The 9 Top Reasons Mortgage Loans Are Denied in the U.S.

Although interest rates have inched up recently, they remain at historic lows, spurring demand in both home purchases and mortgage refinancing. However, many lenders have tightened up their borrowing standards due to the economic uncertainty of the pandemic, and hopeful loan applicants may find it hard to get approved. According to loan-level mortgage data from the Home Mortgage Disclosure Act, the denial rate for conventional, single-family loans was 18.8% (excluding withdrawn and incomplete applications) in 2019.

Mortgage application denial rates vary by purpose of the loan. When considering total loan applications for conventional, single-family loans, 2,055,774 applications were denied. At 43%, denial rates were highest for home improvement loans. Loans for home purchases had the lowest denial rate, at just 10%. Refinancing applications, both with and without a cash-out component, had denial rates in between, at 16% for non-cash-out and 18% for cash-out refinance loans.

Mortgage application denial rates vary not only by purpose of the loan but also by the race and ethnicity of the applicant. Non-Hispanic White applicants and co-applicants of different races (“Joint”) had the lowest denial rates at 17%. Black, American Indian or Alaskan Native, and applicants of two or more minority races all had a denial rate that was more than twice as high as that for White applicants. Hispanic or Latino borrowers also had high denial rates, at nearly 30%. The difference in denial rates reflects differences in credit profiles and application types across different demographic groups, but it also may reflect racial and ethnic discrimination in lending behavior.

Loan approvals and denials also vary widely by location. Denial rates skew higher in the South, Southeast, and parts of the Northeast, while denial rates are much lower in the Midwest. This could be due to varying demographic makeups and local job market conditions. At the state level, Mississippi and Florida have the highest mortgage denial rates in the U.S. at 27.3% and 25%, respectively. At the opposite end of the spectrum, North Dakota has the lowest mortgage denial rate in the country, at just 10.2%.

To find the top reasons mortgage loans are denied, researchers at Construction Coverage analyzed the latest data from the Home Mortgage Disclosure Act. The researchers ranked reasons mortgage loans are denied based on the percentage of all denials mentioning each reason. For each reason that mortgage loans are denied, researchers also calculated the total annual denials and the percentage of denials that were due to that reason for several loan types: home purchase, refinancing, cash-out refinancing, and home improvement.

The Top Reasons Mortgage Loans Are Denied

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1. Debt-to-income ratio

  • Percentage of all denials: 37.2%
  • Total annual denials: 765,772
  • Percentage of home purchase denials: 36.2%
  • Percentage of refinancing denials: 38.0%
  • Percentage of cash-out refinancing denials: 35.4%
  • Percentage of home improvement denials: 37.2%

The debt-to-income ratio (DTI) ratio is the share of gross monthly income (pre-tax) that goes towards debt payments (rent or mortgage, car payment, credit cards, student loans, etc.). A lower DTI can help applicants get approved for a mortgage.

Paying with a credit card

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2. Credit history

  • Percentage of all denials: 34.8%
  • Total annual denials: 715,393
  • Percentage of home purchase denials: 34.2%
  • Percentage of refinancing denials: 24.8%
  • Percentage of cash-out refinancing denials: 25.8%
  • Percentage of home improvement denials: 44.8%

A mortgage applicant’s credit history gives lenders an idea of how risky it is to loan an applicant money. Credit history is a record of how an individual repays debts, such as credit cards, mortgages, car loans, and other bills.

Fixer upper house in disrepair

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3. Collateral

  • Percentage of all denials: 19.7%
  • Total annual denials: 404,084
  • Percentage of home purchase denials: 13.9%
  • Percentage of refinancing denials: 18.5%
  • Percentage of cash-out refinancing denials: 19.6%
  • Percentage of home improvement denials: 23.4%

Insufficient collateral means that the home an applicant is trying to purchase, refinance, or borrow against is not worth enough compared to the proposed loan amount.

Mortgage loan

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4. Other

  • Percentage of all denials: 12.9%
  • Total annual denials: 265,772
  • Percentage of home purchase denials: 13.2%
  • Percentage of refinancing denials: 12.9%
  • Percentage of cash-out refinancing denials: 15.0%
  • Percentage of home improvement denials: 12.0%

The “Other” category covers all other reasons that an applicant could be denied a home loan besides the eight covered by the Home Mortgage Disclosure Act and listed here.

Woman filling out paperwork

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5. Credit application incomplete

  • Percentage of all denials: 8.9%
  • Total annual denials: 183,024
  • Percentage of home purchase denials: 8.5%
  • Percentage of refinancing denials: 14.4%
  • Percentage of cash-out refinancing denials: 14.6%
  • Percentage of home improvement denials: 4.1%

Incomplete credit applications lack the necessary information for the lender to make a credit decision, resulting in a loan denial.

Tax forms

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6. Unverifiable information

  • Percentage of all denials: 6.7%
  • Total annual denials: 137,968
  • Percentage of home purchase denials: 8.9%
  • Percentage of refinancing denials: 5.8%
  • Percentage of cash-out refinancing denials: 4.5%
  • Percentage of home improvement denials: 6.4%

Mortgage denials due to unverifiable information often arise from inaccuracies in an applicant’s employment history or tax records or discrepancies between the application and credit report.

Writing a check

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7. Insufficient cash (down payment, closing costs)

  • Percentage of all denials: 4.0%
  • Total annual denials: 82,354
  • Percentage of home purchase denials: 8.6%
  • Percentage of refinancing denials: 4.0%
  • Percentage of cash-out refinancing denials: 4.4%
  • Percentage of home improvement denials: 1.4%

Mortgage applicants must have sufficient funds to cover down payments and closing costs and fees, or lenders may deny their application.

Woman learning on the job

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8. Employment history

  • Percentage of all denials: 1.8%
  • Total annual denials: 37,567
  • Percentage of home purchase denials: 3.9%
  • Percentage of refinancing denials: 1.4%
  • Percentage of cash-out refinancing denials: 1.6%
  • Percentage of home improvement denials: 1.0%

Mortgage lenders prefer that applicants have worked in the same field for at least two years. However, a new job is not necessarily a hurdle to securing a loan as long as it pays a steady salary.

Stressed out man

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9. Mortgage insurance denied

  • Percentage of all denials: 0.1%
  • Total annual denials: 1,665
  • Percentage of home purchase denials: 0.2%
  • Percentage of refinancing denials: 0.1%
  • Percentage of cash-out refinancing denials: 0.0%
  • Percentage of home improvement denials: 0.0%

Mortgage insurance protects the lender and allows borrowers making a down payment of less than 20% to still qualify for a home loan. Applicants who are denied mortgage insurance that need it are also likely to be declined for their loan.

Detailed Findings & Methodology

A low debt-to-income ratio (DTI) is the number one reason that mortgage applications are denied. Over 37% of denied applications had a low DTI as a reason for denial. This rate is constant across home purchase loans, refinancing loans, and home improvement loans. The second most common reason for mortgage application denials is credit history, accounting for almost 35% of denials. Indeed, credit history was a reason that almost 45% of home improvement loans were denied. The third most common reason for mortgage application denials is collateral, which was cited in about one out of five mortgage denials. Together, these top three reasons account for the vast majority of mortgage denials.

Less common reasons for mortgage denials are an incomplete credit application, unverifiable information, insufficient cash, employment history, and mortgage insurance denied. While most applications list one denial reason, some applications list two or more.

To find the top reasons mortgage loans are denied, researchers at Construction Coverage analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. The researchers ranked reasons mortgage loans are denied according to the percentage of all denials mentioning each reason. For each reason that mortgage loans are denied, researchers also calculated the total annual denials and the percentage of denials that were due to that reason for several loan types: home purchase, refinancing, cash-out refinancing, and home improvement.

Only conventional, single-family mortgage applications were considered in the analysis. In the calculation of denial rates, withdrawn and incomplete applications were excluded.


The Average Homeowner Could Reap $4,000 a Year by Refinancing

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7 Credit Card Debt Mistakes to Avoid

There’s really only one way to get out of credit card debt: by paying off the balance. But there are plenty of pitfalls along the way to make the payoff more costly than it needs to be.

If you’re among the consumers who paid off $108 billion in credit card debt in 2020, good on you! However, that still leaves $820 billion left to go, so it’s in your best interest to do everything you can to put a dent in debt that costs you in double-digit interest rates every month.

Picking a method for paying down the balance should be your first step — there are plenty of options, including avalanche, snowball and lasso — but there are mistakes you should avoid to ensure you get the maximum value out of whatever method you choose.

We’re here to help you avoid the most common — and costly — errors people make when getting out of debt. Let it help you make the best money decisions during your climb.

7 Credit Card Debt Mistakes to Avoid

You’re ready to pay off that credit card. That’s great! But just randomly paying back money without a strategy could end up costing you more money.

1. Forgoing a Budget

You know how if you don’t make plans for a day off, you end up wasting it on a Netflix binge instead of doing something productive?

Well, the same goes for paying off debt. If you’re simply going about it without a plan, there’s a good chance all your good intentions — and extra payments — will end up getting spent elsewhere.

How do you prevent the money from disappearing? By creating a budget.

Stop whining — it’s no different than planning a vacation itinerary. Instead of blowing your money on new shoes, you’ll create an attack plan and pay off debt faster with a clear direction.

Pro Tip

Never miss a bill — and incur late fees — by automating payments. Many service providers and banks provide automatic withdrawals for bills on specified dates each month.

By reviewing a monthly budget, you can see where you might be overspending in certain areas (I spent how much on takeout?!?) and commit to applying that money to your credit card debt instead.

Even if you’ve never lived with one before, we can help you create a budget that fits your lifestyle and your money goals.

2. Never Applying for a Personal Loan With a Lower Interest Rate

Don’t make the mistake of assuming that replacing credit card debt with a personal loan is just trading one debt for another. Interest rates can make a big difference.

How much of a difference? Let’s say you have $5,000 in credit card debt and you commit to paying $400 every month.

If your credit card interest rate is 17%, it will take you 14 months to pay off the debt, and you’ll pay $542 in interest. Alternatively, if you take out a low-interest loan at 4%, it will take you one less month to pay off the loan, and you’ll pay $116 in interest — a savings of $426.

3. Ignoring Balance Transfer Offers

If you’re paying off credit cards and you know you’re within striking distance of wiping them out, you could be throwing away money on interest by not researching short-term options.

By opening a balance transfer credit card, you could save yourself a bundle on interest. Balance transfer credit cards generally come with lower introductory interest rates for a set amount of time (plus any transfer fees). The rates then rise to a higher annual percentage rate after the promotional period ends.

If you’re prepared to pay off your credit cards within the promotional period, it would be a big financial faux pas not to put in the extra effort to research balance transfer offers.

And consolidating your credit card balances could not only save you money with a lower interest rate but also keep you on a more livable payment schedule, thus avoiding those pesky late payment fees.

4. Focusing Only on Saving Instead of Making Money

If you’ve reduced your expenses, but you’re still coming up short on extra credit card payments, remember the other half of the financial equation: money coming in.

Getting a side hustle to bank extra money for payments can accelerate your payoff schedule in a meaningful way. Consider this: If you make $50 extra each week, you could pay an extra $600 toward the credit card balance after just three months.

Pro Tip

An exit plan that defines clear financial goals can stave off a reliance on money from gig work to cover basic necessities and stop you from getting stuck in an endless hustle.

One of the keys to making the side gig work for you is to create a specific goal for the money you want to earn or the time you want to spend working. By developing an exit plan for your side gig, you won’t end up burning out and spending all the extra cash on ways to make up for being overworked.

A woman sits on the floor of her home while cradling her head on her lap to show being stressed.
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5. Refusing to Ask for Help

If you feel like you’ve tried everything — or nothing, because you’re too overwhelmed — it’s time to swallow your pride and ask a professional for help.

A credit counselor can review your financial situation and make recommendations to improve it. Depending on your situation, they might help you organize your credit accounts, obtain a credit report, develop a budget or even help you set up a plan to pay off your debt.

If your credit card debt is more temporary but urgent — think: you got laid off and your water heater just died — you can also ask your credit card issuer for a break via a credit card hardship program.

The little-advertised assistance option could suspend your minimum payments or reduce your interest rate temporarily. But you won’t get the help unless you ask for it.

6. Forgetting the Residual Interest

Let’s say you’ve been paying down your credit card balance for a few months (or years). You get the statement in the mail that says your current balance is $1,000 and you’re ready to pay it off.

You go online to make the payment in full, but you schedule it for 10 days later because you’re waiting for pay day.

When you get next month’s statement, you’ll see that you were charged interest on that $1,000 for the 10 days between the account closing date and your payment (and probably a couple extra days for the time it took for the statement to arrive in the mail). That’s called residual interest (or trailing interest).

It might only be a few dollars, but if you don’t pay the residual interest — which could easily happen if you think that the balance is paid in full so you ignore the next statement — that amount will continue to accrue interest.

And not paying it will result in late fees and a hit to your credit score.

Instead, call your credit card company for the full payoff amount as of the date the issuer will receive the payment, then monitor your credit card statement for at least a couple months after to make sure the residual interest has been paid off, too.

7. Losing Sight of Your Future

Paying off your credit card bill is important. But so is your future.

If you’re putting every last dime toward credit card payments, you could be setting yourself up for a big financial hardship down the road.

In the short term, that could be due to an unexpected expense and no emergency fund to cover the cost.

In the long term, you could be losing out on retirement savings by not investing early and letting compound interest do its thing to grow your nest egg.

And once you make that last payment — oh, joy! — you’ll understandably want to celebrate.

But you’ll also want to think about life after debt, including sticking with the good strategies you used to get out of debt rather than falling back into bad habits that got you into debt in the first place.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.




17 Ways to Dig Yourself Out of a Financial Hole

 At age 47 I was jobless, emotionally broken after an abusive marriage, and running through savings to keep a divorce attorney in my corner. Grieving my mother’s death and terrified that my disabled adult daughter and I would end up homeless, I couldn’t see any kind of future for myself.

Within five years I had earned a university degree on scholarship, found a new career as a personal finance writer, paid off divorce-related debt, and started rebuilding my cash reserves. In the next four years, I would open a Roth IRA and a SEP-IRA. I never was homeless, and I’ve never carried any debt since then.

Dig out of a financial hole

It’s possible to dig yourself out of a financial hole if you’re willing to do the work. But you can’t stop there. It’s absolutely crucial to establish smart money habits in order to build your financial future — and to keep from winding up back in the hole.

Maybe you’ve stalled financially because you never learned how to manage money. Or maybe you’re mired in debt due to circumstances beyond your control, such as job loss or serious illness.

It doesn’t matter how you got there. What matters is that you get yourself out. Use these basic tactics to get a handle on your finances.

The best time to have started getting your finances together was 20 years ago. The second-best time is right now.

If you’re in debt, quit adding to it. Easier said than done, I know: My divorce attorney charged by the minute, for heaven’s sake, yet I couldn’t do without representation.

What could I do without? Almost everything else. I’d always been fairly thrifty, so it wasn’t as hard for me as it might be for others. However, I hadn’t done such a deep dive into frugality since my single-mom days, when I did all the laundry (including diapers) on a scrub-board in the sink. Not everyone can (or wants to) go to the lengths I did, such as living mostly on dry beans and homemade soups, using coupon/rebate deals to stretch my budget, buying almost no new clothing for years, recycling cans picked up on walks around the neighborhood, looking for any possible side gig (babysitting, participating in medical studies, shoveling snow) to add a few dollars to debt payoff.

If you find it tough sledding at first, welcome to the club of being human. Then think about your spending in this way: Adding more debt doesn’t just mean paying extra interest, but also something called “opportunity cost.” Every dollar you spend is a dollar that can’t work for you any other way.

While you’re still in the hole, this means dollars that can’t help you dig your way back out. And once you’re debt-free? It means dollars that can’t help you meet new financial goals: retirement savings, paying off your mortgage, a trip to your family reunion, or whatever will make your life better.

To be clear: Your tolerance for frugal hacks is as unique as you are. I can’t force you to wash out Ziploc bags or to shovel snow for that matter. What I can do is urge you to adopt the main attitude that helped get me through those five years — something I call the Frugal Filter:

  • Do I really need this whatever-it-is?
  • Is there something I already have that might work?
  • If I absolutely must get this item, is there a way to do so for free (borrowing it from a friend, using Freecycle)? And if not, how can I make it as affordable as possible? (Some examples: thrift store, yard sale, cashing in rewards points for gift cards to pay for it.)

Start by adding up all your income sources. Next, list all your obligations, including but not limited to mortgage, minimum credit card payments, utilities, insurance car note, and legally mandated payments (e.g. alimony or child support).

Subtract the second number from the first. If your monthly expenses are lower than your current income, that’s a good sign. But keep in mind that these are your anticipated expenses. You’ll also need money for irregular expenses such as home repair or a replacement vehicle, as well as for vacations, gift-giving, and other things that make our lives richer.

Tracking spending means you’ll know where you stand. The next thing to do is look for the best ways to use your money.

A lot of people swear by the 50/30/20 plan: Spend no more than half your after-tax income on needs, 30% on things you want, and 20% on savings and debt repayment.

Arrange your current spending into those categories. If you’re spending more than you should in any given department, find ways to bring costs down. For example, you might be able to refinance the mortgage and cut grocery costs (more on that in a minute) to get your “needs” spending under 50% of your take-home pay.

The categories can be flexible, though. For example, if debt repayment is more important to you right now than going out to eat, you could use some of your “wants” dollars toward paying down your credit cards.

Speaking of which, you also need to…

Earlier you added up your basic monthly expenses. But what’s the total amount owed? A lot of people honestly don’t know, because they never added it up. Full disclosure: I still don’t know how much my divorce cost, because I don’t want to know. (Hint: It was a lot.)

Don’t be like me. Add up your credit card balances while seated, because the total might make you feel a little faint (especially when you consider how much interest you’re paying). Let that Big Number inspire you to get real about paying it off.

First: If you’re making extra payments on your current mortgage, stop for now and put that money against your credit card balance. Talk with a mortgage specialist about the possibility of refinancing; your loan would be longer, but the money you’d save each month can be used against higher-interest debt.

Next, call your credit card issuers and ask for lower interest rates. There’s no guarantee you’ll get them, but it can’t hurt to ask.

Some people swear by the “debt snowball.” You pay minimum payments on all your credit cards except for the one with the lowest balance (but not necessarily the lowest interest rate); for that one, make the biggest payment you can. Once it’s paid off, you attack the card with the next-lowest balance, and so on.

The theory is that paying one card off quickly encourages you to keep going. Then again, you’re paying more interest on the other cards. That’s why some suggest it’s better to pay off the cards with the highest interest rates first.

Do what works best for you. If you need that encouragement, go with the debt snowball.

Another option is a 0% balance transfer credit card: moving all your debt onto a new card that offers 0% interest for 12 to 18 months. You’ll pay a balance transfer fee, typically about 3% of the total debt. However, if you pay the card in full during the introductory period, you won’t owe any interest.

This could save you a ton of money. (Wish I’d known about it back when I was paying off my divorce debt.) However, you shouldn’t get a 0% balance transfer card unless you have an ironclad plan to pay it off. Otherwise, you’ll wind up paying a ton of interest anyway, in addition to the transfer fee.

Another credit card debt tactic is a personal loan, that is if you can get a decent rate. You’d need an ironclad payoff plan for this option, too. And no matter how you pay off your debt, you absolutely need a plan to keep you from running up the credit cards all over again.

Our consumerist culture tells us that if we want something, then we should have it. This is why some people shop for fun, I guess, even if they don’t technically need anything.

“Need” is the operative word. Food, shelter, basic clothing, and utilities are needs. Everything else is a parade of wants.

There’s nothing wrong with wanting things. But there’s a whole lot that’s wrong with buying things we can’t actually afford. So if you shop for fun, stop doing that. Stop it right now. Un-bookmark your favorite shopping sites. Avoid brick-and-mortar stores.

Delete your stored credit cards, and remember that “one-click” shopping is of the devil.

Sound harsh? Reframe that thought right now: This is prudence, not punishment. It’s part of your plan to meet financial goals, including getting out of debt.

Since we get a nice dopamine rush whenever we find that Really Good Deal, our brain will try to trick you into “just looking.” Look for other ways to feel good, whether that’s The New York Times crossword puzzle or bingeing your favorite shows on an affordable streaming service.

Find a friend who’s also trying to get out of the financial hole, and the two of you can support each other. (“I just saw the most amazing price on cheese straighteners and I really want to get one! Talk me out of it!”)

Here’s what worked for me: Thinking about what I did have, rather than obsessing about what I didn’t. Sounds corny, but hear me out. While living on about $1,000 a month (and still helping my daughter), I made an actual list of my advantages: decent health, a university scholarship, a library card, a part-time job, a 99-cent radio from the St. Vincent de Paul thrift shop, and the absolute conviction that I would one day be back in the black.

The only person who can help me is me,” I said out loud, more than once, developing a stoic pride in — once more! — making do on nothing. I was dirt-poor but I was not dirt. I had a plan. (I also still had the scrub-board, and even used it sometimes.)

Sure, sometimes I still wanted stuff I couldn’t afford. Most of the time, my attitude of gratitude helped me power through. After all, I had things that were important to me and I knew if I just kept working at it, my debt would be gone. It wasn’t easy. But as my dad used to say, “That’s why they call it ‘work.’ If it were fun, they’d call it ‘fun.’”

Be an adult. Own your mistakes or your misfortunes. And do the work.

Part of the reason I went broke was the financial support I gave to my daughter, whose disability benefit was minuscule. Ultimately she got married, found a job she could do from home, became self-sufficient, and moved to a different city. I kept giving, though: treating them to multiple meals out when I visited, sending numerous “just because” gift cards throughout the year, forgiving them a decent-sized loan (as a wedding gift).

Maybe you do this sort of thing, too. Keeping your grown kids on the family phone plan. Paying for their health insurance. Covering some (or all) of their rent. A financial planner told me some clients routinely buy extra stuff at Costco to bribe their children to drop by.

Perhaps your own kids don’t have to drop by because they’re already there: boomerang offspring who came back due to job issues, or who live with you so they can save up for their own homes. Or maybe your kids never launched in the first place — and why should they? Mom and Dad have a comfy home, a well-stocked fridge, and all the streaming platforms.

It’s natural to want to give our children the best. But here’s the thing: You cannot finance retirement. Your kids have many decades to build their financial lives. You, on the other hand, have a finite number of years to make the right money choices.

If you are in debt and/or have an underfunded retirement, do not set yourself on fire to keep someone else warm. Doing so could leave you out in the cold, financially speaking.

To be clear: I would have helped my daughter forever if necessary, but I’m very glad it wasn’t. Those dollars wound up going to retirement savings, my emergency fund (more on that below), and some cash reserves. I refuse to put my daughter in the position of having to support me if I run out of money in retirement. Don’t put that burden on your kids, either.

This may sound counterintuitive. Why save for retirement while I still have balances on 18% credit cards?

Because you can’t finance retirement, remember?

Retirement isn’t a question of simple-interest savings. It’s about growth, and growth takes time. The years you spend not contributing will be felt keenly when you retire — especially if you, like me, got something of a late start.

As noted, the 20% part of the 50/30/20 budget includes saving for the future. Ideally, you’ve already got some retirement savings from your current (or recent) job, and it will continue to grow as you figure things out. Resist the temptation to raid it early; the longer it stays there, the better your chances for its lasting throughout your retirement.

For some people, a 10% (or higher) contribution to their house of worship is absolute. If that’s you, know that it still may be possible to keep tithing at that level — but the money has to come from somewhere else in your budget. As noted above, you can find other ways to cut in order to keep the tithes coming.

If need be, talk to your religious leader about temporarily cutting back or even pausing your contribution. You could always promise to restart and to make up for the lost time.

Even when things were pretty dire for me I gave $20 a month to my church. Sure, that money could have gone toward my credit card debt. But giving to others got me out of my own head. That $240 a year reminded me that not only were my basics covered, I could even afford a little help for others who needed it. Never underestimate the satisfaction and peace this knowledge can bring.

I kept a certain amount of liquid cash while paying off the divorce-related debt. It was tempting to throw every dime I had toward the balance. But I also wanted cash on hand so I could pay for utilities, car insurance, and food in case my job went away.

Some money experts suggest having a year’s worth of expenses banked. Others say that amount discourages people from even trying to save. Instead, they suggest one to three months’ worth as an initial goal, with additional contributions when possible.

I’m in the latter camp. Rather than pressuring yourself to come up with tens of thousands of dollars, aim for a single month’s worth. Go back to that household budget and look for places to cut. Canceling a subscription box you’ve stopped being thrilled by, skipping that automobile detailing you normally get every couple of months, dropping the gym membership that you haven’t been using anyway — these and other budget trims can help plump up the EF faster than you would have thought possible.

Food is the budget category with the most flexibility. You probably can’t negotiate your car payment or your son’s college tuition, but you can cut down on meals outside the home and be choosier about shopping.

Accustomed to stores like Whole Foods and Sprouts? You might be surprised by the organic options available at regular grocers and even discount markets. Take an hour a week to browse different stores, and plan future shopping accordingly.

If you eat most of your meals away from home, gradually change your ways. Buy good-quality coffee and breakfast ingredients so you aren’t tempted to grab takeout every morning. Batch-cook and freeze breakfast sandwiches on weekends, or buy premade ones from a warehouse club (still more affordable than breakfast out).

Carrying your lunch just one day a week could likely save you $10 to $20, or $520 to $1,040 a year. Over time, work your way up to brown-bagging it at least three times a week, and put the thousands of dollars you save toward some other financial goal. In the four years it took to get my degree, I never once bought a single meal at school. An occasional snack or drink, maybe, but I carried all my meals. Again, I’m hardcore and looked at lunch as the fuel I needed to get through the day. Your mileage may vary. Just make sure it’s something you actually like to eat — and again, start slowly so that you don’t set yourself up to fail.

Dinners can be tough since most people arrive home as tired as they are hungry. A little weekend planning or some monthly batch cooking — especially with an Instant Pot — can change the way you eat, and will certainly change how much you spend.

Don’t know how to cook much, or at all? Do an online search for “easy affordable recipes with [your favorite ingredients].” Remember, you didn’t know how to use a smartphone until you made it your business to learn. The same is true of cooking.

It is worth it to shop around for something like car insurance.

Ask me how I know. When I arrived in Seattle, fresh out of my horrible marriage, I used the insurance agent a relative recommended. And wound up paying about $700 more a year than I needed to, for five years. Still shake my head sometimes about that $3,500 worth of opportunity cost, but I didn’t know what I didn’t know.

Look for better deals on Internet, phone, and cable service, too. This can save you some serious bucks, especially if you bundle services.

Note: Many people have ditched cable entirely in favor of streaming services. If you haven’t investigated these lately, you’ll be surprised by the options — and the potential savings.

All of it. You won’t get out of the financial hole overnight, so it’s essential to note individual steps along the way. For some, a spreadsheet makes things easier.

Or use my daughter’s method, which is to list debts on a whiteboard. Each time you make a payment, you get to amend the total to reflect the change — and oh, my, how satisfying it is to literally wipe the debt off the board.

Once you’re back in the black, keep those savvy money moves in place. Spend less than you earn. Contribute to retirement regularly. Build an emergency fund to guard against the unexpected.


5 Tips for Breaking the Payday Loan Cycle

An Amscot store, which provides payday loans, is pictured in Orlando, Fla., on Friday, July 19, 2017.

An Amscot store, which provides payday loans, is pictured in Orlando, Fla., on Friday, July 19, 2017. Tina Russell/The Penny Hoarder

A payday loan can offer a quick reprieve from unexpected expenses or a spell of tough luck.

But if you don’t have enough money to pay back the loan on your next payday, you may need to take out another loan — or roll your balance into a new loan with interest rates that can be well over 300%.

Almost 70% of payday loan borrowers take out a second payday loan within one month. And according to the Consumer Protection Financial Bureau, 1 in 5 new borrowers end up taking out at least 10 payday loans.

This payday loan cycle can turn a short-term loan of a few hundred dollars into a growing mountain of debt totaling thousands of dollars. The average repeat borrower pays $458 in fees on top of their principal over the course of a year.

And when you’re that far behind, it’s hard to ever get ahead.

If this sounds familiar, read on for practical tips for getting payday loan relief.

Tips to Stop the Pay Day Loans Cycle
Kristy Gaunt – The Penny Hoarder

1. Cut Your Costs

Reducing your expenses can be one of the toughest ways to get out of the payday loan cycle if you’re already living on a tight budget and struggle to find ways to save. If you can’t cut costs, you may need to ask for help to defray some of your costs temporarily.

Asking for help takes strength, but it might make it easier to find extra money in your budget, even if just for a month or two. You may be able to access free meals for your school-age children or visit a local food pantry to get by on a lower grocery budget. College students may be able to request help from an emergency financial assistance fund.

Your church or local community groups may be able to get you temporary help. You can also call 211, the United Way’s health and human services referral line, which can direct you to services in your area, or visit to locate resources.

2. Earn More Income

Kisha Howard of Orlando stands in front of the Amscot store she used to borrow money from after her mother suffered from a stroke.
Kisha Howard of Orlando stands in front of the Amscot she used to borrow money from after her mother suffered from a stroke. Tina Russell/The Penny Hoarder

Kisha Howard of Orlando, Florida turned to payday loans when she felt like she was out of options to make ends meet. “At the end of the day, if you didn’t have the money in the first place, you still won’t have it,” she warns.

To overcome her financial gap, she worked as much overtime as she could to boost her income. “Each pay period, I decreased the amount of the loan needed until I no longer needed the additional funds and was able to cover the bills with my income,” she says.

If you have any spare time and energy, it might be worth it to pick up a side gig. Think about selling your services as a pet sitter, weed puller or errand runner — these side hustles don’t require much in the way of startup costs.

3. Use a Windfall for Payday Loan Relief

Lisa Servon, a professor at the University of Pennsylvania, has studied the payday loan landscape for years, talking to hundreds of borrowers about their experiences.

She said getting out of the payday loan cycle often requires some sort of windfall, recalling one woman she interviewed who used her tax refund to pay off her loan. “She really targeted her tax refund from the earned income tax credit, paid off the loans and then really cut back on spending and watched her expenses,” Servon says.

Getting a huge tax refund isn’t ideal, but if you expect to get a little bit back from Uncle Sam, it can help get you out of that payday loan hole.

4. Ask for Payment Arrangements

Looking back at her payday loan experience, Howard regards it as “a very expensive shortcut.” She says it’s “better to budget accordingly and request arrangements for bills when necessary. Companies work with you when you communicate.”

You may be able to negotiate lower bills on essentials like utilities or set up an interest-free payment plan to make larger bills more manageable.

5. Talk About it

“Advocacy and organizing is the way out,” says Maurice BP-Weeks, co-director of Action Center on Race & the Economy.

He compares the payday lending landscape to the housing crisis of the recession. “If you’ve gotten into the spiral, it’s really not your fault,” he says. “Contact the CFPB or your local representative and explain your situation. This is not fair. Companies shouldn’t be allowed to peddle these products.”

Similarly, it can help to be open about your situation with friends and family. You may be able to provide valuable advice before someone you know turns to payday loans in a time of need.

More than a dozen states have banned high-interest, short-term loans, but it’s still easy to get a payday loan — and get trapped in the debt cycle — in three-quarters of the country.

Lisa Rowan is a writer and producer at The Penny Hoarder.




Where Are Millennials Buying Homes?

Millennials have a notoriously low homeownership rate, which despite inching upward in recent years, is far lower than the rates of previous generations at the same age. The Urban Institute finds that a variety of factors contribute to depressed homeownership among young adults, including a propensity to delay marriage, increased student loan debt, lack of affordable housing, and geographic preferences. According to the latest data from the U.S. Census Bureau, the national homeownership rate is 63.9 percent. For millennials, the homeownership rate stands at just 39.5 percent.

Recent evidence shows that millennials are fleeing large, more expensive cities for more affordable, smaller locales. While millennials helped boost urban growth after the Great Recession, in recent years, the population of older millennials and younger Gen Xers has declined in these cities. The COVID-19 pandemic may continue to fuel this trend as dense city living becomes less attractive. Additionally, the economic and financial uncertainty that many Americans now face will make buying a home in pricey, large cities less feasible.

While the millennial homeownership rate is lower overall when compared to older generations, the rate varies widely across cities and states based on cultural factors, as well as living costs and job market conditions. At the state level, the Midwest claims the highest rates of millennial homeownership—Iowa and South Dakota have the highest homeownership rates among millennials in the country at 53.7 and 51.5 percent, respectively. Conversely, Hawaii, California, and New York have the lowest millennial homeownership rates—all below 30 percent.


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To find the metropolitan areas where millennials are buying homes, researchers at Porch, a marketplace for home services, analyzed the latest data from the U.S. Census Bureau, the Bureau of Economic Analysis, and Zillow. The researchers ranked metro areas according to the homeownership rate among millennials. In the event of a tie, the metro with the larger number of millennial homeowners was ranked higher. Researchers also calculated the median home price, the typical monthly mortgage payment, median earnings for full-time millennial workers, and the cost of living.

To improve relevance, only metropolitan areas with at least 100,000 people were included in the analysis. Additionally, metro areas were grouped into the following cohorts based on population size: 

  • Small metros: 100,000-349,999
  • Midsize metros: 350,000-999,999
  • Large metros: more than 1,000,000

Here are the metros with the highest rate of homeownership among millennials.

Large metros where millennials are buying homes

Photo Credit: Alamy Stock Photo

15. Hartford-West Hartford-East Hartford, CT

  • Millennial homeownership rate: 43.4%
  • Median home price: $241,177
  • Monthly mortgage payment: $856
  • Median earnings for full-time millennials: $50,000
  • Cost of living: 2% above average

Photo Credit: Alamy Stock Photo

14. Indianapolis-Carmel-Anderson, IN

  • Millennial homeownership rate: 43.7%
  • Median home price: $187,285
  • Monthly mortgage payment: $664
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 8% below average


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Photo Credit: Alamy Stock Photo

13. Oklahoma City, OK

  • Millennial homeownership rate: 43.7%
  • Median home price: $160,931
  • Monthly mortgage payment: $571
  • Median earnings for full-time millennials: $37,000
  • Cost of living: 9% below average


Photo Credit: Alamy Stock Photo

12. Nashville-Davidson–Murfreesboro–Franklin, TN

  • Millennial homeownership rate: 44.1%
  • Median home price: $287,200
  • Monthly mortgage payment: $1,019
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 5% below average


Photo Credit: Alamy Stock Photo

11. Raleigh, NC

  • Millennial homeownership rate: 44.1%
  • Median home price: $290,686
  • Monthly mortgage payment: $1,031
  • Median earnings for full-time millennials: $44,000
  • Cost of living: 3% below average


Photo Credit: Alamy Stock Photo

10. Baltimore-Columbia-Towson, MD

  • Millennial homeownership rate: 44.3%
  • Median home price: $297,468
  • Monthly mortgage payment: $1,055
  • Median earnings for full-time millennials: $50,000
  • Cost of living: 7% above average


Photo Credit: Alamy Stock Photo

9. Rochester, NY

  • Millennial homeownership rate: 44.8%
  • Median home price: $161,366
  • Monthly mortgage payment: $573
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 2% below average


Photo Credit: Alamy Stock Photo

8. Birmingham-Hoover, AL

  • Millennial homeownership rate: 45.6%
  • Median home price: $171,641
  • Monthly mortgage payment: $609
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 11% below average


Photo Credit: Alamy Stock Photo

7. Louisville/Jefferson County, KY-IN

  • Millennial homeownership rate: 45.7%
  • Median home price: $185,506
  • Monthly mortgage payment: $658
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 10% below average


Photo Credit: Alamy Stock Photo

6. Pittsburgh, PA

  • Millennial homeownership rate: 45.9%
  • Median home price: $162,803
  • Monthly mortgage payment: $578
  • Median earnings for full-time millennials: $43,000
  • Cost of living: 7% below average


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Photo Credit: Alamy Stock Photo

5. St. Louis, MO-IL

  • Millennial homeownership rate: 46.7%
  • Median home price: $183,000
  • Monthly mortgage payment: $649
  • Median earnings for full-time millennials: $41,600
  • Cost of living: 9% below average


Photo Credit: Alamy Stock Photo

4. Detroit-Warren-Dearborn, MI

  • Millennial homeownership rate: 47.4%
  • Median home price: $187,529
  • Monthly mortgage payment: $665
  • Median earnings for full-time millennials: $41,500
  • Cost of living: 5% below average


Photo Credit: Alamy Stock Photo

3. Salt Lake City, UT

  • Millennial homeownership rate: 47.9%
  • Median home price: $391,450
  • Monthly mortgage payment: $1,389
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 1% below average


Photo Credit: Alamy Stock Photo

2. Minneapolis-St. Paul-Bloomington, MN-WI

  • Millennial homeownership rate: 48.6%
  • Median home price: $301,440
  • Monthly mortgage payment: $1,069
  • Median earnings for full-time millennials: $48,300
  • Cost of living: 3% above average


Photo Credit: Alamy Stock Photo

1. Grand Rapids-Wyoming, MI

  • Millennial homeownership rate: 56.8%
  • Median home price: $227,246
  • Monthly mortgage payment: $806
  • Median earnings for full-time millennials: $40,000
  • Cost of living: 8% below average

Detailed findings & methodology

The metros with the highest rates of homeownership among millennials tend to have lower costs of living than average. Among the large metros with the highest millennial home ownership rates, median earnings for full-time millennials is on average $42,360, slightly higher than the national median of $40,000. Homes also tend to be more affordable in these locales—the median home price and monthly mortgage payment skew lower than the national averages of $229,115 and $813, respectively. The small and midsize metros with the largest millennial homeownership rates follow a similar pattern. They tend to have lower costs of living and more affordable homes as well.

When looking at all metros segmented by size, millennial homeownership tends to be higher in the small and midsize metro groups than in the large metro group. The median homeownership rate across all large metros is 36.4 percent, while the median rates exceed 41 percent for both the small and midsize cohorts.

Homeownership and earnings statistics were derived from the U.S. Census Bureau’s American Community Survey Public Use Microdata Sample (ACS PUMS). Median home prices and monthly mortgage payments were calculated using the most recent Zillow Home Value Index, a measure of typical home value. Cost of living data was sourced from the Bureau of Economic Analysis’s Regional Price Parity data. The Pew Research Center’s definition of millennials is people born from 1981 to 1996; therefore, people aged 22-37 were used in the analysis of the ACS PUMS data.


14 Important Reverse Mortgage Facts

Do you know your reverse mortgage facts? More and more people are becoming aware of reverse mortgage as an option for tapping their home’s equity. Maybe you heard about the loan on a personal finance blog or from Tom Selleck on late-night TV. However, what is really true?

With all of the buzz about retirement financing options today, it can be difficult to sort out what to believe when the information you get is incomplete or sounds like marketing spin. Are reverse mortages safe? How does the government fit in? Can anyone get a reverse mortgage?

reverse mortgage facts
Your home is precious. Get the facts about reverse mortgages.

Here are 14 reverse mortgage facts to know before using this type of loan to supplement retirement income.

There are some restrictions on who can apply for a reverse mortgage. The primary borrower must be 62 years old, and must have enough home equity to qualify. There will also be a financial assessment to determine that the borrower is fit to uphold the requirements of the loan. Other than that, reverse mortgages are good for anyone who wants to tap their home’s equity without going through the process of taking out a traditional mortgage.

Reverse mortgages are used by many different types of households, from high net worth couples and individuals who are riding out market swings that are impacting their other investments, to families that need additional monthly cash flow to help make ends meet.

There’s no one reason to take a reverse mortgage, and there’s no one person for whom the loan is the “right” option. To find out if you qualify for a reverse mortgage, you can get a free estimate or talk with a financial planner.

Many people erroneously believe that the bank or the government owns your home when you get a reverse mortgage. A reverse mortgage is a loan, and reverse mortgage borrowers hold the title to their homes throughout the entire course of the loan. The amount of your loan depends on factors including your age, the value of your home, and current interest rates. If you know the value of your home, you can get a free estimate of the loan amount you may eligible for.

Once the loan becomes due because the borrower passes away or moves, the borrower or his or her heirs will be responsible for repaying the loan. Often, this is done through the sale of the home, and if the value of the loan is greater than the value of the house, the amount of the loan not paid by the sale of the house is paid by mortgage insurance. Reverse mortgage borrowers do not have to pay more than the value of the home when the loan comes due.

Although it’s often the case that heirs sell the home to repay the loan, that is not their only option. In the case where a borrower has passed away, heirs are entitled to pay off the reverse mortgage through whatever means they choose.

If they are able and wish to repay the loan with outside funds and keep the home, that’s up to them to decide.

Furthermore, it is important to note that research indicates that most families would rather get a reverse mortgage than lose independence or compromise their quality of life.

A reverse mortgage is a loan that allows a borrower to take from the home equity he or she has amassed over time. Once this money is spent, the home holds less value. There is also interest that accrues and must be repaid when the loan comes due. Because of this, a reverse mortgage is likely to reduce your net worth.

However, if you get a reverse mortgage but do not use the loan proceeds and simply keep them in a line of credit,  it is possible that a reverse mortgage could improve your net worth.

Three trends are making reverse mortgages more popular than ever before: 1)  Americans have not saved enough. 2) Housing values are at all-time highs. 3) The HECM Reverse Mortgage has had many recent modifications to make it a safer product for seniors.

When there are low interest rates and high housing prices, it can be a good time to get a reverse mortgage. However, the decision to get a reverse mortgage should be part of your lifelong financial plan and not be done on a whim.

A recent study by the Consumer Financial Protection Bureau (CFPB) found that most reverse mortgage TV ads are misleading or confusing.  Reverse mortgages are somewhat complicated and it is important to understand fact vs fiction.  Here are the truths behind the ads.

Drawing on your home equity is one option to free up home equity in retirement, but downsizing is another popular choice.

By selling your home and relocating to a smaller property, you may see more financial efficiencies than if you were to take out a reverse mortgage on your existing home. However, if staying in your current home is your goal, a reverse mortgage may be an option worth considering.

Most people are familiar with the “lump sum” option for receiving reverse mortgage proceeds. In fact, the lump sum reverse mortgage has lost popularity in recent years due to changes to the government-insured Home Equity Conversion Mortgage program. Today’s borrowers are more often taking their reverse mortgages as credit lines, or under term or tenure payment plans.

Like any home loan, borrowers face upfront costs including a mortgage insurance premium, an origination fee paid to the loan originator, appraisal fees, counseling fees, and additional closing costs such as title and notary fees. The origination fee for HECM loans is capped, but it’s a good idea to ask what these potential fees are likely to total in advance of paying them.

The vast majority of reverse mortgages are taken out as HECM loans under the government-insured program. There are also private reverse mortgages available through lenders that may offer some additional benefits to borrowers, such as the ability to borrow a higher level of home equity. Ask a reverse mortgage specialist for details.

According to the Federal Reserve, 80 percent of Americans’ non-financial assets are represented by their homes, and a recent report published by the Brookings Institute reports that home equity is the biggest source of credit for most Americans.

Home equity may be your biggest asset, and therefore, your most viable option for financing your retirement. A reverse mortgage is one way to tap into this home equity.

Reverse mortgages are not limited to the HECM type, nor are they strictly loans used to remain in the home you currently own. Here are the most popular types of reverse mortgages.

  • Lump-Sum: The borrower gets the entire loan at once.
  • Annuity or Tenure Plan (monthly payments): The lender makes payments for as long as at least one borrower lives in the home as a principal residence.
  • Term Payments: The loan is structured in monthly payments for a set term.
  • Line of Credit: This reverse mortgage is similar to a home equity line of credit (HELOC).
  • Tenure Plan and a Credit Line: The borrower gets monthly payments as in a Tenure Plan, and they are also offered a Line of Credit.
  • Term Payments and a Credit Line: The borrower gets monthly payments as in a Term Plan, and at the end of the term, they are offered a Line of Credit.

If you are looking to get a reverse mortgage and purchase a new home all in a single transaction, contact a reverse mortgage specialist to learn more about the HECM for Purchase program. Just like there are different problems facing many households, there are different reverse mortgage types to help solve them.

Getting a reverse mortgage is not for everyone. Like most things, the decision to get a reverse mortgage — or not — depends entirely on what the right decision is for you. 

There are many different personal factors to consider.  If you are unsure whether the loan is right for you, you might consider using the reverse mortgage suitability quiz, or get a quick estimate of how much you may be able to borrow.


Why the Mortgage Refinance Window Could End Soon

American homeowners will refinance mortgages worth nearly $1.8 trillion this year as they lock in historically low rates. However, the window of opportunity for refinancing into super-cheap loans could be closing.

Many housing economists now expect mortgage rates to edge up gradually from recent record lows. Mike Fratantoni, chief economist at the Mortgage Bankers Association, said Wednesday that he expects the average rate on a 30-year mortgage to rise to 3.5 percent by the end of 2021.

If the scenario plays out as he predicts, refinancing will lose its appeal for many homeowners. The Mortgage Bankers Association expects refi volume to fall to $946 billion in 2021 and to $573 billion in 2022.

“Looking back on this years from now, you will remember 2020 as an absolute banner year for this industry,” Fratantoni said during the Mortgage Bankers Association’s annual conference.

A 3.5 percent mortgage is still low by historical standards. However, it would be high enough that far fewer homeowners would be enticed into refinancing, given the time commitment and costs associated with swapping mortgages.

The Mortgage Bankers Association’s forecast is a bit more optimistic than others’ outlooks, but not dramatically so. “While I do not think that rates will climb that high that fast, it is realistically possible — and refis will all but cease if rates hit 3.5 percent,” says Ken H. Johnson, a housing economist at Florida Atlantic University.

Economic recovery would push rates up

A key assumption in the Mortgage Bankers Association’s forecast is that the U.S. economy will continue its robust recovery. Unemployment soared to 14.7 percent in April but fell to 7.9 percent as of September.

Fratantoni expects unemployment to continue to decline, hitting 7.5 percent this year and 6 percent next year. That’s still high, but well below the calamitous levels of joblessness early in the coronavirus crisis.

Of course, the U.S. economy could take other paths. If a resurgence of COVID-19 cases causes new lockdowns, job growth would stall and mortgage rates would not rise so quickly, Fratantoni says. His forecast calls for continued weakness in the leisure and hospitality sectors, but also for continued strength in white-collar industries that have shifted to remote work.

Government stimulus could pressure rates

A worldwide wave of stimulus packages also plays into the Mortgage Bankers Associations’ calculus. The U.S. government has spent trillions of dollars on such stimulus initiatives as generous unemployment benefits and forgivable loans to employers.

“This is an incredible amount of debt,” Fratantoni says. “The Treasury has had to auction $4.5 trillion dollars of debt this year.”

With developed nations around the world pumping out debt, governments will be forced to offer more generous yields to attract investors, he says. That matters to the mortgage market because the rate on 30-year mortgages is closely tied to the rate on 10-year Treasury debt. While yields on 10-year Treasurys remain low — 0.813 percent as of Wednesday — they have ticked up in recent months as the economic outlook has brightened.

“Mortgage rates can be expected to rise as they tend to move with the yield on 10-year Treasury notes,” says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego. “Although the Federal Reserve tightly controls short-term rates, it has much less influence on long-term rates. As the economy recovers, spurred by the expected arrival and implementation of a vaccine next year, long-term rates, including mortgage rates, will move higher.”

In another factor pressuring mortgage rates upward, Fratantoni sees mounting deficits spurring inflation. Mortgage rates are tightly correlated with inflation, so rising prices could also trigger higher mortgage rates.

What you can do

Early in the coronavirus recession, the smart move for homeowners looking to refinance was to wait. Patient homeowners were rewarded as rates fell to one record after another.

The savvy play now might be to lock in a refi in case rates start to rise. The best strategies include:

  • Shop around. There can be wide variances in rates and closing costs from lender to lender, so seek multiple proposals.
  • Calculate your breakeven point. Closing costs add up quickly — they can be 2 percent to 5 percent of the total amount of the loan. So make sure your monthly savings justify the steep upfront costs.
  • Expect a wait. Lenders are inundated, and they’re giving priority to purchase mortgages, so expect to wait about 60 days for a refi to be processed and closed.

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