AskMyFinance

Tag: mortgage

  • HELOC vs Home Equity Loan: Which Is Better in 2026?

    If you have equity in your home, two main options let you tap it: a HELOC (home equity line of credit) and a home equity loan. Both use your home as collateral. But they work differently, and the wrong choice can cost you money. This guide breaks down the key differences and tells you exactly which one to choose for your situation.

    HELOC vs Home Equity Loan: Key Differences

    Feature HELOC Home Equity Loan
    Rate type Variable (tied to prime rate) Fixed
    Disbursement Draw as needed, up to credit limit Lump sum upfront
    Repayment Interest only during draw period, then principal + interest Fixed monthly payment from day 1
    Draw period Typically 10 years None (one-time disbursement)
    Best for Ongoing costs, uncertain amounts One-time large expense
    Current rates (2026) 8.00%–9.50% (variable) 7.50%–9.00% (fixed)
    Closing costs Low–moderate ($0–$500) Moderate ($500–$2,000)

    What Is a HELOC?

    A HELOC works like a credit card secured by your home. You’re approved for a credit limit — say, $80,000 — and you can draw from it whenever you need money during the draw period (usually 10 years). You only pay interest on what you’ve actually borrowed, not the full limit.

    After the draw period ends, the repayment period begins (typically 20 years), and you pay both principal and interest on the outstanding balance.

    The rate is variable — it moves with the prime rate. If rates go up, your payment goes up. If rates fall, your payment falls.

    Read our full guide on how HELOCs work for a deeper breakdown of the mechanics.

    What Is a Home Equity Loan?

    A home equity loan is a second mortgage. You borrow a fixed amount, receive it all at once, and repay it over a fixed term (usually 5–30 years) at a fixed interest rate. Your monthly payment never changes.

    Because the rate is fixed, home equity loans are more predictable. You know exactly what you owe each month from day one.

    When a HELOC Makes More Sense

    • Home renovation with uncertain costs. You can draw what you need as costs come in, rather than borrowing too much upfront.
    • Ongoing expenses. Paying for a child’s college tuition over four years — draw each semester rather than borrowing four years of tuition at once.
    • You expect rates to fall. If variable rates drop during your draw period, your interest costs drop too.
    • You want maximum flexibility. You can pay down the balance and borrow again during the draw period.

    When a Home Equity Loan Makes More Sense

    • You know exactly what you need. Paying off a specific debt, buying a car, or funding a single large expense with a known price.
    • You want payment certainty. Fixed rate means fixed payment — easier to budget around.
    • Rates are expected to rise. Locking in a fixed rate today protects you from future increases.
    • Debt consolidation. Rolling high-interest credit card debt into a fixed home equity loan with a clear payoff timeline.

    How Much Can You Borrow?

    Most lenders cap home equity borrowing at 80%–85% of your home’s value, minus your existing mortgage balance.

    Example: Home worth $400,000. Mortgage balance: $250,000.

    • 80% of home value: $320,000
    • Minus mortgage: $250,000
    • Maximum equity you can borrow: $70,000

    The Risk: Your Home Is Collateral

    Both products use your home as collateral. If you default, you can lose the house. This is a fundamentally different risk than credit card debt or personal loans. Only borrow against home equity for purposes that genuinely improve your financial position (home improvements that add value, high-interest debt consolidation) rather than discretionary spending.

    Finding the Best HELOC or Home Equity Loan

    Compare offers from at least three lenders. Credit unions often offer competitive rates. Online lenders like Figure, Spring EQ, and Discover Home Loans are worth comparing alongside your current bank. Our best HELOC lenders guide lists the top options with current rates.

    Bottom Line

    HELOC for flexibility. Home equity loan for certainty. The best choice depends entirely on how you plan to use the money and your comfort with variable rates. Either way, both products are significantly cheaper than personal loans or credit cards — which is why they’re worth considering for major expenses.

  • First-Time Homebuyer Programs and Grants in 2026

    First-Time Homebuyer Programs and Grants in 2026

    Buying your first home is one of the biggest financial steps you can take. The good news is that there are programs to help. Federal, state, and local governments offer first-time homebuyer grants, down payment assistance, and low-interest loans.

    This guide explains the best programs available in 2026 and how to qualify for them.

    What Counts as a First-Time Homebuyer?

    Most programs define a first-time homebuyer as someone who has not owned a home in the past three years. That means you can qualify even if you owned a home before, as long as you have not owned one recently.

    Federal First-Time Homebuyer Programs

    FHA Loans

    FHA loans are backed by the Federal Housing Administration. They let you buy a home with as little as 3.5% down if your credit score is 580 or higher. If your score is between 500 and 579, you need 10% down.

    FHA loans are popular with first-time buyers because they are easier to qualify for than conventional loans. The trade-off is mortgage insurance. You pay an upfront fee of 1.75% of the loan and a monthly premium for the life of the loan in most cases.

    VA Loans

    VA loans are available to military veterans, active-duty service members, and surviving spouses. They require no down payment and no mortgage insurance. The VA loan is one of the best mortgage deals available in the US.

    You need a Certificate of Eligibility from the VA to apply. Lenders also have their own credit and income requirements, though the VA has no official minimum credit score.

    USDA Loans

    USDA loans are for homes in rural and some suburban areas. They require no down payment. Income limits apply — you generally need to earn at or below 115% of the area median income.

    Use the USDA’s online map to see if a property qualifies. Many areas outside major cities are eligible.

    Good Neighbor Next Door Program

    This HUD program offers a 50% discount on homes in revitalization areas for teachers, police officers, firefighters, and EMTs. You must live in the home for at least 36 months. Properties are listed on the HUD website for seven days before becoming available to the general public.

    Down Payment Assistance Programs

    Down payment assistance (DPA) programs provide grants or low-interest loans to help cover your down payment and closing costs. Most programs are run by state or local housing agencies.

    State Housing Finance Agency Programs

    Every state has a housing finance agency (HFA) that offers first-time buyer programs. These typically include:

    • Below-market mortgage rates
    • Down payment assistance of $5,000–$25,000
    • Deferred or forgivable second mortgages

    Income and purchase price limits apply. Search for your state’s HFA program using the National Council of State Housing Agencies directory.

    Fannie Mae HomeReady Loan

    The HomeReady program from Fannie Mae allows a 3% down payment on conventional loans for low-to-moderate income buyers. Mortgage insurance is required but can be cancelled once you reach 20% equity. You must complete a homebuyer education course.

    Freddie Mac Home Possible Loan

    Similar to HomeReady, Freddie Mac’s Home Possible program offers 3% down with reduced mortgage insurance for income-eligible buyers. You can use gifts, grants, and employer assistance for the down payment.

    Homebuyer Grants

    Some programs give money that does not need to be repaid. These are called grants.

    National Homebuyers Fund

    The National Homebuyers Fund (NHF) offers down payment assistance of up to 5% of the loan amount. It is available through participating lenders in most states. The assistance comes as a grant — you do not pay it back.

    Bank of America Community Homeownership Commitment

    Bank of America offers down payment grants of up to $10,000 and closing cost grants of up to $7,500 in eligible areas. These are true grants with no repayment required. Income and purchase price limits apply.

    Chase Homebuyer Grant

    Chase offers up to $7,500 as a grant for home purchases in designated areas. The money goes toward closing costs or your down payment. No repayment is required.

    First-Time Homebuyer Tax Credits

    Congress has proposed a $15,000 First-Time Homebuyer Tax Credit in recent years. As of 2026, this has not been signed into law. Check with a tax advisor or the IRS for the latest status on any federal homebuyer tax credits.

    Some states offer state-level mortgage credit certificates (MCCs), which let you deduct a portion of your mortgage interest directly from your federal tax bill each year. This can reduce your effective interest rate significantly.

    How to Qualify for First-Time Buyer Programs

    Requirements vary by program, but common criteria include:

    • Income at or below a certain limit (usually 80%–120% of area median income)
    • Credit score of 620 or higher (some programs go lower)
    • Purchase price below the program’s cap
    • Completion of a homebuyer education course
    • Using the home as your primary residence

    Steps to Take Now

    1. Check your credit score. Know where you stand. A score of 620+ opens most programs. A score of 740+ gets you the best rates.
    2. Save for your down payment. Even with assistance, you may need 1%–3% of the purchase price.
    3. Research your state’s HFA. Find your state housing finance agency and see what programs are available in your area.
    4. Get pre-approved. Talk to lenders who participate in first-time buyer programs. Ask specifically about down payment assistance in your area.
    5. Take a homebuyer education course. Most programs require it. HUD-approved courses are available online for about $75–$100.

    Bottom Line

    First-time homebuyer programs can put homeownership within reach even if you do not have a large down payment saved. FHA loans, state HFA programs, and bank grants are worth exploring before you assume you cannot afford to buy.

    The best place to start is your state’s housing finance agency website. From there, a HUD-approved housing counselor can help you figure out which programs you qualify for.

    Get Personalized Financial Guidance

    Answer a few questions and get personalized recommendations tailored to your situation.

    Get My Recommendation

    Related Articles

    See also: What Is a HELOC? How Home Equity Lines of Credit Work in 2026

  • What Is Private Mortgage Insurance (PMI)? 2026 Rates and How to Avoid It

    Private mortgage insurance (PMI) is a fee many homebuyers pay when they cannot put 20% down on a conventional mortgage. It protects the lender — not you — if you default on the loan. Most borrowers want to eliminate PMI as quickly as possible, and understanding how it works is the first step.

    What Is PMI?

    PMI is insurance required by most conventional mortgage lenders when a borrower’s down payment is less than 20% of the home’s purchase price. The premium is added to your monthly mortgage payment (or paid upfront, depending on the structure).

    PMI exists because lenders consider low-down-payment borrowers higher risk. The insurance compensates the lender if you stop making payments and they have to foreclose.

    How Much Does PMI Cost?

    PMI typically costs 0.2% to 2% of your loan amount annually, depending on your credit score, loan-to-value ratio, and loan type. The premium is added to your monthly mortgage payment.

    Example:

    • Home price: $350,000
    • Down payment: 10% ($35,000)
    • Loan amount: $315,000
    • PMI rate: 0.7% annually
    • Annual PMI cost: $2,205
    • Monthly PMI payment: ~$184

    As a general estimate:

    • Credit score above 760 + 10% down: approximately 0.20%–0.50% of loan value
    • Credit score 700–759 + 5% down: approximately 0.50%–1.00%
    • Credit score below 700 + 5% down: approximately 1.00%–2.00%

    Types of PMI

    Borrower-Paid PMI (BPMI)

    The most common type. The monthly premium is added to your mortgage payment until you reach 20% equity. This is automatically cancelled when you reach 22% equity based on the original purchase price.

    Single-Premium PMI (SPMI)

    You pay the entire PMI premium upfront at closing. Monthly payments are lower, but you lose the upfront amount if you refinance or sell before building significant equity.

    Lender-Paid PMI (LPMI)

    The lender pays the PMI premium in exchange for a higher interest rate on your loan. There is no separate PMI line item, but you pay a higher rate for the life of the loan — even after you would have otherwise cancelled BPMI. This is often the more expensive option long-term.

    Split-Premium PMI

    A hybrid approach where you pay part upfront and part monthly. It reduces monthly costs without requiring the full upfront premium.

    How Long Do You Pay PMI?

    Under the Homeowners Protection Act (HPA), lenders must automatically cancel borrower-paid PMI when your loan balance reaches 78% of the original purchase price (i.e., 22% equity), based on your scheduled payment timeline.

    You can also request cancellation when your loan balance reaches 80% of the original purchase price (20% equity). To do this, you must:

    • Have a good payment history (no payments 30+ days late in the past year)
    • Request cancellation in writing
    • Confirm your property value has not declined (lender may require an appraisal)

    How to Avoid PMI

    Put 20% Down

    The simplest solution: save a 20% down payment before buying. On a $350,000 home, that is $70,000. This eliminates PMI entirely and reduces your loan balance, which lowers your monthly payment.

    Piggyback Loan (80/10/10)

    Take out a primary mortgage for 80% of the purchase price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down yourself. The primary mortgage stays at 80% LTV, which avoids PMI. The second mortgage has a higher rate, but may cost less than PMI depending on the amounts and rates involved.

    Lender-Paid PMI

    As mentioned, the lender absorbs the PMI premium in exchange for a higher interest rate. This eliminates the monthly PMI line item but adds cost via a permanently higher rate. Run the math over your expected ownership period before choosing this option.

    VA Loans (for Eligible Borrowers)

    VA loans, available to veterans and active military, require no down payment and no PMI. The VA funding fee is a one-time charge that is often less than years of PMI payments.

    USDA Loans

    USDA loans (for eligible rural and suburban properties) have no PMI but do charge an annual guarantee fee (currently 0.35% of the outstanding balance), which is lower than conventional PMI in most cases.

    How to Remove PMI Early

    You do not have to wait for automatic cancellation. There are two ways to speed up the process:

    Make Extra Principal Payments

    Every extra dollar applied to your principal reduces your loan balance and gets you to 80% LTV faster. Even modest extra payments each month can shave months or years off your PMI timeline.

    Get a New Appraisal

    If your home has appreciated significantly since purchase, a new appraisal may show you have already reached 80% LTV based on current value (not original purchase price). Many lenders allow PMI cancellation based on appraised value if:

    • You have owned the home for at least 2 years, OR
    • You have owned it for at least 5 years and the value has increased enough to put you at 80% LTV

    An appraisal costs $300–$600 but can save thousands in PMI if your home has appreciated.

    PMI vs. MIP: What Is the Difference?

    PMI is for conventional loans. FHA loans have their own version called Mortgage Insurance Premium (MIP). There are key differences:

    • MIP includes both an upfront premium (1.75% of the loan amount) and an annual premium (0.55%–1.05%)
    • For FHA loans with less than 10% down, MIP lasts the life of the loan — it cannot be cancelled the way PMI can
    • For FHA loans with 10% or more down, MIP drops off after 11 years

    This is a significant long-term cost of FHA loans. Borrowers who can qualify for a conventional loan and plan to stay in the home for many years are often better served by a conventional loan with PMI (which can be cancelled) than an FHA loan with permanent MIP.

    Bottom Line

    PMI adds real cost to your monthly mortgage payment, but it is not permanent. The fastest paths to eliminating it are reaching 20% equity through payments and appreciation, making extra principal payments, or getting a new appraisal after your home increases in value. If you are buying soon, run the numbers on whether a 20% down payment, a piggyback loan, or a VA/USDA loan eliminates PMI entirely from the start.