Reverse Mortgage

Reverse Mortgage

A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. If you’re at least 62, a reverse mortgage could be an option. However, this loan is a bit more complicated and can come with some drawbacks. It’s important to know how this loan works, how it can help you and whether it’s the right option for your financial situation and retirement goals. Call Today!

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What is a reverse mortgage?

A reverse mortgage is a loan that allows seniors to borrow a portion of their home’s equity. They then receive that equity in cash — either in one upfront sum after closing, via regular monthly payments or by taking withdrawals as needed.

Reverse mortgages only come due when the borrower dies, lives outside of the house for more than 12 months (unless a co-borrower or eligible spouse is living in the property), sells the property or stops paying taxes and homeowners insurance.

Many older homeowners use reverse mortgages to supplement their income in retirement. Reverse mortgages can also help reduce monthly housing expenses (there’s no more monthly payment), increase cash flow or pay for home repairs or improvements for seniors aging in place.

How do reverse mortgages work?

Reverse mortgages are a negative amortization loan. That means the loan balance grows over time. For instance, you may borrow $100,000 upfront, but by the time you pass away or sell your home and move, you will owe more than that, depending on the interest rate on the reverse mortgage.

There are five ways to have the funds from a reverse mortgage distributed to you:

Lump sums

You can take the cash you’re entitled to upfront. But you’re required to take the amount in two sums, with the second coming a year after the first. Typically, these types of reverse mortgages come with a fixed interest rate on the outstanding balance.

Term payment

You can receive funds monthly for a specified period. These monthly payments are typically larger than a tenure payment. The interest rate is also adjustable.

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Credit line

Under this scenario, you don’t take any cash at all. Instead, you have a line of credit you can draw on at any time. The credit line also grows over time based on its adjustable interest rate.

Mix and match

You can also combine the above options. For example, you can take an upfront lump sum, say $10,000, and then choose to take $500 a month term payment. If you want to change the options later, you can do this is by paying an administrative fee.

Tenure payment

You can receive the funds as a monthly payment that lasts as long as you stay in the house. This reverse mortgage generally has an adjustable interest rate.

Types of reverse mortgages

Most reverse mortgages are government-insured loans. Like other government loans, like USDA or FHA loans, these products have rules that conventional mortgages don’t have, because they’re government-insured. These include eligibility criteria, underwriting processes, funding options and, sometimes, restrictions on uses of funds. There are also private reverse mortgages, which do not have the same strict eligibility requirements or lending standards.

Home Equity Conversion Mortgage

Home equity conversion mortgages (HECMs) are backed by the U.S. Department of Housing and Urban Development and can be more expensive than conventional mortgages. However, loan funds can be used for just about anything. Borrowers can choose to get their money in several different ways, including a lump sum, fixed monthly payments, a line of credit or a combination of regular payments and line of credit.

Single-Purpose Reverse Mortgage

Single-purpose loans are typically the least expensive type of reverse mortgage. These loans are provided by nonprofits and state and local governments for particular purposes, which are dictated by the lender. Loans may be provided for things like repairs or improvements. However, loans are only available in certain areas.

Proprietary Reverse Mortgage

Proprietary reverse mortgages are private loans that aren’t backed by a government agency. Lenders set their own eligibility requirements, rates, fees, terms and underwriting process. While these loans can be the easiest to get and the fastest to fund, they’re also known to attract unscrupulous professionals who use reverse mortgages as an opportunity to scam unsuspecting seniors out of their property’s equity.

Reverse mortgage pros and cons

Before you sign on the dotted line, consider the reverse mortgage pros and cons:

Pros

  • You can stay in your home longer with no monthly mortgage payment
  • You’ll have more choices for how to tap your equity than regular mortgages
  • You can add to your retirement income and leave other retirement accounts alone
  • You can pay off debt or have a rainy day fund for unexpected medical expenses
  • You won’t pay taxes on reverse mortgage money you receive
  • You’ll protect your heirs from inheriting an underwater home

Cons

  • Your home’s equity will shrink every month
  • You’ll pay high reverse mortgage closing costs
  • You may disqualify yourself from other income benefits
  • Your heirs will inherit less
  • You could lose your home to foreclosure if you can’t live in the home
  • You won’t get a tax deduction on the reverse mortgage interest until all or part of the balance is repaid

Is a reverse mortgage a good idea?

A reverse mortgage is a good idea if you fully understand the pros and cons listed above, and don’t have other financial resources to retire comfortably. The table below provides some reverse mortgage food for thought:

A reverse mortgage may be a good idea if:

  • You currently have no mortgage, or a very low mortgage balance
  • You’re underfunded for retirement
  • You don’t have enough income for a regular mortgage or home equity loan
  • Your retirement income is very low
  • You plan to stay in your home
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A reverse mortgage may not be a good idea if:

  • You plan to move out of your home
  • You can’t afford to maintain your home
  • Home values are dropping in your area
  • You’re being pressured by someone to get one
  • Interest rates are rising

Alternatives to a Reverse Mortgage

There are other ways for seniors to unlock the equity they built up in their homes over the decades without taking out a reverse mortgage. If you need the equity for your retirement years, it’s key to consider all options.

  • Downsize: You can sell your current home and buy a cheaper apartment, condominium or smaller house to extract equity. The downside is giving up the family home. But potential upsides include moving closer to family and purchasing a home more suitable for aging in place.
  • Refinance: You can either refinance or take out a new mortgage if you don’t have an existing one and cash out some of the equity. The advantage is that you can tap only what you need, but you still have monthly payments.
  • Loan or HELOC: You could also borrow against your home equity using a home equity loan or line of credit. A loan allows you to take a lump sum upfront that you pay back in installment payments. With a line of credit, you can borrow from it at any time, up to the maximum amount. You also have to make minimum monthly payments after you borrow from the line of credit.
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How much money can you get from a reverse mortgage?

You can borrow up to the principal limit on a reverse mortgage based on your age, the interest rate on your loan and the appraised value of your home. You can use a reverse mortgage calculator for a quick estimate of the lump sum amount you might qualify for if you have the following information handy:

  • Your age
  • Type of property you own (single-family, townhome, condo or multifamily or manufactured home)
  • Your home’s value
  • Your current mortgage balance (if any)
  • Whether the home is your primary residence
  • Your home’s ZIP code

To calculate term and line of credit options, it’s best to contact reverse mortgage loan officers who have specialized loan software to do the calculations for you.

According to the Consumer Financial Protection Bureau (CFPB):

  • Older borrowers with higher-priced homes and lower rates will get more reverse mortgage money
  • Younger borrowers with lower-priced homes and higher rates will get less reverse mortgage money

How much does a reverse mortgage cost?

The closing costs for a reverse mortgage aren’t cheap, but the majority of HECM mortgages allow homeowners to roll the costs into the loan so you don’t have to shell out the money upfront. Doing this, however, reduces the amount of funds available to you through the loan.

Here’s a breakdown of HECM fees and charges, according to HUD:

  • Mortgage insurance premiums (MIP) – There is a 2 percent initial MIP at closing, as well as an annual MIP equal to 0.5 percent of the outstanding loan balance. The MIP can be financed into the loan.
  • Origination fee – To process your HECM loan, lenders charge the greater of $2,500 or 2 percent of the first $200,000 of your home’s value, plus 1 percent of the amount over $200,000. The fee is capped at $6,000.
  • Servicing fees – Lenders can charge a monthly fee to maintain and monitor your HECM for the life of the loan. Monthly servicing fees cannot exceed $30 for loans with a fixed rate or an annually adjusting rate, or $35 if the rate adjusts monthly.
  • Third-party fees – Third parties may charge their own fees, as well, such as for the appraisal and home inspection, a credit check, title search and title insurance, or a recording fee.

Keep in mind that the interest rate for reverse mortgages tends to be higher, which can also add to your costs. Rates can vary depending on the lender, your credit score and other factors.

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Who qualifies for a reverse mortgage?

There are certain criteria you’ll need to meet to qualify for a reverse mortgage, according to Steve Irwin, President of the National Reverse Mortgage Lenders Association (NRMLA):

  • Age qualification: All borrowers listed on title must be 62 years old. If one spouse is under 62, it might be possible to get a reverse mortgage. However, the loan officer will need to collect additional information upfront to determine eligibility.
  • Primary lien: A reverse mortgage must be the primary lien on the home. Any existing mortgage must be paid off using the proceeds from the reverse mortgage.
  • Occupancy requirements: The property used as collateral for the reverse mortgage must be the primary residence. Vacation homes and investor properties do not qualify.
  • Taxes and Insurance: Borrowers must remain current on property taxes, homeowners insurance, homeowners association fees, and any other necessary costs related to owning your property.
  • Property Condition: Borrowers are responsible for completing mandatory repairs and maintaining the condition of the property.
  • Property type: Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. Co-ops do not qualify.
  • Debt: Borrowers must not have any outstanding federal debt you’re delinquent on, like an unpaid tax bill.
  • Counseling: Borrowers must take part in a reverse mortgage counseling session so you understand what you’re signing up for.

How you can use a reverse mortgage

Reverse mortgages give you the flexibility to use your home equity in a number of different ways. With a Home Equity Conversion Mortgage (HECM) you can:

  • Pay off your current mortgage and other expenses to reduce your monthly expenses
  • Remodel your home to accommodate changing health and age limitations
  • Keep a line of credit for unexpected expenses and financial emergencies
  • Pay for health insurance until you’re eligible for Medicare coverage or Social Security income
  • Supplement your retirement income
  • Pay for long term care and health needs
  • Pay for transportation if you’re unable to drive
  • Pay for a child or grandchild’s college or professional education

How Do You Pay Back A Reverse Mortgage?

How you pay back a reverse mortgage varies depending on two main factors:

  • If you have a HECM and sell your home: If owners decide to sell their home after taking out a reverse mortgage, they must use the proceeds from this sale to pay off their loan. If the home sells for less than what the owners owe on the loan, they won’t be responsible for making up the difference as long as they have a HECM.
  • If you have a HECM and pass away: Your reverse mortgage must be paid off if you pass away. In this case, your heirs can sell your home and use the proceeds to pay off the reverse mortgage. They can also give the home to your lender. If they want to keep your home, they’d have to purchase the home.
  • If you move out of the home: You must live in the home as your primary residence for more than half the year. If you move out of the home, the reverse mortgage will come due. You’ll need to pay back the loan even if you wish to keep the home. That could be done with your own funds or by refinancing the loan.
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Reverse Mortgage vs. Refinance: Which Is Better?

While a reverse mortgage can supplement your income as you age, this type of financial tool might not be your best choice. There are times when you might consider alternatives to a reverse mortgage, especially if you want to leave your home to your children after you die or if you plan on selling the property.

You might instead consider refinancing options for seniors and the different types of mortgage refinancing that could be a better alternative to a reverse mortgage.

A cash-out refinance is one such option. Most people refinance to lower their interest rate or shorten or lengthen the term of their existing mortgage loan. A cash-out refinance, though, can also provide you with a lump sum of cash that you can spend on anything.

In a cash-out refinance, you’ll refinance for an amount higher than what you owe on your mortgage. Say you owe $100,000 on your mortgage and your home is worth $200,000. You might refinance for $170,000. You then receive that extra $70,000 as a lump sum payment. You’ll have to repay the full $170,000 that you’ve borrowed in regular monthly payments with interest. But if you pay off your new mortgage loan before you die, you can leave your home to your heirs without worrying about forcing them to pay off a reverse mortgage to gain the property.

Remember: If you pass away before repaying your new mortgage, your heirs would have to pay off that loan before taking over possession of your home.

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Get Reverse Mortgaga

If you are 62 or older, a reverse mortgage is a great way to take advantage of the equity in your home without having to sell your home, and eliminate your monthly mortgage payment. Talk to a reverse mortgage specialist today! Call Us!

Mortgage Refinance

Mortgage Refinance

A mortgage refinance is when you replace your current mortgage with a new mortgage that has a different interest rate or to borrow more money. Getting a lower rate and saving money on interest payments over the life of the loan are two benefits of refinancing your home. But they aren’t the only ones! Call Today!

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What is mortgage refinance?

Mortgage refinance essentially allows you to tap equity or save your money by replacing your home loan with a new one. The reason homeowners usually refinance is to cut monthly payments, reduce their interest rate, or access the equity of their home. Other common reasons to refinance your mortgage would be to eliminate Federal Housing Administration (FHA) mortgage insurance, switch to a fixed-rate loan from an adjustable-rate loan, or simply to pay off your loan more quickly.

Since your mortgage will likely be one of the largest investments of your life, it is important to understand the best options for you when thinking about the best loan for purchasing your home for a second time.

How Mortgage Refinancing Works

In general, here’s a step-by-step overview of the mortgage refinancing process:

  1. Loan evaluation and goal establishment. A few different reasons a homeowner may want to refinance are mortgage interest rate reductions, switching to another type of mortgage, or home renovations. For homeowners, the first step in the refinance process is to evaluate the current mortgage loan and identify their financial goals before moving forward.
  2. Find the best lender. Once borrowers identify their goals, they’ll search for lenders that can offer them the right mortgage for their situation. Prospective refinancers may apply for multiple loans with different mortgage lenders and then compare the estimates using an online mortgage calculator to determine an ideal break-even point.
  3. Close on the loan. After the borrower finds the lender with the best loan terms for their needs, they will close on the new loan, sign documents, and pay any necessary closing costs.
  4. Pay off the original mortgage. With the money from the new refinance loan, the borrower will pay off their original mortgage. If they applied for a new loan that is larger than their initial loan, they keep the difference and use it to achieve their goals.
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How to refinance your mortgage

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Step 1: Set a clear financial goal

There should be a good reason why you’re refinancing — whether it’s to reduce your monthly payment, shorten the term of your loan or pull out equity for home repairs or debt repayment.

What to consider: If you’re reducing your interest rate but restarting the clock on a 30-year mortgage, you may pay less every month, but you will pay more over the life of your loan. That’s because most of your interest charges occur in the early years of a mortgage.

Step 2: Check your credit score and history

You’ll need to qualify for a refinance just as you needed to get approval for your original home loan. The higher your credit score, the better refinance rates lenders will offer you — and the better your chances of underwriters approving your loan. For a conventional refinance you will need a credit score of 620 or higher to be approved; in some cases, lenders will accept 580 for an FHA or VA refi mortgage. They won’t let you borrow as much, though.

What to consider: While there are ways to refinance your mortgage with bad credit, spend a few months boosting your score, if you can, before you start the process.

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Step 3: Determine how much home equity you have

Your home equity is the total value of your home minus what you owe on your mortgage. To figure it out, check your mortgage statement to see your current balance. Then, check online home search sites or get a real estate agent to estimate your home’s current fair market value. Your home equity is the difference between the two. For example, if you still owe $250,000 on your home, and it is worth $325,000, your home equity is $75,000.

What to consider: You may be able to refinance a conventional loan with as little as a 5 percent equity sake, but you’ll get better rates and fewer fees (and won’t have to pay for private mortgage insurance or PMI) if you have at least 20 percent equity. The more equity you have in your home, the less risky the loan is to the lender.

Step 4: Shop multiple mortgage lenders

Getting quotes from at least three mortgage lenders can save you thousands. Once you’ve chosen a lender, discuss when it’s best to lock in your rate so you won’t have to worry about rates climbing before your loan closes.

What to consider: In addition to comparing interest rates, pay attention to the various loan fees and whether they’ll be due upfront or rolled into your new mortgage. Lenders sometimes offer no-closing-cost refinances but charge a higher interest rate or add to the loan balance to compensate.

Bankrate’s refinance rate table allows you to comparison-shop loans, to help you find the best fit for your financial needs.

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Step 5: Get your paperwork in order

Gather recent pay stubs, federal tax returns, bank/brokerage statements and anything else your mortgage lender requests. Your lender will also look at your credit and net worth, so disclose all your assets and liabilities upfront.

What to consider: Having your documentation ready before starting the refinancing process can make it go more smoothly and often more quickly.

Step 6: Prepare for the home appraisal

Mortgage lenders typically require a home appraisal (similar to the one done when you bought your house) to determine its current market value. An outside appraiser will evaluate your home based on specific criteria and comparisons to the value of similar homes recently sold in your neighborhood.

What to consider: You’ll pay a few hundred dollars for the appraisal. Letting the lender or appraiser know of any improvements, additions or major repairs you’ve made since purchasing your home could lead to a higher appraisal.

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Step 7: Come to the closing with cash, if needed

The closing disclosure, as well as the loan estimate, will list how the extra expense in closing costs to finalize the loan. You may need to pay 3 to 5 percent of your total loan at closing.

What to consider: You might be able to finance the costs, which can amount to a few thousand dollars, amortizing them over the course of your loan. But you will likely pay more for it through a higher interest rate or total loan amount, which amounts to more interest in the long run. (And yes, they’ll probably slap you with a fee to do it, too.) It often makes more financial sense to pay upfront if you can afford to.

Step 8: Keep tabs on your loan

Store copies of your closing paperwork in a safe location and set up automatic payments to make sure you stay current on your mortgage. Some banks will also give you a lower rate if you sign up for autopay.

What to consider: Your lender or servicer might resell your loan on the secondary market either immediately after closing or years later. That means you’ll owe mortgage payments to a different company, so keep an eye out for mail notifying you of such changes. The terms themselves shouldn’t change, though.

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Reasons you should refinance your home loan

When the costs of refinancing can be recouped in a reasonable period, it might make financial sense to do, depending on your goals. These could include:

  • To reduce your monthly mortgage payment. Securing a lower interest rate can lower your mortgage payments by hundreds of dollars.
  • To pay your mortgage off sooner. If you convert a 30-year mortgage into a 15-year one, you can pay it off faster and reduce the total amount of interest you owe.
  • To make your mortgage payment more manageable. Taking out a 30-year mortgage to replace a 15-year mortgage can help reduce your monthly payment.
  • To switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan. This is smart if you think rates will go up in the future or if you just want a predictable monthly payment
  • To take advantage of your home equity. After you pay off your original mortgage, any money left over can be earmarked for home renovation projects, debt consolidation or paying large expenses, like college tuition bills.
  • To eliminate mortgage insurance. This applies mainly to FHA loans that financed more than 90 percent of the original home purchase. Their mortgage insurance premiums can only be canceled if you refinance the loan, swapping it out for a new non-FHA one. However, the new lender will have wanted you to have built up at least 20 percent equity in your home.
  • A refinance calculator can crunch the numbers and determine how much you can afford to refinance.

Benefits of refinancing your mortgage

  • Free up money each month — If interest rates have fallen since you first got your mortgage, a rate-and-term refinance can replace your loan with a new one that has a lower rate, meaning you pay less to your lender each month.
  • Pay your home off faster — If you got your mortgage some time ago and never refinanced, refinancing to a new loan with a shorter term and a lower interest rate could substantially reduce interest payments. One word of caution: if you’re putting more cash into paying off your mortgage each month, you could have less money on hand for expenses or savings.
  • Eliminate mortgage insurance — If rising home values and loan payments have pushed your home equity above 20 percent, you might be able to refinance into a new conventional loan without private mortgage insurance (PMI). (Depending on your loan terms, your lender could remove PMI as soon as you meet the 20 percent equity threshold without needing to refinance.)
  • Change your FHA loan into a non-FHA loan — If you have an FHA loan and put down less than 10 percent, the only way to remove the mortgage insurance is by refinancing to a non-FHA loan. Even with today’s higher interest rates, this move could save you money overall.
  • Tap your home’s equity — If you have over 20 percent equity in your home, you could turn to cash-out refinancing. By refinancing your home loan into a new mortgage for a more significant amount, you could receive the difference in ready money to spend however you like. Cash-out refinancing makes sense if you use the money to invest back into your home through a major remodeling project or pay off high-interest debt.
  • Lock in a fixed-rate mortgage — If you’re in an adjustable-rate mortgage (ARM) that’s about to reset and you believe interest rates will rise, you can refinance into a fixed-rate loan. Your new rate might be higher than what you’re paying now, but you’re guaranteed it won’t rise in the future.
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Considerations before refinancing your mortgage

  • Refinancing isn’t free — Just like your original mortgage, your refinanced mortgage comes with costs, such as an origination fee, an appraisal, title insurance, taxes and other fees. You only save money until the monthly savings offset the cost of refinancing. You’ll need to do some math (use this calculator) to figure out how many months it will take to reach this break-even point. If there’s a chance you’re going to move before then, refinancing is probably not the best move.
  • You might have a prepayment penalty — Some mortgage lenders charge you extra for paying off your loan early. A high prepayment penalty could tip the balance in favor of sticking with your original mortgage.
  • Your total financing costs can increase — If you refinance to a new 30-year mortgage and you’re well into paying off your initial 30-year loan, you’re going to pay more in interest than if you’d kept the original mortgage since you’re extending the loan repayment time.

Types of mortgage refinancing

There are many refinance options available for mortgage products, so you will want to evaluate the types of refinance available to you and consider each within the context of your unique financial situation. Your goal may be to adopt a shorter loan term, or maybe your focus is lower monthly payments. Explore the options available to decide which type of refinance best suits your objectives.

Rate-and-term refinance

This is a basic form of refinancing that changes either the interest rate of the loan, the term (repayment length) of the loan or both. This can reduce your monthly payment or help you save money on interest. The amount you owe generally won’t change unless you roll some closing costs into the new loan.

Cash-out refinance

When you do a cash-out refinance, you’re using your home to take cash out to spend. This increases your mortgage debt but gives you money that you can invest or use to fund a goal, like a home improvement project. You can also secure a new term and interest rate during a cash-out refinance.

Cash-in refinance

With a cash-in refinance, you make a lump sum payment in order to reduce your loan-to-value (LTV) ratio, which cuts your overall debt burden, potentially lowers your monthly payment and also could help you qualify for a lower interest rate. Before making a cash-in refinance, you’ll want to evaluate whether paying the lump sum would deprive you of more lucrative opportunities or needlessly drain your savings.

No-closing-cost refinance

A no-closing-cost refinance allows you to refinance without paying closing costs upfront; instead, you roll those expenses into the loan, which will mean a higher monthly payment and likely a higher interest rate. A no-closing-cost refinance makes most sense if you plan to stay in the home short-term.

Short refinance

If you’re struggling to make your mortgage payments and are at risk of foreclosure, your lender might offer you a new loan lower than the original amount borrowed and forgive the difference. While a short refinance spares the borrower the financial impacts of a foreclosure, this option comes at the expense of a hit to your credit score.

Reverse mortgage

If you’re a homeowner aged 62 or older, you might be eligible for a reverse mortgage that allows you to withdraw your home’s equity and receive monthly payments from your lender. You can use these funds as retirement income, to pay medical bills or for any other goal. You won’t need to repay the lender until you leave the home, and while the income is tax-free, it’ll accrue interest.

Debt consolidation refinance

Similar to cash-out refinances, debt consolidation refinances give you cash with one key difference: You use the cash from the equity you’ve built in your home to repay other non-mortgage debt, like credit card balances. Your mortgage debt will increase, but you will be able to pay other debts down or off entirely. Plus, you might be able to take advantage of the mortgage interest deduction.

Streamline refinance

A streamline refinance accelerates the process for borrowers by eliminating some of the requirements of a typical refinance, such as a credit check or appraisal. This option is available for FHA, VA, USDA and Fannie Mae and Freddie Mac loans.

How Much Do I Pay to Refinance?

Mortgage refinancing isn’t free. You’ll pay several fees to your new lender, and other professionals as well to compensate them for processing the loan. Some of the costs of refinancing include:

  • Application fees: This expense covers the cost to process your loan and perform credit checks.
  • Origination fees: This is a one-time fee that you pay for loan preparation.
  • Appraisal fees: This covers the cost of an appraisal to assess the value of your home.
  • Inspection fees: You’ll be charged this fee if your home requires an inspection to assess its condition before being approved for a new mortgage.
  • Closing costs: This includes fees for the attorney who handles the closing of the loan on behalf of the lender.

Altogether, refinancing fees can amount to 3% to 6% of the remaining principal on the mortgage. Your lender might not require that you pay these fees upfront if you qualify for a “no-cost refinancing,” but you’ll still effectively pay them through a higher interest rate throughout the loan.

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Which Type Of Mortgage Refinance Loan Is Right For You?

When deciding among the different types of refinancing options, there are several factors you ought to take into consideration, including:

  • The type of mortgage loan you have
  • The type of borrower you are (for example, a veteran with a VA loan)
  • The goals you hope to achieve by refinancing
  • The amount of equity you have in your home
  • Your credit score
  • Your DTI ratio
  • Your LTV ratio
  • Your overall financial standing (your ability to afford closing costs, your ability to pay off additional debt, etc.)

If you’re still unsure as to which type of refinance would best fit your needs, talk to your lender about what potential terms for different refinances would look like and to get other mortgage refinance tips.

How Do I Qualify for Refinancing?

Qualifying for a refinance is the same as qualifying for a purchase home loan, as lenders want to make sure you can afford the payments and that you will make them on time per your contract. Although each lender has different requirements, generally all lenders will look at your credit score, debt-to-income ratio (DTI), income and home equity.

For conventional mortgages, a credit score between 620 and 720 is preferred. The credit score minimum might also depend on your cash reserves, DTI and the loan-to-value ratio. Also, lenders usually reward high credit scores with the lowest available interest rates.

FHA loans have lower minimums than conventional mortgage refinances, but some lenders might apply a credit overlay, which means they will raise the minimum score to offset risk:

  • 500 if your new loan has an LTV of 90% or less
  • 580 if your new loan has an LTV of over 90%

There is no credit check for an FHA streamline refinance. There are also no credit score minimums for USDA or VA refinances; however, lenders might apply their own standards to these refinances.

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When Is Refinancing Worth It?

There are many scenarios where refinancing makes sense. In general, refinancing is worth it if you can save money or if you need to access equity for emergencies.

Borrowers with FHA loans must refinance into a conventional loan in order to get rid of their mortgage insurance premium, which can save hundreds or thousands of dollars per year.

Some borrowers refinance because they have an adjustable-rate mortgage and they want to lock in a fixed rate. But there are also situations when it makes sense to go from a fixed-rate to an adjustable-rate mortgage or from one ARM to another: Namely, if you plan to sell in a few years and you’re comfortable with the risk of taking on a higher rate should you end up staying in your current home longer than planned.

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What documents do I need to refinance my mortgage?

To refinance your mortgage, you’ll need to supply identification, income verification and credit information. Be sure to ask your lender for a list of documents you’ll need. The faster you can give the lender everything they need to process your loan, the quicker you’ll be able to close.

Here’s a general checklist:

  • W-2s or 1099s
  • Recent pay stubs
  • Most recent tax returns
  • Statement of assets
  • Statement of debts
  • Proof of property insurance
  • Appraisal

Find the Best Rates For Refinancing Your Mortgage

The costs of refinancing a mortgage can add up quickly, so it’s important to research which lenders offer the most competitive interest rates and fees. To find the best refinancing terms, start by looking at your current lender. Likewise, if you already have a relationship with another bank, it can likely streamline the application process and provide more favorable terms.

If you’re getting a conventional mortgage, nationally chartered or community banks are usually the best places to start. Shop around at a variety of large banks, local banks and credit unions to ensure you get the best terms for your needs and credit history. Also keep in mind that if you want to refinance quickly, you may want to consider an alternative lender, like an online non-bank company—although this generally comes with a higher interest rate.

To get the best refinancing rates, pay attention to these factors before applying:

  • Credit score. Your credit score is an important part of how lenders calculate loan eligibility and, ultimately, interest rates. For example, in June 2020, myFICO, a division of the company that produces the most widely used credit scores, reported that borrowers with a credit score between 760 and 850 could expect around a 2.9% APR on a 30-year $300,000 mortgage; in contrast, a score between 660 and 679 might have earned an interest rate closer to 3.5%.
  • Home equity. A borrower’s loan-to-value ratio—the amount owed on the current mortgage loan divided by the home’s current value—is also an important factor during the refinancing process. You should have at least 5% equity in your home before refinancing, but this number varies depending on the type of mortgage. If you have less than 20% equity in your home, expect to pay mortgage insurance.
  • Availability of cash to lower your interest rate. Paying points—a lump-sum fee paid to the lender at closing—allows you to earn a lower interest rate on your new loan. Plus, your lender may be willing to negotiate an interest rate reduction larger than the standard 0.25% per point.
  • Employment status. Before refinancing a mortgage, lenders want to know you can make the monthly payments. Compile employment documents like recent W-2s and tax returns before applying for a new loan—especially if you’re self-employed or recently switched jobs.
  • Debt-to-income ratio. Ideally, your new mortgage payment should be less than 30% of your monthly income; total household debt should be less than 40% of your monthly income.
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Whether you’re looking to lower your payment, consolidate debt, or get cash out, refinancing your current mortgage could be easier than you think. Call Today!

Debt Consolidation

Debt Consolidation

Debt consolidation loans help you pay off multiple high-interest debts, consolidating your loans into a single payment. A debt consolidation loan can provide debt relief by simplifying your finances and combining multiple high-interest debts into a single payment each month. Get started on your debt consolidation loan today! Call Today!

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What is a Debt Consolidation ?

Debt consolidation, also known as credit consolidation, is when you refinance multiple existing loans or debts into one new loan. Essentially, you get to pay off all your different lenders and have a large loan with only one lender instead.

There are many reasons someone might consider debt consolidation. It can potentially lower your monthly payment (by extending your repayment period), help you secure an overall lower-interest loan and simplify your finances. Understanding these benefits can help you determine if debt consolidation is right for you.

How does debt consolidation work?

There are several ways to consolidate debt, but the general process entails taking out a new debt — in this case, a personal loan — to pay off multiple debts and streamline the repayment process. Borrowing a home equity loan or taking out a balance transfer credit card are also methods of debt consolidation.

However, a debt consolidation loan is one of the most common and easiest ways to consolidate debt. With fixed interest rates and monthly payments, it’s possible to save money over the life of your loan by securing a lower rate than what you had on your previous debts.

Plus, a debt consolidation loan is an unsecured debt, meaning you don’t need to secure the loan with collateral and run the risk of losing your assets, like your home, if you’re unable to make the monthly payments. If debt consolidation isn’t an option, working with a credit counseling agency to establish a debt management plan may be a better way of dealing with your debt.

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What is a Debt Consolidation Loan?

A debt consolidation loan can be taken to repay many high-interest debts with one new low-interest loan. It is a strategy of simplifying finances for those consumers who are dealing with several unsecured debts like credit cards, medical bills, or personal loans. Consumers wind up their unsecured debts into one single bill and use the consolidation loan to repay the total amount owed. Several financial institutions offer debt consolidation loans to borrowers who have trouble managing the number or size of their outstanding debts.

How to Apply for debt consolidation

  • Research lenders: Consider the types of loans and interest rates lenders may offer you. They typically look at factors like credit score, income, current debts and debt-to-income (DTI) ratio. To find personalized loan offers based on your credit history without affecting your credit score, check out LendingTree’s personal loan marketplace.
  • Apply for prequalification: Prequalify for a loan by submitting details to lenders like your income, debts and credit history. They’ll conduct a soft credit inquiry – which doesn’t affect your credit score – to determine whether you’d likely qualify, and for what terms. Prequalification doesn’t guarantee loan approval but is a great way to research terms you could see with a lender.
  • Compare offers: Compare loan offers by looking at each offer’s APR and other terms, as well as fees. Personal loans often come with origination fees that range from 1% to 8% of the amount owed, and some also come with late payment fees and prepayment penalties.
  • Choose a lender and submit a formal application: Once you’ve picked a lender, gather necessary documents, like proof of income, income and other forms of debts. Before they formally approve you, lenders will do a hard credit check.
  • Start paying off existing debt: If you’re approved, your lender will deposit the entire loan amount into your bank account so you can begin paying off your debts. Stick to your monthly payments to avoid late payments (and fees) that might damage your credit.
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Benefits of debt consolidation

There are many benefits of debt consolidation, including:

  • Saving money: The biggest perk of debt consolidation for most people is saving money. You can save significant money in interest by consolidating multiple high-interest debts into a single lower-interest loan or credit card.
  • Simplifying payments: Managing multiple debt payments each month can be a challenge. And it can lead to late or missed payments, which negatively impact your credit score. Streamlining multiple monthly payments into one makes managing debt much easier and can help boost your credit score.
  • Well-defined repayment term: Some debts, especially credit cards that aren’t on a fixed payment schedule, can linger for years until you pay them off. But the right debt consolidation loan will put debt repayment on a fixed schedule. That means you’ll know down to the day when your loan will be repaid in full.
  • Less stress: Managing one debt instead of many can remove many stressful financial interactions each month. Plus, knowing you’ve locked in a lower interest rate and will be saving money can reduce stress too.

Types of Debt Consolidation

debt consolidation can be a way to manage multiple types of debt, there are several types of debt consolidation. Here are the different types of debt consolidation to meet individual borrower needs:

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Debt Consolidation Loan

A debt consolidation loan is a lower interest personal loan that allows you to move multiple credit card balances or loans into one account. Since these loans are unsecured, they typically require a good credit score to receive the lowest interest rates.

Borrowers looking for a debt consolidation loan with bad credit may still be able to qualify, just for a slightly higher interest rate. That’s why it makes sense to shop around with various lenders to get the best price before committing.

Credit card balance transfer

A credit card balance transfer makes sense for borrowers with good or excellent credit scores (above 690 on the FICO scale). That’s because these borrowers may qualify for a 0% APR credit card for a set period. And that period can be incredibly valuable in repaying debt without additional interest piling on.

But borrowers with poor credit may still find a balance transfer card useful. Streamlining multiple credit cards into a single payment makes sense as long as the interest rate on the new card is lower than the average of existing debts.

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Home equity loan and HELOC

A home equity loan and home equity line of credit (HELOC) are secured loans where your home is the collateral. This means you’re borrowing money against the equity in your home, and that typically comes at a lower interest rate than other loan options.

Debt consolidation using a home equity loan can be a smart move when you have considerable equity in your home and are committed to repaying debt. However, those struggling with overspending could put their home at risk if the loan isn’t repaid timely.

401(k) Loans

Typically, taking out a loan using a retirement account, like a 401(k), is a financial no-no. But in the case of debt consolidation, when you can commit to repaying the balance plus interest quickly, it may be worth a look.

401(k) loans generally have a low interest rate, plus you’ll be repaying the loan plus interest to yourself (less any fees from your 401(k) provider, of course). However, the major downside of taking a 401(k) loan is that it can derail your retirement savings plan. Add that to potential tax consequences and fees, and you’ll see that it’s probably best to review this loan option with a financial professional before you use a 401(k) loan for debt consolidation.

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Savings / CD Loans

A Certificate of Deposit (CD) is a savings vehicle that you commit to leaving money in the account at a set interest rate for a specified period. You can, however, take out a CD loan against that money, whereas the CD acts as collateral to secure a personal loan.

Using a CD loan for debt consolidation is a way to leverage that money without facing early withdrawal penalties. But not all banks offer CD loans, and you have to have an active CD to qualify.

Student Loan Consolidation

Depending on the types of student loans you have, federal or private, the debt consolidation options look different. For example, you may lock in a longer repayment term for federal loans, which lowers monthly payments, but generally, you won’t receive a lower interest rate.

With private student loans, you can shop around to consolidate multiple loans into a single loan at a better interest rate. And that can result in pretty significant interest savings, especially if your loan balance is high.

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Cash-Out Refinance

You can roll multiple debts into a cash-out refinance as another type of debt consolidation. With a cash-out refinance, you’ll replace your existing mortgage with one whose higher balance reflects the debt you’ve added on.

Since a cash-out refinance means taking out a new mortgage, there are closing costs and fees to consider. So you’ll need to calculate the interest savings from debt consolidation plus these costs before pursuing this option.

How To Consolidate Debt

There are several different ways to consolidate debt:

  • Debt consolidation loans. Debt consolidation loans are a type of personal loan available through banks, credit unions and online lenders. With this type of loan, lenders may pay off your debt directly or provide the cash for the borrower to pay off their outstanding balances.
  • Personal loans. With a personal loan used for debt consolidation, you take out a new loan from a bank, credit union or another lender to pay off higher-interest debts, such as credit card debts or other bills.
  • Balance transfer credit card. If you have good enough credit, you can transfer the balance of several credit cards to a new balance transfer credit card at a lower interest rate, sometimes at 0% APR for an introductory period.
  • Home equity loan. If you own your home and have built up enough equity to qualify, you may be able to use a home equity loan or home equity line of credit (HELOC) to consolidate your debt at a lower interest rate.
  • Cash-out mortgage refinance. A cash-out mortgage refinance gives you the option to refinance your home for more than the outstanding balance. You can use the difference in cash to pay off outstanding debts.
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How to decide if you should consolidate your debt

The answer to this question depends on your circumstances. That said, here are some scenarios where you might be a good candidate:

  • You have a good credit score: If you have a good credit score — at least 670 — you’ll have a better chance of securing a lower interest rate than you have on your current debt, which could save you money.
  • You prefer fixed payments: If you prefer your interest rate, repayment term and monthly payment to be fixed, a debt consolidation loan might be right for you.
  • You want one monthly payment: Also, taking out a debt consolidation loan could be a good idea if you don’t like keeping track of multiple payments.
  • You can afford to repay the loan: Finally, a debt consolidation loan will only benefit you if you can afford to repay it. You’ll risk digging into a deeper financial hole if you can’t.

When is debt consolidation a good or bad idea?

There’s no one-size-fits-all debt management strategy.
To determine if debt consolidation is a good idea, you’ll need to take a close look at your finances.

Debt consolidation is a good idea when…

  • You can qualify for a lower APR than what you’re currently paying on your debts
  • You’re struggling to manage credit card bills and loan payments
  • You want to pay off debt faster on a set schedule
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Debt consolidation is a bad idea when…

  • You can’t qualify for a lower APR than what you’re currently paying on your debts
  • You only have small balances that you can pay off quickly
  • You owe too much to manage and repay

When debt consolidation is not a smart move?

Debt consolidation may not be a smart move for everyone. It’s smart to consult with a financial professional or explore other options if you:

  • Haven’t yet changed the spending habits that got you into debt in the first place
  • Have debt that can be repaid in less than a year
  • Are working to improve a poor credit score

Debt Consolidation vs. Debt Settlement

The terms debt consolidation and debt settlement are often used interchangeably—but there are some important differences. Most significantly, debt settlement involves hiring and paying a third-party company to negotiate a lump-sum payment that each of your creditors will accept in lieu of paying the total outstanding balance. These settlement companies typically charge a fee between 15% and 20% of the total debt amount and are often a scam.

In contrast, debt consolidation requires the borrower to pay their full debt balances using funds from a new loan. Unless there are origination fees or other administrative fees, borrowers don’t have to pay anyone to complete the consolidation process. Instead, the debt consolidation process requires borrowers to take inventory of their debts and develop a plan to pay them off in a more streamlined—often less expensive—way.

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Debt consolidation pros and cons

Debt consolidation has both benefits and drawbacks to consider before you make a final decision.

Pros of Debt Consolidation

  • Easier to manage your expenses by combining multiple debts into a single monthly payment.
  • Possible lower interest rate
  • Could lower your overall monthly debt payment

Cons of Debt Consolidation

  • May not qualify for an interest rate that’s lower than your existing balances
  • Lengthened repayment term could cost more in interest even with a lower rate
  • Some loans require you to put your home up as collateral

How does debt consolidation hurt your credit?

Debt consolidation often involves taking out a new loan or credit card to pay off existing debt. In general, taking on any kind of new debt to help pay off old ones will lower your credit score, even if temporarily.

These approaches in particular require a hard credit check during the formal application process, which hurts your credit score. And while the effect is often short-lived, a hard credit check might leave a larger credit ding if you have other large debts or a history of late payments.

Here are examples of how paying off debt can hurt your credit score:

  • Triggering a hard credit inquiry: Applying for a new loan or line or credit leads to a temporary dip in your credit score because lenders do a hard credit inquiry during the formal approval process. Applying for one type of loan will affect your score less than applying for different forms of financial help at once. On average, hard inquiries will take a few points off your score. This dip will likely disappear as you consolidate debt and rebuild credit. You can expect hard inquiries to stay on your report for about two years.
  • Closing out credit cards: It may be tempting to close credit card accounts after paying them off, but this lowers your total available credit and reduces the length of your credit history. All affect your credit score. Consider leaving your oldest accounts open, as well as the ones with the largest credit limits.
  • Using a debt management plan: A nonprofit credit counseling agency may be able to create a streamlined plan to help you pay back debt. This often means closing your credit cards, which can cause your score to dip. Expect it to climb as debts get paid off on time, however.
  • Making late payments: Your debt payment history accounts for 35% of your credit score, so it affects your credit more than any other factor. Keep making timely payments on your accounts to prevent your score from dropping.

How does debt consolidation help your credit?

Debt consolidation can boost your credit in huge ways. For example, using a personal loan or home equity loan to pay off credit card debt means you might be able to pay off your balance faster and save on interest payments. That’s because both loan types typically come with lower interest rates – especially if you have excellent credit.

Here’s more on how debt consolidation may help your credit:

  • Improves your credit history: With debt consolidation strategies you’re more likely to make timely payments and in turn raise your credit score. Paying more than the minimum you owe every month might boost your score further.
  • Reduces your credit utilization ratio: Paying off credit card debts with a consolidation loan frees up your available credit and reduces your credit utilization ratio. This number compares how much debt you carry to your credit limit; ideally you want to keep it at or below 30%.
  • Improves your credit mix: If you only carry a few types of debt, diversifying the mix with a consolidation loan might actually increase your credit score. That’s because lenders see you as a responsible borrower who can successfully juggle different kinds of debt.

Alternatives to Debt Consolidation

If you don’t want to take out a new loan, open a credit card or tap your home equity to consolidate debt, there are a several other alternatives:

  • Pay off debts on your own. If your debt payments are manageable, you can make a plan to pay off debt faster. If you have sufficient income and room in your monthly budget, you may be able to pay off your debts fast without debt consolidation, using the debt snowball or debt avalanche method.
  • Enter into a debt management program (DMP). If you are having trouble paying your bills, you can work with a nonprofit consumer credit counseling agency to set up a debt management program where you agree to pay off your debts with one monthly payment to the credit counseling agency, which then pays your creditors for you.
  • File for bankruptcy. If you’re struggling to pay your bills, you don’t want (or cannot get approved) to borrow any more money and you don’t believe you will be able to repay your debts, you may want to consider declaring bankruptcy. This legal process can wipe out some or all of your debts and help you make a fresh start. But be aware that bankruptcy stays on your credit report for seven to 10 years.
  • Consider debt settlement, but as a last resort. If you have fallen behind on your debts, you may consider negotiating with your creditors to accept a smaller amount of money than what you owe. This is called debt settlement, and you can do it yourself or by working with a debt settlement company. But be cautious. Debt settlement can be risky. Creditors are not required to accept your debt settlement offer and may not want to negotiate. And the debt settlement process typically causes significant damage to your credit. It should be considered only as a last resort.

How do you choose the right debt consolidation loan?

Debt consolidation loans are not one-size-fits-all. When deciding which is the right one for you, it’s important to consider two things: your credit score and the type of debt you want to pay off.

If most of your debts are secured, such as an auto loan or a mortgage. Then, the best course of action is to look for a refinance loan. If you’re looking to consolidate unsecured debts, like personal loans, student loans or medical bills, then the best route is to take out a consolidation loan.

And obviously you’re going to be looking for an interest rate lower than the ones you are currently paying. If the new interest rate isn’t fixed, be sure to talk to the lender about the possibility that it might increase down the line and budget accordingly. And no matter what, read the fine print. Every last tiny line of it.

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Tips for consolidating debt

Keep these tips in mind when consolidating debt:

  • Do your research. Make sure you compare costs, get quotes and explore all your options. You want to secure the best rate so you’re saving as much money as possible.
  • Review your income and credit. Lenders will look at these factors and use them to determine what kinds of options you qualify for. If your income is too low or your credit is poor, you may not be eligible for the debt consolidation option you’re hoping for.
  • Gather the necessary documentation. Potential lenders will require supporting documents, such as proof of employment, as a part of your application.
  • Decide on your plan for debt consolidation. You’ll want to have a plan for how you’ll deal with your lenders. For example, you might want to decide if you’re going to close all the accounts or keep some open (without incurring new debt, of course).
  • Make sure debt consolidation is right for you. Lastly, make sure you evaluate whether this is the best option for you. Ensure that, for your situation, the benefits outweigh the drawbacks.

How do you choose the right debt consolidation company?

There are plenty of companies that exist just to take advantage of people struggling with debt — you want to avoid these companies at all costs.

For a loan or a balance transfer credit card, use a licensed financial institution and a name you trust. If you decide a debt management plan or a debt settlement is right for you, vet the debt relief company or agency in question through the Better Business Bureau to see if any complaints have been made against them.

Lastly, you’ll want to choose a company that can give you the right solution that adjusts to your monthly budgeting and to the timeframe you’ve established to pay off your debts.

How long does debt consolidation stay on your credit report?

If you take out a debt consolidation loan, it will stay on your credit report for as long as the loan is open. If you make payments on your loan and keep it in good standing, this can be a good thing. However, if you miss a payment, later payments can stay on your credit report for up to seven years. Your loan application will also result in a hard inquiry, which stays on your credit report for two years, although its impact on your credit will be minimal after one year.

How do I increase my credit score after debt consolidation?

The best way to increase and maintain a good credit score after debt consolidation is to make all your payments on time and keep your debt balances under control. It may be helpful to reflect on what caused you to accumulate debt in the first place so you can try to avoid the same situation in the future.

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Add Find the right debt consolidation loan for you today!

If you’re struggling with debt, you’re not alone And you do have option. Look into a debt consolidation loan or one of the options above to start working on financial stability for the future. Call Today!

student loan forgiveness

Student Loan Forgiveness

Many Students Are Getting Their Student Loans Dismissed. Want To See If You Qualify For Forgiveness? We Can Help. Get A FREE Consultation With A Student Loan Specialist. Call Today!

Monday to Friday – 8:00 am to 4:30 pm
(all times Pacific)

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Student Loan Payment

Drastically Lower or Eliminate Your Student Loan Payment. You may be eligible for $0 monthly payment.

Student Loan Payment

Drastically Lower or Eliminate Your Student Loan Payment. You may be eligible for $0 monthly payment.
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Forgiveness Programs

We will help you qualify for the right program based on your income and financial circumstance.

Forgiveness Programs

We will help you qualify for the right program based on your income and financial circumstance.
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No Credit Checks

No credit check or employment verification. Income-based payments and forgiveness programs.

No Credit Checks

No credit check or employment verification. Income-based payments and forgiveness programs.
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Document Preparation

We specialize in document preparation for applicants who wish to enroll in The Department of Education loan forgiveness programs.

Document Preparation

We specialize in document preparation for applicants who wish to enroll in The Department of Education loan forgiveness programs.

What Is Student Loan Forgiveness?

Student loan forgiveness is debt relief offered to students with federal loan debts. It offers relief from the obligation to repay part or all of the federal direct loan.

With over 44 million Americans holding over $1.6 trillion in student debt, the thought of getting student loans canceled, forgiven, or discharged is a dream come true for some Americans. Once a loan is forgiven, it means that a person is no longer required to make principal and interest repayments to the federal debt.

However, not all student loans meet the requirements for forgiveness. Usually, the federal government may cancel part or all of a student loan under certain circumstances, such as performing military service, doing voluntary work, etc.

In other cases, the federal government may cancel a student debt due to circumstances beyond the borrower’s control, such as a borrower’s permanent disability, death of a borrower, falsification of loan qualifications, and closure of school during a school session.

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How To Get Your Student Loans Forgiven

  • Option No. 1 – If having a job that serves the public. If you’re a teacher or police officer or firefighter or social worker or health care worker or government employee who kept up with payments for 10 straight years, you’ve got a good shot. If you are a sign spinner or pet psychic, forget it.
  • Option No. 2 – Through a repayment plan that is based on your income. You will still have to pay a large chunk of your debt over a long period, but under the current laws, a portion will be forgiven at the end. Those options are available for federal student loans.
  • Option No. 3 – Is called a discharge and it’s available for federal or private loans, but you probably don’t want to go there. A discharge is when you can’t repay the loan for a variety of reasons, like death, disability, fraud, identity theft or bankruptcy.

Student loan forgiveness programs

  1. Income-driven repayment forgiveness. The federal government offers four main income-driven repayment plans, which allow you to cap your loan payments at a percentage of your monthly income. When enrolled in one of these plans, your remaining loan balance will be eligible for forgiveness after 20 or 25 years, depending on the plan. These plans are most beneficial for those with large loan balances relative to their income. Only 32 borrowers have received loan forgiveness through income-driven repayment forgiveness, according to the National Consumer Law Center. This forgiveness was made tax free retroactive to Dec. 2020 through the end of 2025, as part of the March 2021 American Rescue Plan. However, most borrowers will not qualify for forgiveness through income-driven repayment until the early 2030s.
  2. Public Service Loan Forgiveness. Public Service Loan Forgiveness is available to government and qualifying nonprofit employees with federal student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free after making 120 qualifying loan payments. Until Oct. 31, 2022, the Education Department has expanded which payments on federal student loans count toward PSLF through a limited waiver; now, payments on FFEL and Perkins loans, late payments and payments made on any repayment plan will retroactively count as qualifying payments.
  3. Teacher Loan Forgiveness. Teachers employed full time in low-income public elementary or secondary schools may be eligible for Teacher Loan Forgiveness after working for five consecutive years. They can have up to $17,500 in federal direct or Stafford loans forgiven. To qualify, teachers must have taken out loans after Oct. 1, 1998.
  4. Student loan forgiveness for nurses. Nurses shouldering student debt have several options for student loan forgiveness: Public Service Loan Forgiveness, Perkins loan cancellation, and the NURSE Corps Loan Repayment Program, which pays up to 85% of qualified nurses’ unpaid college debt. Public Service Loan Forgiveness may be the most likely option for most nurses — few borrowers have Perkins loans, and the NURSE Corps program is highly competitive.
  5. Obama student loan forgiveness. There’s no such thing as “Obama student loan forgiveness.” However, some student “debt relief” companies use it as a catch-all term for free federal programs — which they charge to enroll borrowers in. If you encounter a company offering “Obama student loan forgiveness,” consider it a red flag. Enrolling in federal programs like income-based repayment and federal student loan consolidation is free to do on your own through the Department of Education.

Other student loan forgiveness programs

There are a few additional niche student loan forgiveness or payment assistance programs you may qualify for through federal or state programs. Eligibility in these programs depends on your profession and where you work.

  1. State-sponsored repayment assistance programs. Licensed teachers, nurses, doctors and lawyers in certain states may be able to take advantage of programs to assist with repaying debt. For example, the Mississippi Teacher Loan Repayment Program will pay up to $3,000 per year for a maximum of four years on undergraduate educational loans to teachers with a specific teaching license for each year of teaching full time in a particular geographical or subject area. Contact your state’s higher education department to find out if you qualify for a program.
  2. Military student loan forgiveness and assistance. Military personnel in the Army, Navy, Air Force, National Guard and Coast Guard may qualify for their own loan forgiveness programs. In the National Guard, for example, qualifying soldiers and officers could receive up to $50,000 to pay off federal student loans through the Student Loan Repayment Program.
  3. Additional student loan repayment assistance programs (LRAPs): There may be other national or organizational student loan repayment assistance programs offered for public service professions. The National Institutes of Health, for example, offers up to $35,000 in debt assistance annually to health professionals who are appointed by the institutes to conduct research. The American Bar Association has a list of state LRAPs for lawyers.

Student loan cancellation programs

  1. Perkins loan cancellation. Borrowers with federal Perkins loans can have up to 100% of their loans canceled if they work in a public service job for five years. In many cases, approved borrowers will see a percentage of their loans discharged incrementally for each year worked. The Perkins loan teacher benefit is for teachers who work full time in a low-income public school or who teach qualifying subjects, such as special education, math, science or a foreign language.

Student loan discharge programs

  1. Closed school discharge. You may qualify for loan discharge if your school closes. At the time of closure, you must have been enrolled or have left within 120 days, without receiving a degree. If you qualify, contact your loan servicer to start the application process. You’ll need to continue making payments on your loan while your application is being processed. If you’re approved, you will no longer have to make loan payments and you may be refunded some or all of the past payments you made on the loan.
  2. Borrower defense to repayment discharge. Borrowers defrauded by their colleges may qualify for debt relief. You’ll need to file a borrower defense to repayment claim with the U.S. Department of Education. If you qualify, you may have your loans automatically discharged, at the discretion of the Education Department, if your school was involved in clear, widespread fraud or misrepresentation that affected a broad group of borrowers.
  3. Total and permanent disability discharge. If you cannot work due to being totally and permanently disabled, physically or mentally, you may qualify to have your remaining student loan debt canceled. To be eligible for a total and permanent disability discharge, you’ll need to provide documentation proving your disability. Once your loans are discharged, the government may monitor your finances and disability for three years. If you don’t meet requirements during the monitoring period, your loans may be reinstated.
  4. Total and permanent disability discharge for veterans. Veterans who are totally and permanently disabled will have their student loan debt discharged. The process will be automatic unless they decline due to potential state tax liability (there is no federal tax liability for veteran loan forgiveness).
  5. Discharge due to death. If you die, your federal loans will be discharged once a death certificate is submitted to your loan servicer. Your parent’s PLUS loans used to pay for your schooling will be discharged if the parent who holds the loan or you die.

The Caveats

Legitimate federal forgiveness, cancellation and discharge programs are free through the Department of Education, but there are other costs to consider.

  1. Beware of scams. So-called debt relief companies claim to get rid of debt but rarely deliver after charging already-struggling borrowers high upfront fees. The only way to get debt discharged is through the legitimate government programs above, and it costs nothing to apply to them.
  2. Forgiveness isn’t an option for defaulted loans. You’ll need to use consolidation or rehabilitation to get defaulted federal student loans in good standing before they’re eligible for forgiveness programs. If your loans won’t qualify for forgiveness, student loan settlement or bankruptcy may reduce your debt in severe cases. Defaulted federal loans are eligible for discharge programs.

Student loan debt crisis:

How did we get here?

  • The student loan crisis is affecting millions of people throughout the U.S. and has become a major political issue over the past few years. The amount of student loan debt has now surpassed the amount of credit card debt in our country!
  • Failure to pay student loans results in severe penalties including wage garnishment, tax-offset, very high interest rates, inability to get more student loans, suspension of professional licenses and more.
  • Fortunately, there are programs available that can benefit most people. Give us a call and we will let you know exactly what programs you qualify for.
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Ready to pay off your student loans?

Call Now to be connected with one of our Specialists!

Monday to Friday – 8:00 am to 4:30 pm
(all times Pacific)

States Accepted – Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wyoming.

DISCLAIMER: This site does not negotiate, adjust or settle debts. All federal student borrowers are able and encouraged to apply for any federal repayment or forgiveness programs through the US Department of Education for free without paying fees to any entity. Nothing on this site constitutes official qualification or guarantee of result. We offer a fee-based services to assist with application preparation for federal student loan forgiveness and other programs. We are not affiliated with the Department Of Education or any other government entity.

Debt Relief

Debt Relief

We Are The Solution
Get Control of Your Debt.
Get relief and regain financial peace of mind.

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What Is Debt Relief?

Debt relief refers to a variety of strategies for making debt easier to handle. What debt relief looks like for you may hinge on the types of debts you have and what you need help with most.

For example, you may need credit card debt relief if you’re struggling to pay off credit card bills. Or you may be interested in debt consolidation if you have several types of debt to pay off.

Credit counseling, debt management plans and debt settlement also fall under the debt relief umbrella. While the means are different, the end goal is similar. Debt relief is about helping people find a workable path for eliminating debt.

Types of Debt Relief

There are five major forms of debt relief. Though the methods and timeframe for each one varies, it’s best to allow 3-5 years to erase the debt completely and rebuild your credit.

Here are the five options:

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Credit counseling

Sometimes debt relief is as simple as building a budget to see where money comes and goes and cutting back where there is excessive spending. Unfortunately, only 40% of consumers work off a budget. Counselors from nonprofit agencies are experts at budgeting and provide this service for free.

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Bankruptcy

This is a last-ditch choice when the other four won’t work. However, if it’s going to take more than five years to pay all your bills with one of the other four options, this is a workable solution. You get a second chance, a fresh start, and hopefully, you’ve learned enough not to repeat mistakes again.

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Debt consolidation

Gather all your unsecured debts (i.e. credit card bills) and consolidate them into one monthly payment. If your credit score is good enough, you should lower both your interest rate and monthly payment.

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Debt management

A nonprofit credit counseling agency works with lenders to reduce (sometimes dramatically) the interest rate on your debt and lower the monthly payment to a level you can afford. Credit scores are not a factor for joining the program, but if you miss payments, any concessions you received could be terminated.

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Debt settlement

A company negotiates with your lenders to settle a debt for less than what is owed, which sounds too good to be true and usually is. Lenders are not obligated to settle and some won’t. Also, your credit report is damaged for seven years.

How Does Debt Relief Work?

Debt relief typically works this way:

you enroll your unsecured accounts into a debt relief program with a debt settlement company. You stop making payments to your creditors. You and your debt consultant come up with an amount that you can afford, and you put that money into a debt settlement savings account each month.

Negotiations begin with creditors when your debt consultant feels that you have saved enough to make an acceptable offer. At that point, your debt consultant would approach the first creditor about settling your account. This typically takes four to six months.

You continue to make your monthly payments into your debt settlement savings account as your accounts are settled one by one. You pay no fees to a debt settlement company until it settles a debt for you. If you can come up with money faster – perhaps by cutting expenses or selling things you don’t need – you can speed up the settlement process.

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What to Know Before You Apply for Debt Relief

Debt relief programs can help you get out from under your debt burden. But it’s a decision that needs to be made carefully. It isn’t necessarily a perfect solution and there may be some serious trade-offs to make.

Before getting started with debt relief, here are three important things to consider.

  • Interest

    Debt consolidation loans or lines of credit and 0% balance transfer offers can provide credit card debt relief. But consider the cost involved.

    Ideally, consolidating debt results in a lower interest rate. A lower APR means more of your monthly payment goes toward the principal so you can repay your debt faster. You also accrue less interest over your repayment period.

    If you’re interested in how to consolidate debt, first consider the rates you may qualify for based on your credit score. And, if you’re interested in something like a debt management plan, ask whether a rate reduction is a possibility when working out repayment terms.

  • Fees

    There may be fees associated with some debt relief options and it’s helpful to factor those in when deciding whether the cost is worth it.

    For instance, credit counselors may or may not charge a fee to help you create a budget and spending plan. With debt consolidation loans, there are loan origination fees and prepayment penalties to watch out for. If you’re using a 0% APR balance transfer credit card to consolidate debt, then you may pay a balance transfer fee.

    If you’re interested in a debt management plan, there may be a monthly fee required to enroll. And companies that negotiate debt settlement also can charge a fee for their services, sometimes as much as 15% to 25% of the amount settled or forgiven.

    Since fees can add to the total amount you have to repay, it’s important to know what you’re paying up front and how it can add up over the long term.

  • Scams

    When you’re interested in debt relief services, whether it’s credit counseling, a debt management plan or debt forgiveness, it’s important to ensure that the company you’re working with is legitimate. Otherwise, you run the risk of falling victim to a debt relief scam.

    You also want to understand the differences, as outlined above, among debt consolidation, debt management plans and debt settlement. Not all debt relief providers use these terms clearly enough for you to understand what you’re getting into unless you read or listen very carefully.

    As you compare debt relief companies, be aware of the following red flags:

  • Demands for fees that must be paid before services can be offered
  • Lack of transparency in explaining what the company does or provides
  • Requests for access to personal or banking information
  • Promises or guarantees that seem too good to be true

The Consumer Financial Protection Bureau (CFPB) maintains a database of consumer complaints regarding debt relief companies and other financial services providers. You can check the database, along with the Better Business Bureau, to verify a company’s reputation.

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What kinds of debt can I settle with debt relief?

Debt relief is not for loans secured by collateral, like mortgages or auto financing. If you stop paying those secured creditors, they can foreclose on your home or repossess your car. However, debt relief can work with unsecured creditors. Here are the most common types of unsecured loans that you might be able to settle with debt relief:

  • Credit card debt
  • Unsecured personal loans
  • Medical bills
  • Private (not government-guaranteed) student loans
  • Peer-to-peer (P2P) loans

When attempting debt settlement, you could be dealing with the original creditor, a debt buyer, or a collection agency.

How Do You Qualify For Debt Relief?

There is no set standard for qualifying with Money Fit due to the credit counseling services provided is available, at no cost, to any individual seeking to improve their financial situation.

After the consultation, if you and your counselor decide to proceed with a debt management plan, the qualifications for our organization to be of assistance is that there are the following items in place:

  • There is an established hardship or need for the service.
  • The debt added to the repayment program must be unsecured.
  • You must show the ability to make one consolidated monthly payment.
  • There is a maximum amount of debt, however, generally, we advise and show consumers how to repay the debt on their own if that amount is under $1,000.
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How Does Debt Relief Affect Your Credit?

Debt relief has the potential to affect your credit reports and credit scores, although the actual impact depends on which option you choose and where your credit score was to start.

With debt settlement, you may need to be several months’ behind on payments in order to negotiate a payoff agreement. Most of the damage to your credit may already have been done, as late payments can be detrimental to your score.

A debt management plan may have a minimal impact on your credit if your creditors continue to report the account as paid as agreed. Credit counseling may have no impact on your credit at all. It could even help to raise your credit score if you’re able to reduce debts and make payments on time after working out a repayment plan.

Before opting in to any type of loan or credit card relief plan, read the fine print first to check for any mention of credit score impacts. It’s also helpful to monitor your credit reports and scores regularly to detect any changes to either one.

What Is The Best Debt Relief Program?

The best approach to achieving a debt-free life will usually lead the consumer through the following options:

  1. Try to pay on your own, including negotiating with your creditors and the use of consolidation loans/balance transfers
  2. Work with a nonprofit consumer credit counseling agency
  3. Consider if debt settlement might be helpful, particularly with collection accounts
  4. Speak with a bankruptcy attorney

Repaying your debt on your own is the best first step because you minimize the fees you pay to others. If you cannot negotiate lower interest rates and repayment terms with your creditors, a credit counselor should be your next stop. What support is there for this recommendation?

For individuals and households with a steady income who are dealing with or have already tried to work directly with their creditors but to no avail, nonprofit programs offer the best possibility for success in repaying 100% of their debts over the short term (within 5 years or less).

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Debt relief advantages and disadvantages

Advantages

  • Repayment of debt is made with a low-interest rate, or the sum paid is lower than what one owed the actual amount to the creditor.
  • The debt can be repaid quickly in a short period, usually in 2 hours-4 years, under a good debt settlement program.
  • It prevents an individual or a company from falling into a debt trap wherein the pressure of paying a debt. More debts are taken to pay the previous debt owed, and thus sooner or later, the debt figures become a huge amount.
  • As mentioned above, there are four types of debt relief before we finally move into the last type, which is bankruptcy. Thus, the program typically protects an individual or business from getting bankrupt.

Disadvantages

  • The main disadvantage of debt relief is that though some of the debt is written off, this also comes with lowering the credit score. That is because the late payments of the written-off amount are recorded at the credit rating agency, and thus the credit score is reduced.
  • This program comes with many hidden charges that need to be paid to the debt relief companies, which may be higher.
  • If the amount we settle or are forgiven is more than $600, this is taxable income, and we must pay tax on it.
  • The creditor can file a debt collection lawsuit against the debt seeker.
  • There is no guarantee the lender will be obligated to accept the settlement offer. In addition, some lenders do not like working with debt relief companies, and thus the debt seeker can be fined more late charges and penalties on the existing debt.

How much do debt relief programs cost?

Common debt relief program charges work out to 15% to 25% of the total debts enrolled in a program. This means that, if you sign up for a debt settlement program with $10,000 in credit card debt, you may end up paying $1,500 to $2,500 to get it resolved.

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What Is The Difference Between Debt Relief And Debt Consolidation?

Debt Relief

  1. Negotiate for a lower total outstanding and repay it in a pre-agreed timeframe
  2. Late payments and non-payment records may hurt your credit score
  3. Nil charges when you initiate it on your own and negotiate with the lender
  4. You can settle debts for less than what you actually owe and escape collection proceedings, such as creditor lawsuits.

Debt Consolidation

  1. Combine all your loans into one single loan with a lower rate of interest and attractive repayment tenure
  2. Helps improving your credit utilization ratio and thus your credit score
  3. Various charges and fees included similar to a new loan
  4. Depending on the length of the restructured loan term, you could end up paying more in total interest over time than what you originally owed

Is it good to do a debt relief program?

Debt relief programs aren’t for everyone. They are a solution for serious debt problems, not a get-out-of-jail-free card for people who just don’t want to pay what they owe. Consider both the pros and cons of debt relief before committing to a program.

Debt relief may be a good solution if you can’t afford the minimum payments on your debt or if your debt is creating hardship for your family. It can be a better solution than bankruptcy if you don’t want a public filing, if you have a previous bankruptcy, or if you don’t want a bankruptcy court taking total control of your finances.

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Struggling with Debt Relief

Call the Debt Relief Helpline to speak with a debt counselor. We help you resolve your debt faster for a fraction of what you owe.

Credit Repair

Credit Repair

Having great credit opens up doors to financial opportunities. Book a free credit session. We will help you gain the financial power you desire and build the life you deserve.

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What is credit repair?

Credit repair is when a third party, often called a credit repair organization or credit services organization, attempts to get information removed from your credit reports in exchange for payment. These companies are for-profit and their services are marketed as being able to help people improve their credit. Credit repair is legal at the federal level and in almost every state (in Georgia, credit repair is a misdemeanor).

Some credit repair companies suggest their services are designed to help consumers remove inaccurate or unverifiable information from their credit reports. In reality, however, many credit repair companies are simply trying to get negative, but accurate, information removed from credit reports before it would naturally fall off a credit report. There are steps that you may be able take to repair your credit if there’s inaccurate information on your credit history.

The Credit Repair Organizations Act

The federal Credit Repair Organizations (CROA) Act not only defines what a credit repair organization is but also how these companies must operate. Enacted in 1996, CROA clearly articulates what credit repair companies must do, and must not do, to remain compliant with federal law.

Practices that are not allowed under CROA include:

  • Advising credit repair customers to make false statements to credit reporting agencies
  • Advising credit repair customers to change their identification to prevent the credit bureaus from associating them with their credit information
  • Charging credit repair customers any fee for services that have not been fully rendered
  • Guaranteeing that they can remove information from their credit repair customer’s credit reports

The CROA also requires credit repair companies to notify their customers of the following:

  • They have the right to dispute their own credit report information for free
  • They can sue the credit repair company if they violate CROA
  • That while the credit bureaus must maintain reasonable procedures to maintain the accuracy of credit information, mistakes may occur

Credit repair companies are not allowed to hide the above notices within the language of their contracts. These disclosures and others must be provided in a separate standalone form. And finally, credit repair companies are not allowed to force or entice you to sign a waiver whereby you would give up some or all of the aforementioned rights. Any attempt to do so would be a violation of the CROA.

What Do Credit Repair Companies Do?

Ultimately, credit repair companies communicate on your behalf either with the credit bureaus or with the companies that reported or “furnished” your credit information to the bureaus. These data furnishers are almost always debt collectors or financial services companies, like banks and credit card issuers.

The intent is to have the credit bureaus or furnishers either delete the credit information altogether or modify it in some way that’s more favorable to the consumer. Communications by credit repair companies can happen via the internet, phone or U.S. mail. The U.S. mail has historically been the method that’s preferred by credit repair companies for several reasons.

Mailing a few letters to the credit bureaus might sound unsophisticated, but it’s the approach that works with how credit repair companies tend to operate. Some credit repair companies employ a process called “jamming,” which involves sending repetitive and often frivolous letters to the credit bureaus and their data furnishers.

The theory is if a credit repair company can send a large volume of dispute letters challenging the same item over and over, that somewhere along the way either a credit bureau, lender or debt collector will fail to process the dispute within the 30-day period specified by the Fair Credit Reporting Act (FCRA), resulting in the account being deleted.

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Does Credit Repair Work?

While some credit repair companies claim to have deleted millions of negative credit entries, there are no reliable statistics available regarding the effectiveness of credit repair services. There are also no statistics about credit repair’s impact on their customers’ average credit scores, how many of the disputes they file result in deletion, or the average price paid by a credit repair customer.

Because there is nothing a credit repair company can do that you can’t do for yourself, it’s better to ensure the accuracy of your credit reports on your own. The process is free, and has always been. Also keep in mind that accurate negative information will automatically be removed from your credit reports once it’s seven to 10 years old.

How Much Does Credit Repair Cost?

Credit repair companies generally charge one of two ways. The first is a garden-variety subscription service in which the credit repair company charges your credit card at the end of the month for services performed during the previous month. Subscriptions for credit repair generally fall somewhere between $50 and $100 per month, although there can be outliers. With the subscription fee structure, the credit repair company has a financial incentive to keep you as a paying customer as long as possible.

The second method of payment for credit repair is called “pay per delete.” With pay per delete, the credit repair company only charges you when an item on your credit report is actually deleted pursuant to their efforts. The theory with pay per delete is that it keeps the customer happy because they are only paying for tangible results, and the credit repair company stays on the right side of the CROA because they don’t charge their customers until after results have occurred.

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How long does credit repair take?

The credit bureau usually has 30 days after receiving your dispute to investigate and verify information. Typically, the credit bureau will reach out to the company that provided the information and ask it to investigate. The credit bureau is required to send you the results of the investigation within five business days of the completion of the investigation.

But if the credit bureau determines the dispute is “frivolous” it can choose not to investigate as long as it communicates that to you within five days.

What Is a Credit Score?

A credit score is a number between 300–850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

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How Credit Scores Work

A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. People with credit scores below 640, for example, are generally considered to be subprime borrowers. Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage in order to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.

Conversely, a credit score of 700 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in their paying less money in interest over the life of the loan. Scores greater than 800 are considered excellent. While every creditor defines its own ranges for credit scores, the average FICO score range is often used.

  • Excellent: 800 to 850
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 300 to 579
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READY TO START YOUR CREDIT REPAIR?

You’ll also find answers to your most popular questions related to credit repair companies, so you can start repairing your credit today. Get Your Free Credit Repair Consultation Now! Want To See How We Can Help? Call Today!