hit, and the revised delinquency date gives them a longer time to pursue the debt.
Illegal Debt Re-aging
While this type of “re-aging” is illegal, there is no simple way for the average consumer to get immediate relief from this type of unfair practice. But you can take steps to prevent further damage to your credit score and avoid reopening the statute of limitations.
If you’ve made a payment on one of these “re-aged” debts, it can be almost impossible to have the matter corrected. This is because the payment automatically renews the time that the debt remains on your credit report!
This means a payment to a debt collector can leave you with a delinquent debt that cannot be removed for another 7 to 10 years if it is not paid off.
It also reopens the statute of limitations on the amount of time they may pursue repayment from you. The timeframe varies from state to state but generally lasts between three and seven years. Clearly, it’s in your best interest to monitor your credit report and fight back against illegally re-aged collection accounts.
How to Dispute Re-aged Accounts
Unscrupulous practices like these are why it is crucial to monitor your credit report and credit score carefully. It’s also important to avoid dealing with any creditor or collection agency that uses high-pressure, unfair tactics to attempt to get you to pay. Most importantly, if the unpaid debt in question is too old to collect based upon the laws of your state, do not offer to pay.
It is in your best interest to state that the debt is past the statute of limitations for collections. You may also want to send them a certified “cease and desist” letter.
Credit Bureau Disputes
You can also file a dispute with the credit bureaus directly. Start by requesting your free credit report from one or all three credit bureaus. According to the FCRA, you are entitled to view any information on your credit report for free once every 12 months.
Once you receive your credit report, you can compare the date of first delinquency from the original creditor to the new delinquency date provided by the collection agency.
Assuming these documents show proof that your collection account has been illegally re-aged, you can open a dispute with the credit bureau. A successful dispute will result in the collection account being completely removed from your credit report.
Hiring a Credit Repair Professional
Credit repair companies can help you challenge inaccurate negative items to potentially get them removed from your credit report. These items can include late payments, collection accounts, charge offs, foreclosures, bankruptcies, and more.
Credit Saint offers credit repair services, and has been working with people on their credit for many years. They have experience dealing with collection agencies, creditors, and the credit bureaus. They also offer a free credit report consultation, which includes a review of your credit report for free. Visit their website to learn more.
Ready to Raise Your Credit Score?
Learn how credit repair professionals can assist you in disputing inaccuracies on your credit report.
Potential Legal Action
If you’re still within your state’s statute of limitations, the collection agency may turn around and sue you for the amount owed.
In addition to disputing the re-aged account with the credit bureau, you should also file a complaint with the Federal Trade Commission (FTC), your state’s attorney general, and the Consumer Financial Protection Bureau.
If the collection agency states that the falsely re-aged debt is legitimate, you may be able to sue in a small claims court for violating your rights. So don’t let “re-aged” debt ruin your credit scores or your chances of having good credit history.
Other Illegal Debt Collection Practices
Account re-aging is definitely a shady tactic to watch out for, but there are many other illegal practices to be aware of. Understand the most common ones so you can avoid being taken advantage of when you’re in debt.
Collection agencies should not contact anyone besides yourself about your amounts owed, with just a few exceptions allowed. Those include your attorney, the credit bureaus, and the original creditor.
They can also contact your spouse and your co-debtors unless you have already sent a letter with a request that they stop contacting you.
If the debt collector does contact another third party, it may only be to attempt to find your whereabouts. But even this comes with several restrictions. Most notably, they cannot state that you owe any debt and may only identify their employer when asked.
There are also legal restrictions on when and where a debt collector may contact you. Usually, any time before 8:00 a.m. or after 9:00 p.m. is off-limits.
They also can’t call you if they know a lawyer is representing you. Calls at your place of work are also forbidden once you tell them your employer prohibits personal phone calls on the job.
Exhibiting Inappropriate Behavior
Some debt collectors are known to get nasty. However, fortunately, there is a legal line drawn in the sand to indicate when they’ve gone too far. They cannot lie to you. For example, they can’t pretend they’re from a law enforcement agency or refuse to say anything about who they are.
Additionally, a debt collector may not use profane language or threaten you with violence. They also can’t publicly list your debt for sale or publish your name in relation to your debt. If you experience any of this type of behavior, it’s time to contact the authorities.
Using Unfair Collection Methods
A collection agency may not add any unauthorized fees or interest that they didn’t include in the original credit agreement.
Moreover, they can’t threaten to take your property if they’re not legally allowed to do so or if they actually have no intention of doing so. They’re also required to handle postdated checks in a very specific manner.
Know your rights and debt collectors’ rights, so you understand when is the time to stand up for yourself. Once you know where the line is drawn and whom to contact, you’ll feel much more empowered as you work your way out of debt.
After last Friday’s jobs report, there wasn’t anything on the event calendar that demanded obvious attention until next week’s CPI. The Treasury auction cycle was the thing that traders/analysts talked about because that’s the only thing that was remotely worth talking about. To be fair, there was obviously a pop after the 30yr auction, but it was a stunningly bad auction. Moreover, it was traded back out by the next morning (today). Bonds drifted sideways to slightly weaker on Friday for no particular reason and we’re not interested in trying to fabricate any reasons in light of the entire week’s trading range remaining inside a single day’s trading range from last Friday.
Consumer Sentiment
60.4 vs 63.7 f’cast, 63.8 prev
1yr inflation expectations
4.4 vs 4.2 prev
5yr inflation expectations
3.2 vs 3.0 prev
10:52 AM
Slightly stronger overnight but giving up some gains early. 10yr still down 3.4bps at 4.598. MBS up 2 ticks (0.06).
12:01 PM
Weaker into the PM hours. MBS down 1 tick (0.03) on the day and a quarter point from highs. 10yr down 2 bps at 4.612
01:22 PM
New lows for MBS, but distorted by illiquidity. 6.0 coupons showing more than a quarter point of losses, but probably less than an eighth after factoring out the wide bid/ask. 10yr up to unchanged levels on the day at 4.63.
04:16 PM
MBS bounced back from illiquidity, heading out with 6.0s down only 2 ticks (.06). 10yr yields have been boring by comparison: down 3.5bps currently at 4.736.
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
The price of existing single-family homes across the United States continued to fall in January, with 16 of 20 metro areas posting record low annual declines, according to the S&P/Case-Shiller Home Price Indices released today.
All 20 of the metros posted a December to January monthly decline, with Las Vegas leading the pack with a 5.1 percent drop, followed by Phoenix with a 4.1 percent decline, and Los Angeles off 3.7 percent.
Over the last 12 months, the 10-City Composite fell 11.4 percent, a new record, and the 20-City Composite recorded a 10.7 percent decline.
“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Home prices continue to fall, decelerate and reach record lows across the nation.”
Las Vegas and Miami posted the greatest annual declines, each off 19.3 percent, followed by Phoenix at 18.2 percent.
Washington and Minneapolis also crept into negative double-digit territory, with losses of 10.9 percent and 10.0 percent, respectively.
“No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates,” Blitzer added.
Meanwhile, the OFHEO, Fannie and Freddie’s regulator, published its own monthly House Price Index, which saw U.S. home prices fall roughly 1.1 percent on a seasonally adjusted basis between December and January.
For the 12 months ending in January, home prices fell 3.0 percent, and are off 4.1 percent since peaking in April 2007.
The report, which is calculated using purchase prices of housing backed by mortgages sold to or guaranteed by Fannie and Freddie, found that the Mountain Census Division was the only region to post a price increase, while the New England Census posted the largest price decline.
New York-based digital lender Better Home & Finance Holding Company has partnered with information technology consulting company Infosys on a mortgage-as-a-service platform.
The integrated end-to-end digital mortgage white-labeled platform aims to cut origination costs and helps partners limit operational volatility in the current interest rate environment, Better said Thursday in announcing the launch.
“Better’s mortgage as a service platform is the first full-stack, end-to-end solution that handles all aspects of the mortgage process including point of sale, pricing, underwriting, loan origination, closing, funding and investor sale,” Vishal Garg, CEO and founder of Better, said in an e-mailed response to HousingWire.
Better’s mortgage as a service currently consists roughly 20% of its revenue and the lender aims to grow this business line, Garg said.
The partnership with Infosys is in line with Better’s new strategy to become a leading mortgage-as-a-service company or a white-label provider of mortgage technology.
Before Better debuted on the Nasdaq after a two-year journey in late August, the digital lender strived to be a one-stop shop where the firm does everything in-house. Prior to its initial public offering (IPO), Better shifted its strategy to doing only what its best at in-house and partnering with other businesses for the rest.
The company’s latest efforts to become a digital homeownership company includes the launch of Better Insurance.
The white-label solution eliminates redundancy and offers competitive pricing for customers without engaging with insurance agents, said Nick Taylor, head of real estate at Better.
When a buyer applies for home insurance, Better Insurance asks questions about the type of property and estimated home sales price, then the firm provides customers with a preview of insurance options.
The digital lender reported a net loss of $45.5 million in Q2, an improvement from a net loss of $89.9 million the previous quarter.
Better’s origination volume was $900 million across 2,421 loans in the second quarter of 2023, compared to production of $800 million across 2,347 loans funded in the previous quarter.
Better ranked as the 62nd largest mortgage lender in the first half of 2023, according to Inside Mortgage Finance.
The lender is scheduled to report its third-quarter financial earnings on Nov. 14.
Bad credit can feel like the end of your ability to borrow, especially if you are trying to secure a home loan. However, there are options available for borrowers with bad credit to fund the purchase of their dream home.
One of those options is the VA home loan. Luckily, securing a VA loan with bad credit is not impossible. Let’s dive into the details of securing your VA home loan with bad credit.
What is a VA loan?
First, let’s talk about the details of a VA home loan. These types of home loans are an offered benefit to both veterans and current service members.
Va loans make qualifying for financing easier for veterans. Additionally, the VA loan offers other benefits such as a no down payment option which can be beneficial. If you’ve had trouble saving up a hefty down payment, then that benefit will come as a relief.
Although the Department of Veterans Affairs makes VA loans possible, the agency itself does not issue the loan. Private lenders issue the loan to the borrower, but the loan is guaranteed by the Department of Veterans Affairs. Based on this guarantee, VA loans do not carry private mortgage insurance that is typically required without a down payment of 20%.
All of these benefits can add up to a great deal for veterans looking to purchase a home. Even if you have bad credit, it is possible to take advantage of the benefits that a VA loan has to offer.
Who is eligible for a VA loan?
Before you apply for a VA home loan, you’ll need to obtain a Certificate of Eligibility. With this, you’ll be able to prove to your lender that you are in fact able to obtain a VA home loan.
Luckily, the process is not very complicated and almost every member or veteran of the military is eligible. Additionally, members and veterans of the reserve and National Guard are usually eligible. Finally, spouses of military members that died on active duty or from a service-related injury may be eligible for the VA loan.
If you are an active-duty military member, then you will need to serve approximately 6 months before you are eligible.
Keep in mind, you will need to use this home as your primary residence and move into the new home within 60 days of purchase. Sometimes exceptions are made to this general rule, but it will require a case-by-case evaluation. If you do not intend to use this home as your primary residence, then the VA home loan is not a viable option.
What are the credit requirements for a VA loan?
The Department of Veterans Affairs does not require a minimum credit score for VA loan borrowers. As far as the VA is concerned, the most important requirement is the certificate of eligibility. Other than that, the VA requires that borrowers have made on-time payments for the past 12 months. The VA also prefers that borrowers have not declared bankruptcy in at least two years.
However, private lenders are the entity underwriting the loan, not the VA. VA home loan lenders are usually willing to work with credit scores much lower than the mid-700s that conventional loans require.
Still, most lenders prefer applicants with a credit score of at least 620 for VA home loans. A 620 credit score is much lower than most lenders will accept without the VA guarantee to back the loan.
Don’t be discouraged if you have a lower credit score. Applications are evaluated on a case-by-case basis and there are other compensating factors considered. In some cases, a lender may be willing to work with you even if your credit score is below 620. Here are the other factors that VA lenders look at:
Debt to income ratio. If you have a high debt burden, then lenders are less willing to work with you. Generally, VA borrowers should have a debt to income ratio of less than 41%. If you have a low debt burden then your application will be stronger.
Free cash flow. The VA suggests to lenders that the monthly free cash flow of applicants is evaluated. Your free cash flow is based on your income minus all monthly obligations which might include childcare, taxes, insurance, and more.
Job history. The stability of your current job may come into play. If you’ve had a stable high paying job for over 2 years, that can help to strengthen your application.
Evidence of credit improvement. Even if you have poor credit, the lender may consider you an acceptable credit risk if you have been making payments on time for the past 12 months. Plus, if you are working on a Consumer Credit Counseling plan that can improve your application.
Past bankruptcies. If you have declared bankruptcy recently, that will negatively affect your application. Generally, the bankruptcy will prevent you from obtaining a VA loan for at least 1 to 2 years.
Most VA home loans carry a funding fee between 2 and 3.5% of the total loan. Typically, this fee is bundled into the loan, but some lenders may require it upfront. It can be an added expense on an already expensive home purchase process. Make sure to factor this in before you accept the terms of your loan.
VA Loan Choices
If you already have a home loan but are intrigued by the benefits of the VA home loan, don’t worry! You may have the opportunity to refinance an existing home loan into a new VA home loan.
If you are seeking a lower interest rate, then the Interest Rate Reduction Loan (IRRRL) might be a suitable option. Sometimes lenders refer to this loan option as a VA Streamline Refinance loan. The refinancing process through the VA is extremely straightforward. Plus, it is possible to complete the entire process without any out-of-pocket fees.
If you are seeking to take cash out of your home’s equity, then a cash-out refinance loan through the VA may be a practical option. You can use the cash to pay for home improvements and other obligations.
Both types of VA refinance options could help you reach your financial goals. Like the standard VA home loan, lenders may be willing to work with you even if you have less-than-perfect credit.
Other Options for Home Loans with Bad Credit
The VA home loan is not your only option if you have bad credit. Luckily, there are other programs on the market that you may be able to work with if you have bad credit. It is a good idea to check out all of your options. As you are looking, keep interest rates and down payment requirements in mind. You never know which will be the best option until you take a closer look.
FHA
With a minimum credit score requirement of 500, FHA loans are a suitable option for those with bad credit. If you have a credit score above 580, then you may even be able to qualify for a reduced down payment.
FHA loans are backed by the Federal Housing Administration. First-time homebuyers with bad credit are encouraged to use this program to secure their first home purchase. VA loans have more benefits associated with them, but FHA loans are still worthwhile.
USDA
USDA loans can also be a viable option if you have bad credit. The catch is that you must be willing to live in a rural area.
Typically, you’ll need to have a 640 credit score to have your application approved. However, it is not a hard cut-off. If you are planning to live in a rural area, then you might qualify for these U.S. Department of Agriculture-backed home loans.
Start Your Search
When you are ready to start looking through your mortgage options, it is important to get quotes from multiple lenders. Remember, even the smallest reduction in your interest rate can save you thousands of dollars over the course of your loan.
Here are a few places to get started:
LendingTree
LendingTree is not a lender, but the company can connect you to countless mortgage lenders across the country. They’ll match you to your options based on your credit score, debt-to-income ratio, and more.
It is a great resource to find several lender options within just a few minutes. If you want to compare many of your options easily, then LendingTree is a great place to start.
Find out more in our full review of LendingTree.
New American Funding
New American Funding may be the best option for veterans with poor credit. The company works with customers to individually review each loan application and the entire underwriting process.
It may take longer to close if you are working with a human underwriter. However, if you have a poor credit history, the reviewer may be able to stay flexible and push for an approved application.
Find out more about New American Funding in our full review.
Can’t find a lender?
If you cannot find a lender that is willing to work with you, then you may have to accept that your credit scores need improvement. Luckily, there are many ways that you can work to improve your credit score.
Start by checking over your credit report for mistakes. If you find an error, then make sure to have it removed from your credit report by disputing it with the credit bureaus. Next, make an effort to pay all of your bills on time. Timely payments can significantly boost your credit score.
Finally, start paying down your debts. Not only will this help improve your credit history, but also can bring some relief to your heavy load.
As your credit score starts to improve, your approval odds will continue to increase. When the time is right, apply again!
Bottom Line
Owning your home can be a milestone of American success. When you have a place to put down roots and grow into your community, it can be a wonderful feeling.
It is especially important for veterans to achieve this milestone. After their sacrifices made in service to our country, it’s remarkable to see them come home and build their lives. Take action today and start looking for a lender to fund your VA home loan.
Real estate across the country has certainly been crazy over the past three years, but the housing market in Ohio still looks pretty sane. This isn’t California or Massachusetts, and that’s a good thing for house-hunters: Homes in the Buckeye State are significantly more affordable than in many other states around the country, and prices here tend to be far below national levels. Read on for everything you need to know about the cost to buy a house in Ohio.
How much does it cost to buy a house in Ohio?
The average price of a home in Ohio was $275,461 as of September 2023, according to statistics from Ohio Realtors. That’s quite a bit lower than the nationwide median price for the same month, which was $394,300.
Depending on where you’re hoping to call home in the state, though, your budget may look a bit different. Consider the average sale prices in some of the most popular cities: In Cincinnati, the average was $319,310; in Columbus, $348,569; and in Dayton, $261,583.
Outside the bigger cities, you’ll find a smaller price point. For example, the average sale price was around $203,000 in Ashland and Athens, and less than $200,000 in both Mansfield and Lancaster.
It’s helpful to focus on how a home’s price tag will translate into your monthly payments as its owner, especially with today’s high mortgage rates. Consider the monthly obligation on a $275,000 home, assuming a 20 percent down payment on a 30-year mortgage with a 7.5 percent interest rate: According to Bankrate’s mortgage calculator, that scenario would result in principal and interest payments of $1,538 a month (not including the additional costs of property taxes and homeowners insurance).
Down payment
How much money have you saved for a down payment? This upfront cost is crucial, because the more you are able to pay upfront, the less you have to borrow.
You don’t have to put down 20 percent, necessarily, although that is the magic number to avoid paying an extra monthly premium for private mortgage insurance. Here are the minimum down payment requirements for some of the most popular types of home financing (if you qualify):
Conventional loans: 3 percent
FHA loans:5 percent with a credit score of at least 580, or 10 percent with a credit score between 500 and 579
VA loans: No down payment required for qualifying military service members or veterans
USDA loans: No down payment required if you buy a rural property that meets specific criteria
One piece of good news for first-time buyers: Ohio has some generous first-time homebuyer programs that can help you cover your down payment and closing costs. You’ll need to meet certain qualifications for credit score, income and purchase price to be eligible.
Closing costs
According to data from Core Logic’s ClosingCorp, closing costs in Ohio add on another 2 percent of the purchase price — approximately $5,500 on an average-priced $275,461 Ohio home. That amount isn’t all coming out of your pocket, though. Closing costs are split between buyers and sellers.
Costs that are the buyer’s responsibility will include a variety of fees charged by your lender for things like a credit check and loan origination, as well as a required appraisal of the home’s value. You’ll also want to get a home inspection to verify the home’s condition. Lenders typically like to see a cushion that will keep you protected in the event of an emergency, too, so make sure you set aside some extra cash in reserve.
Cost to move
Don’t forget about the additional expense of moving all your stuff to your new Ohio home. According to HomeAdvisor, the average cost of a local move is just over $1,700. If you’re moving long-distance to get to Ohio, though, you’ll need to set aside a lot more money. A cross-country move has an average price tag of $4,617.
Homeownership costs
Once you buy a house in Ohio, you’ll need to be prepared to pay for its upkeep. While there’s no crystal ball for home maintenance costs, State Farm advises homeowners to budget between 1 and 4 percent of their home’s value for annual upkeep. On an average-priced Ohio home, that means you should plan to set aside up to $11,018 each year for upkeep.
You’ll also need to plan for property tax costs. In Ohio, the typical homeowner paid $3,235 to the government in property taxes in 2022. And don’t forget to budget for your homeowners insurance coverage, too, as well as HOA fees if your new home is part of a homeowners association.
Reducing the costs to buy a house in Ohio
Buying a house can seem overwhelmingly challenging, especially with today’s high mortgage rates. Consider these options to reduce your costs:
Ask for seller concessions: Across the country, more sellers are agreeing to cover a portion of the buyer’s closing costs, according to a report by Redfin. Don’t hesitate to ask a seller if they’re willing to help out with some of your costs. They don’t have to say yes, but they also don’t want to see you walk away from the deal.
Cast a wide net: If you have a flexible work arrangement that doesn’t require you to be in one specific location, look at cheaper locations beyond where your job is based. And if you don’t need a huge amount of space, a condo or townhouse is a great way to achieve homeownership for a lower price than a single-family home.
Hold out for longer: It’s OK to press pause if you think now just isn’t the right time. Mortgage rates are the highest they have been in more than two decades. There’s no guarantee they’ll come down, but taking some time to build your savings and your credit score while you wait might not be a bad idea.
Next steps
While Ohio’s home prices are certainly more appealing than many other parts of the country, buying a house here is not necessarily easy. For example, Redfin data shows that the typical home in Columbus gets four offers, which shows that the Buckeye housing market can feel just as competitive as Big Ten football. With that in mind, make sure you have an experienced local real estate agent on your team.
FAQs
As of September 2023, the average sale price for a home in Ohio was $275,461, according to data from Ohio Realtors.
No, they are increasing. Between September 2022 and September 2023, the average sales price in the Buckeye State rose 5.9 percent, according to Ohio Realtors data.
Yes — buyers pay some portion of closing costs in every state, including Ohio. These typically include an array of fees charged by the mortgage lender, among others.
While it’s possible to accuse mortgage rates of experiencing volatility over the past few days, this week was exceptionally calm compared to last week. So “everything’s relative,” and relatively speaking, that’s a win.
Here’s a snapshot of the action as told by 10yr Treasury yields, which tend to be moving in the same direction as mortgage rates:
As the chart points out, Thursday’s 30yr bond auction brought this week’s only instance of excess volatility. This refers to The Treasury Department’s regularly scheduled auctions of US debt–some of the only interesting items on this week’s event calendar as far as rates were concerned.
In general, Treasuries are the tour guides for the bonds that drive mortgage rates (MBS or mortgage-backed securities). They tend to hang out closer to the tour bus while MBS go off in search of adventure, but everyone is generally moving to the same places at the same time.
In other words, a big, volatile jump in Treasury yields often suggests the same for mortgage rates. Fortunately, this particular jump wasn’t that big, and the 30yr Treasury bond is less correlated with mortgage rates than 5 or 10yr Treasuries. The result was only a modest increase in rates on Thursday and not one that erased too much of the recent improvements.
Of course we should remember that everything’s relative…
The chart above is not intended to rain on any parades, but merely to put them in context. It shows 3 previous instances of rates appearing to top out and push back against long term highs only to be persistently dragged higher. All that to say: it’s promising to see rates mostly holding last week’s improvement, but as far as long journeys go, it’s best viewed a solid first few steps.
In order to continue the journey, the bond market (which dictates rates) will need to see the same things it’s been wanting to see: lower inflation, softer economic data, and for the Federal Reserve to be seeing the same things. This week was very light with respect to data–especially inflation data–but there was an anecdotal mixed bag on Friday in the form of the Consumer Sentiment Survey.
Consumers were more downbeat overall with the sentiment index falling to 60.4 from 63.8 previously. This is LOW territory–not as low as we’ve seen recently, but nonetheless in line with some of the worse levels in more than 10 years.
In and of itself, low sentiment would be good for rates because downbeat economic data tends to suggest slower growth and lower inflation. But if inflation expectations are contributing to the pessimism, it cancels out the good news for rates. Incidentally, the same survey has an “inflation expectations” component for both 1yr and 5yr time frames. The 5yr is fairly boring, but here’s the 1yr:
Consumers aren’t crystal balls, but the Fed does consider consumer inflation expectations in its assessment of inflation. Fortunately, this isn’t the only place they look for that data and Fed Chair Powell has recently mentioned that other indicators of inflation expectations are showing much more promise. Beyond that, this data series tends to be overly-correlated with fuel prices (although there is an odd and notable divergence from that trend at the moment):
Ultimately, consumer inflation expectations are a sideshow compared to the top tier inflation data. The Consumer Price Index (CPI), for example, has proven capable of rocking the rate market more than almost any other economic report apart from the jobs report. And we won’t have to wait long for the next installment (this upcoming Tuesday).
The Fed has been clear and we should take them at their word that rates could be done moving higher if inflation and growth continue to cool, but that rates could easily move right back up if the data surprises to the upside.
The most expensive homes in the United States experienced the highest rate of depreciation in 2007, according to Zillow’s Q4 Home Value report released today.
The real estate analysis company broke down the U.S. housing market and 125 Metropolitan Statistical Areas into five value bands, including bottom, lower middle, middle, upper middle, and top.
They found that the top band experienced a home price decline of 7.5 percent from 2006, while the bottom band only saw home prices depreciate 0.7 percent.
Additionally, homes in the bottom and lower middle quintiles returned the highest rates of annualized growth at 10.1 percent and 8.4 percent, respectively, over the last five years.
At the same time, higher valued homes outperformed lower valued homes in nearly half of the top MSAs in places like San Francisco, Los Angeles, New York, and Boston.
But cheaper homes outperformed more expensive properties in select MSAs like Chicago, Detroit, Seattle, and Baltimore, so the trend really varies by region.
However, Zillow found that regardless of location, owners of cheaper homes have much less equity than those with more expensive homes, which can be attributed to smaller down payments from the former.
Homeowners who purchased a home last year placed a median down payment of 10 percent and have nine percent of their original investment, leaving 30.4 percent with negative equity.
Comparatively, owners in the bottom quintile placed a median down payment of 3.2 percent and have home equity of just three percent, leaving a whopping 43 percent with negative equity.
Owners in the top quintile came in with 20 percent down and have median equity of more than 20 percent, with just 16.9 percent in the negative equity trap.
With car loan debt at a new high, a report shows the impact as Americans struggle to make their auto payments: a large increase this year in the number of borrowers who are in delinquency.
Auto loan debt rose to $1.6 trillion in the third quarter of 2023, a $13 billion increase from the previous quarter, according to data from the Federal Reserve Board of New York’s report on household debt and credit for the third quarter of 2023. As well, the number of borrowers who fell more than 90 days behind on their auto loans rose to 2.53% in the third quarter of 2023 — a 25% uptick from what it was the same time last year.
Why consumers are struggling
One of the key reasons auto loan debt is at a historic high is that “car prices have increased in recent years, so consumers are taking out bigger loans and often for longer terms,” said Caleb Cook, vice president of consumer lending at Digital Federal Credit Union, via email.
Indeed, elevated car prices and soaring interest rates have made it more expensive and difficult for drivers to borrow money than it was pre-pandemic. The average price of a new car was $47,899 in September 2023. For comparison, the average new car sold for $37,590 in September 2019.
According to Cook, other increased car costs, like insurance, are making the problem worse. “The cost of car ownership has been compounded by average car insurance payments doubling to $2,000 annually compared to pre-pandemic era costs,” Cook said.
What you can do to mitigate your debt
If you’re struggling with auto loan debt, there are some steps you can take to alleviate the strain. Depending on your financial situation, here are some of your options.
Refinance your car
When you refinance a car loan, you’re getting a new loan to pay off and replace your current one. This can be a good option if you’re struggling to make auto loan payments because you can refinance to a longer loan term to reduce your monthly payments, or potentially get a lower interest rate.
Keep in mind that while refinancing to a longer loan term to lower your monthly payment can make things more manageable in the short run, it may also mean that you’ll pay more interest over the life of the loan.
A borrower will typically need a good credit score to refinance to a lower-interest loan. While it’s possible to refinance with a low credit score, it may be more difficult to get a loan with better terms than you have on your current loan — which might not make refinancing worth it for you. Consider getting a pre-qualified auto refinance offer to see what rate you might qualify for, then decide if it’s worth it. Most lenders offer pre-qualification with a soft credit check so there is no damage to your credit score.
Turn to a hardship program
Many lenders offer hardship programs that provide assistance to borrowers who can’t afford to make their loan payments.
Hardship programs typically offer assistance in the form of due-date changes, loan deferral or forbearance (which is pausing or skipping payments until a later time). They may also allow you to temporarily reduce your interest rate or payment amount.
It’s important to reach out to your lender for help as soon as possible — not when you’ve already missed multiple payments.
“There are often more advantageous relief options available before you start to fall behind on your payments,” Cook said. “[There are] fewer options and [greater] impact to your credit report and score the more you fall behind.”
Sell your car
Those who can no longer manage to make car payments might consider selling their car or trading it in for a less expensive one.
If you’re trading in a car you still owe money on, first determine if you have positive or negative equity. If you owe less than your car is worth, you’re in a good position because you can apply the difference toward the purchase of a cheaper car. If your car is worth less than what you owe, however, you have negative equity and you’re upside-down on your car loan. This means that when trading it in, you’ll have to pay the difference between what you owe and how much the new car is worth.
Similarly, if you can do without having a vehicle and want to sell your car outright, you must pay the difference between the sale amount of the car and how much you still owe on the car.
While opting for a cheaper car can save you money, if you’re significantly upside-down on your car loan, wait until you have equity in the car before trading it in.
Voluntary repossession
When you voluntarily repossess your car, it means you’re willingly surrendering it to the lender. This may be a last resort if you’re at risk of losing it involuntarily. When surrendering a car this way, the lender will resell the car and you must pay back the difference between how much it’s sold for and the amount you owe on it.
Voluntary repossession can have a negative effect on your credit and you may incur some late payment charges. However, giving up your car this way can be less expensive and less damaging to your credit than if your car is forcibly taken.