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Whether you’ve been a single mom since day one or are in the process of becoming a solo parent, raising a child on your own can be expensive. Housing, essentials, and extracurriculars add up. Add in unplanned days off for childcare, major expenses like dental work and medical insurance, or expenses like legal bills during a separation, and you may find yourself with your finances stretched thinner than you’d like.

One option to consider is a personal loan. This type of loan provides a lump sum of money up front you then pay back (plus interest) in monthly installments over time. You can use the funds from a personal loan for virtually any purpose, whether it’s making a large purchase, covering living expenses, or paying down other, higher-interest debt.

Read on for a closer look at personal loans for single moms, including their pros and cons, how to qualify, plus other funding options you may want to explore.

Why Might a Single Mom Need a Personal Loan?

There are many reasons why a single mother — or any parent — might consider applying for a personal loan. These include:

1.    Consolidating debt

2.    Covering the cost a move

3.    Paying tuition or extracurricular expenses for children

4.    Stopgap during times of unemployment

5.    Covering housing costs, such as rent or a mortgage

6.    Paying for a home remodeling project

7.    Buying a car

8.    Purchasing major appliances

Recommended: What Is a Personal Loan? How Do Personal Loans Work?

Are Personal Loans for Single Mothers Special?

In a word, no. The process of applying for a personal loan is the same for everyone. However, there may be particular approval hurdles to overcome as a single parent.

One is income. If you’re newly single, you may not have a steady income, which can make it more difficult to get approved for a personal loan. Another is your credit. If you’ve had to rely on credit cards to cover the cost of divorce or the transition to single parenting, your credit may not be what it used to be. The amount of debt you owe on your credit cards is one of the biggest factors affecting your credit score.

However, these obstacles aren’t insurmountable (more on that below).

Benefits and Risks of Personal Loans for a Single Mother

A personal loan can offer a single mom a valuable lifeline to meet immediate needs, such as unexpected expenses, education costs, or debt consolidation. However, taking on any type of debt generally comes with costs, as well as risks. Here’s a look at the pros and cons of getting a loan as a single mom.

Pros	Cons
Flexibility in fund usage	Interest and fees add to your costs
Quick access to funds	Risk of overborrowing
Fixed repayment schedule	Missed or late payments can negatively impact your credit
Interest rates are typically lower than credit cards	Can add to your debt burden

Pros of Personal Loans for Single Mothers

•  Flexibility Personal loans provide flexibility in how you can use the borrowed funds. Whether it’s covering medical bills, home repairs, or summer camp tuition, personal loans can be used for a wide range of purposes.

•  Quick access to funds Personal loans often come with a streamlined application process and relatively quick approval. You may be able to access the funds quickly, enabling you to address urgent financial needs promptly.

•  Fixed repayment schedule Personal loans usually come with fixed monthly payments over a specified term. This predictability can make it easier for you to budget and plan your finances effectively.

•  Potential for lower interest rates Depending on the borrower’s creditworthiness, personal loans can offer competitive interest rates compared to other types of borrowing, such as credit cards or payday loans. Single mothers with a good credit history may benefit from more affordable repayment terms.

Cons of Personal Loans for Single Mothers

•  Interest and fees On top of interest, some lenders charge fees for personal loans, which increase the overall cost of borrowing. It’s important to carefully evaluate the terms and conditions to make sure you can comfortably manage the repayments without straining your budget.

•  Risk of overborrowing As a single mom, you likely want to avoid overborrowing or taking on more debt than they can reasonably repay. Overcommitting to loan payments may lead to a cycle of financial stress and difficulty in meeting other essential expenses.

•  Impact on credit score Taking out a personal loan creates a new line of credit, and if not managed properly, it could negatively affect your credit profile. Late or missed payments can damage creditworthiness, potentially impacting future borrowing opportunities.

•  Debt burden A personal loan will add to your existing financial obligations as a single mother. Before opting for a loan, you’ll want to be certain to assess the long-term implications and consider whether the loan repayments align with your income and financial goals.

Is Getting a Personal Loan With No Income Possible?

If you’re a single mother with no job or you’ve been a stay-at-home-mother with little or no income of your own, it may be difficult, though not impossible, to qualify for a personal loan.

Lenders typically want to see proof of a regular income. However, that does not necessarily have to be job-related income. You may be able to count these other sources of income:

•  Unemployment

•  Alimony

•  Child support

•  Investment income

•  Rental income

•  Pension or annuity income

•  Freelance work

•  Gig work

If you don’t have much income to speak of, then you might consider a cosigner or co-applicant for your loan. This a person who agrees to make the loan payments if the main borrower cannot or does not. For some borrowers, family members have the financial flexibility to cosign on a loan, but it can be a good idea to have a conversation about expectations and potential hypotheticals if you were no longer able to pay back the loan.

Another option is to secure a personal loan with collateral. This is an asset of value, such as a vehicle or money in a savings account, you use to back the loan in case you default. Should you become unable to repay the loan, the lender can seize your collateral to recover their losses. This lowers risk for the lender, making steady income (or less-than-stellar credit) less critical.

Also keep in mind that if you have no income but excellent credit, you may still find a lender who is willing to offer you an unsecured personal loan.

You’ll also want to be wary, however, of lenders who advertise “No-Income Loans,” as these loans may come with sky-high interest rates, short repayment terms, and low loan amounts.

Alternatives to Personal Loans for Single Mothers

There are other alternatives to personal loans, depending on your financial circumstances and your needs. Here are some you might consider.

Home Loans for Single Mothers

If you own your home, using your home as a financial asset may be one way to borrow funds at a reasonable cost. If you have built up equity in your home, you may be able to tap that equity by getting a home equity loan or a home equity line of credit (HELOC). Just keep in mind that the loan is backed by your home. Should you have difficulty repaying the loan or credit line, you could potentially lose your home.

Government Resources for Single Parents

If your income is low, you may be eligible for one or more government assistance programs. Some options you may want to explore include:

•  Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)

•  National School Lunch Program

•  Temporary Assistance for Needy Families (TANF)

•  Low Income Home Energy Assistance Program (LIHEAP)

•  The Emergency Food Assistance Program

You can find more resources at enefits.gov.

Educational Aid for Single Mothers

If you’re considering going back to school, below are some programs that can help make it more affordable (or even free):

•  Pell Grants

•  Teach Grants

•  Women’s Independence Scholarship Program (WISP)

There also may be private scholarships and grants for single parents available from the institutions you’re interested in. Speaking with the financial aid office may help you see the breadth of options available to you.

Other Financial Help For Single Mothers

Becoming a single mother, either by choice or circumstance, can feel overwhelming. But there is support out there. It can help to talk to other single parents in your community — you may be surprised by all the resources that are available. Other opportunities may include:

•   Financial aid or tuition assistance If your children are in private school or extracurricular programs, there may be financial aid available to help lower the cost. Even if there’s not a formal program, it can’t hurt to explain your situation and ask what may be available.

•   Employer-based programs Your human resources department may have certain programs, such as childcare coverage, free legal consultations, and access to financial planning and debt counseling, for eligible workers. Talk to your HR representative or look through their materials to assess what’s available.

•   Family and friends People close to you may be willing to provide support, or there may be creative ways to trade services, such as babysitting, to get more financial help. If a friend or family member offers to loan you money, it can be helpful to put an agreement in writing, including any interest you will pay and the terms of repayment, so there is no confusion that can cause a rift in your relationship.

Recommended: Options for When You Can’t Afford Your Child’s College

The Takeaway

As a single mother, there are avenues that can help you manage your finances and achieve your financial goals, including taking out a personal loan. This type of financing can provide financial relief and flexibility, but it is important to weigh the pros and cons, compare options from different lenders, and assess your ability to manage repayments responsibly.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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Photo credit: iStock/RyanJLane

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Recommended: How Much Are Closing Costs on a New Home?

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 3% to 6% of the loan principal on your mortgage. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.

Recommended: Home Buyer’s Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500 or more, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: Home Improvement Calculator

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%
•   Up to 6% when the down payment is 10-25%
•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.

SoFi offers home mortgages with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.

Buying a home? Find out how SoFi can help you with a mortgage that fits your needs.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

More than two out of three of recent college students took out loans to help cover the costs of furthering their education—averaging $37,338 per borrower in federal student loan debt alone.

When it comes to paying back student loans, both the total amount borrowed (i.e., the principal) and the interest rates (i.e., the percentage charged on top of the principal) can shape how much a borrower ends up shelling out over the life of the loan.

And, just as the cost of attending college in the U.S. has changed with the times, the interest rates charged on educational loans have historically fluctuated, as well.

While the cost of attending college has steadily gone up, the history of student loan interest rates shows both ups and downs. For instance, the 2020-2021 federal loan rates for undergraduates were 2.75%—compared to 4.29% five years prior.

For the 2023-2024 school year, fixed interest rates on Direct Subsidized and Direct Unsubsidized Loans for undergraduate students are 5.50%.

A wide variety of educational loans are available to eligible students—including subsidized and unsubsidized federal ones and those handled by private lenders.

Interest rates for different loans change over time. The U.S. government plays a major role in shaping the student loan landscape by setting fixed interest rates each year on federal loans, which can impact the total amount a borrower ends up paying back.

To understand the history of student loan interest rates, it can be helpful to zoom out and take a wide-lens view of the student loan landscape in the U.S.

The U.S. federal government is the major player in student lending—with $1.6 trillion in federal student loan debt owed by more than 43 million borrowers.

Below is an overview of how current rates compare to the recent history of student loan rates.

Understanding US Student Debt

Of the nearly $17 trillion of outstanding household debt, more than $1.7 trillion comes from student debt—that totals more than what Americans owe for cars or credit card debt, respectively.

Besides mortgages, student loan debt accounts for the largest form of household debt. More than 93% of all outstanding student loans are federal student loans, making the student loan interest rate set by the federal government a significant factor for millions of student borrowers.

Private student loans tend to be set according to a combination of prevailing interest rates and the lender’s projection of the student’s ability to pay, whereas federal student loan rates can be shaped, in part, by something even more confusing than the fine print on a financial statement: politics.

Federal student loans are fixed interest (but the rates are adjusted annually), while private lenders often provide both fixed-rate and variable-interest loans.

Recommended: Strategies for Lowering Your Student Loan Interest Rate

Here’s an overview of federal student loan rates and some changes they’ve seen:

What Did the Coronavirus Pandemic Change?

Right now represents an exceptional period in student lending. Typically, federal student loan interest rates are set according to a formula established by the U.S. Congress.

However, presently, the rate is set to zero through June 30, 2023. This means interest will not accrue on Direct Loans, FFEL Loans, and Perkins Loans issued by the Education Department.

Payments due on federally held student loans have also been paused through June 30, 2023, with payments expected to resume 60 days after a court decision or June 30, 2023, whichever comes first. Both actions are a result of several presidential executive orders that extended benefits first established in the CARES Act—in response to the extraordinary economic situations triggered by the novel Coronavirus pandemic.

Recommended: Navigating Your Student Loans During COVID-19

Federal Student Loans

Federal student loans represent the lion’s share of student lending. But, there’s more than one type of federal student loan. There are a variety of federal educational loans with different student loan interest rates that, historically, have changed with time—from subsidized to unsubsidized, from undergraduate to graduate.

Current federally owned student loans include Direct Loans, Direct PLUS Loans, and Parent Plus Loans.

Recommended: Parent PLUS Loans vs Private Parent Student Loans for College

Direct Loans

Direct Consolidation Loans are responsible for the majority of federal student lending. Issued by the U.S. Department of Education, these loans include both subsidized and unsubsidized student loans.

Subsidized loans are for borrowers who can demonstrate financial need and are exclusively available for undergraduate education, while unsubsidized loans can be used by graduate students. There are also Direct PLUS Loans for graduate students and parents of students.

Direct Loans for the 2023-2024 school year have a fixed interest rate of 5.50% for both direct subsidized and direct unsubsidized loans—notably higher than the interest set on federal loans in previous years.

As a point of comparison, Direct Loans for the 2019-2020 academic year were set at 4.53% for subsidized loans and unsubsidized loans. Two years ago (2018-2019), that rate was 5.05%.

Recommended: Why Are Student Loan Interest Rates So High?

Additional Types of Federal Student Loans

The other types of direct loans are Direct PLUS Loans and Parent PLUS Loans. These both carry interest rates determined through a federal government formula. For the 2020-2021 school year, the rate on PLUS loans was 5.3%, coming down from 7.08% in 2019-2020, and 7.6% the year before that. Current Direct PLUS Loans rates for the 2023-2024 school year are 7.54%.

The current rate on Parent PLUS Loans for the 2023-2024 school year is also 7.54%. All rates for Direct Loans and Parent PLUS Loans are fixed interest rates.

Disused Federal Student Loan Types

The Federal Perkins Loan Program, which is no longer available, offered fixed-rate loans at a 5% interest to qualifying students. This program was aimed at students with exceptional financial needs. Schools stopped disbursing Perkins Loans in 2018 after their authority to do so expired under federal law.

How Are Rates Determined?

Traditionally, federal student loan interest rates have been determined in response to laws passed by the U.S. Congress. According to a piece of legislation from 2013 known as the “Bipartisan Student Loan Certainty Act,” the rate on Direct Loans is determined by a formula pegged to borrowing cost for government debt.

The first year under this formula produced 3.86% rates on Direct Loans. During the year before, the 2012-2013 academic year, subsidized loans were 3.4% and unsubsidized loans were 6.8%. (A 2007 bill had lowered the subsidized rate to 3.4%, but it was due to expire in 2012 and go back to 6.8%.) The bill, which set up the formula currently governing federal student loan rates, was meant to address this snapback to a higher rate.

Before the legislation passed, Congress directly set the student loan interest rate, with 3.4% rates on subsidized loans and 6.8% on unsubsidized loans for the 2012-2013 school year. The 2013 bill also introduced caps that limit how high interest rates could go on the new formula.

The cap for Direct Loans to undergraduates was 8.25%, for graduate student loans it was 9.5%, and for PLUS Loans it was 10.5%. Since 2013, the rates have remained well below the legal caps. You can find previous rates for Direct Loans on the Federal Student Aid website.

Politics and Student Loans

Today’s rates are governed by a formula that differs for different types of loans.

For undergraduate loans, the formula is the interest rate on one type of government debt at a certain time of year plus 2.05%. (The extra interest is added to cover the cost of deferrals, forbearance, and defaults.) For graduate student loans, it’s that same government debt rate plus 3.6%. And, for PLUS Loans, it’s that rate plus 4.6%.

Put another way, the cost students pay to borrow money from the federal government is determined by the cost the government pays to borrow money—plus a fixed buffer of extra interest, which is intended to reduce the risk to the government of students not being able to pay back their loans.

The Takeaway

The interest rates on federal student loans are set by Congress each year and are fixed for the life of the loan. They are determined based on a formula that the rate on Direct Loans is determined by a formula tied to borrowing cost for government debt. Currently, federal student loan interest rates for the 2023-2024 academic year are 5.50%.

Millions of students use federal student loans to help them pay for their higher education. These loans come with benefits baked in—including grace periods, income-driven repayment options, forgiveness for public service, and forbearance—that are not guaranteed by private student loans.

But sometimes, federal student aid isn’t enough to cover the cost of tuition and other expenses. For some, a private student loan may help cover the total cost of attending college—including school-certified expenses such as tuition, fees, room and board, and transportation.

Private loans are disbursed by non-government institutions. SoFi, for instance, offers competitive rate in-school loans that come with no fees. And, when a borrower enrolls in autopay, they could get a rate discount.

For those currently with outstanding student debt, refinancing may be an option to consider. Refinancing student loans may help eligible borrowers pay off their loans faster or lower their monthly payments. It’s worth noting, though, that refinancing a federal loan with a private lender eliminates federal benefits.

See if you prequalify for a student loan refinance with SoFi in just two minutes.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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

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VA loans are available to active-duty military members, veterans, reservists, National Guard members, and certain surviving spouses. They require no down payment or mortgage insurance and typically come with lower interest rates than other types of mortgages. If you think you might qualify for a VA loan, it’s worth comparing the costs to those of a conventional loan.

What Is a VA Home Loan?

VA loans were created in 1944 as part of the G.I. Bill, and they have grown in popularity since. They are one way to buy a house with no money down.

Most VA loans are VA-backed loans. Approved private lenders issue the loans, part of which the U.S. Department of Veterans Affairs agrees to repay if the borrower stops making the payments. That guarantee incentivizes lenders to offer VA loans with attractive terms.

The VA issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. The agency also refinances VA and other mortgages.

How Does a VA Home Loan Work?

To receive a VA loan, a veteran, service member, reservist, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. Once you have your COE and have decided what you wish to spend on a home, you’ll seek out a lender. Most lenders charge a flat 1% fee for VA loans but there may be other fees as well.

Once you have a lender and find a home to purchase, you’ll need to have the home appraised by a VA-approved appraiser to ensure it meets the minimum qualifications for a VA loan. If it does, you’re on your way to moving day.

Types of VA Home Loans

VA loans are available to help eligible borrowers buy, build, renovate, or refinance. Here are the main programs.

VA-Backed Loans

VA-backed home loans are full of advantages. They require no down payment or mortgage insurance, and have fairly loose rules about qualifying.

The home must be a primary residence, but up to a four-unit multifamily property may be purchased if one unit will be owner-occupied.

Approved condos and manufactured homes classified as real property are eligible.

VA Direct Home Loans

If either a veteran or their spouse is Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.

The VA issues these loans directly to borrowers who meet credit standards and whose tribal government has an agreement with the VA.

VA Refinancing

The VA offers an interest rate reduction refinance loan (IRRRL) and a cash-out refinance.

An IRRRL, or VA Streamline Refinance, refinances an existing VA-backed home loan. No verification of credit, income, or employment is required, and you might not need a home appraisal.

The VA-backed cash-out refinance can be used to convert any type of home loan to a VA mortgage with cash back at closing. (Cash back is optional: You can also use a VA cash-out refi to switch to a VA loan, shed mortgage insurance, and possibly lower your mortgage rate.)

VA Renovation and Construction Loans

The VA renovation loan is Veterans Affairs’ answer to the FHA 203(k) loan. It allows eligible borrowers to purchase and repair a property using a single VA loan with no down payment.

VA construction loans can help borrowers finance land and the construction of a home without a down payment. The hitch is, few lenders offer these loans.

Some states also administer their own loan programs for qualified veterans. California, for example, may have a high cost of living but it does offer its own home loan program to veterans.

Who Should Apply for a VA Home Loan

Eligible applicants for a VA loan are:

•   Current service members who have served for 90 consecutive days.

•   Veterans who served after 1990 for 24 continuous months or for the full period (at least 90 days) when called or ordered to active duty. (Those who served prior to 1990 may also be eligible; check VA.gov for detailed requirements.)

•   Service members who served at least 90 days of active duty in the Reserves or the National Guard after 1990. (Those who served prior to 1990 may also be eligible; visit VA.gov for details.)

•   Spouses of service members who died in the line of duty or from a service-connected disability, or who are missing or are prisoners of war.

VA Home Loan Requirements for Buying a House

If you apply and meet the requirements for a VA loan, you’ll receive a certificate of eligibility. Approved lenders can check eligibility quickly, or potential borrowers can contact va.gov.

The document indicates “full entitlement.” For full entitlement, at least one of these must be true:

•   You’ve never used your home loan benefit

•   You’ve paid a previous VA loan in full and sold the property

•   You’ve used your home loan benefit but had a foreclosure or short sale and repaid the VA in full

Credit, Income, Debt

For a VA loan, the lender will determine how much of a mortgage you can afford based on your credit history, income, debts, and assets.

The VA does not have a minimum credit score, but most mortgage lenders will want to see a FICO credit score above 620. Some may go lower.

According to VA residual-income guidelines, borrowers should have a certain amount of discretionary income left over each month after paying major expenses.

The VA does not name a maximum debt-to-income ratio, but it does suggest placing more financial scrutiny on borrowers with a DTI of more than 41%, which includes the projected mortgage payments.

VA Loan Rates

For VA-backed loans, approved private lenders set their own VA loan rates and fees. It’s smart to contact more than one lender when shopping for a mortgage and compare offers.

VA Funding Fee

There will be no mortgage insurance on a VA loan, but most borrowers will pay a one-time funding fee for a VA-backed or VA direct home loan. The fee can be rolled into the loan.

For the first use of a VA-backed purchase or construction loan, the funding fee is 2.3% of the loan amount if the borrower is putting less than 5% down.

The NADL funding fee for a home purchase is 1.25%.

A few borrowers, including those who are receiving VA compensation for a service-connected disability, do not have to pay the funding fee.

Benefits of VA Home Loans

Here are the main selling points of VA loans:

•   No down payment.

•   More attractive interest rates and terms than loans from some mortgage lenders.

•   Possibly lower closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs. Sellers can pay all of your loan-related closing costs, but yes, that’s a big ask. VA loans have an appraisal fee that is set by area. Buyers may purchase mortgage points to reduce the interest rate.

•   There’s no limit to the amount that can be borrowed with a VA home loan. However, there is a limit to the amount of the loan that the VA will guarantee.

•   No minimum credit score requirement (although some lenders may still not lend to those with lower credit scores).

•   A VA home loan can be for first-time homebuyers or repeat buyers.

•   VA loans are assumable, meaning the loan could be taken over by the home’s next purchaser.

Downsides of VA Home Loans

Although there are many benefits to VA loans, there are a few potential pitfalls to keep in mind.

The main one is the funding fee. If rolled into the loan, this increases monthly payments as well as total interest paid over the life of a loan.

Others:

•   VA loans can’t be used to purchase investment properties or vacation homes.

•   Some approved condos are eligible, but co-op properties are not.

•   Zero down payment is a nice option, but if the housing market falters, borrowers may be paying more on their home than it’s worth.

What Is the VA Loan Limit?

As of 2020, if you have full entitlement, you don’t have a VA loan limit.

If you have a remaining entitlement (e.g., you have a VA loan you’re still paying back), you can use your remaining entitlement — on its own or with a down payment — to take out another VA loan.

In that case, the VA loan limit is based on the county conforming loan limit where you live. (In most of the country, the 2023 conforming loan limit for one-unit properties is $726,200.)

VA Loan vs Traditional Mortgage

After comparing the pros and cons of VA loans, some borrowers may find that a conventional loan with a low down payment is a better fit for their long-term financial goals. Even if they save money upfront, in the long term, VA loan borrowers often end up paying more.

Conventional loans can be used for vacation homes or investment properties. They don’t include the VA funding fee.

And some borrowers who put less than 20% down may be able to avoid PMI.

The Takeaway

VA loan requirements are more flexible than some others, and VA loan rates may be slightly lower. VA loans have benefits, but it might pay to get loan estimates for conventional loans, too, and compare. For one thing, nothing down means starting out with no equity.

Applying for a home mortgage loan with SoFi requires as little as 3% down for qualifying first-time homebuyers. The fixed rates are competitive. SoFi finances primary homes, second homes, and investment properties.

Check out SoFi Mortgages and get your rate with no obligation.

FAQ

What are the disadvantages of a VA loan?

The main downside of a VA loan is its funding fee. VA loans also can’t be used to purchase investment or vacation properties, or co-ops (although some condos are eligible).

What is the difference between a VA loan and a regular loan?

The main difference between a VA loan and a conventional loan is that VA loans do not require a down payment or mortgage insurance. And, of course, VA loans are only available to qualified service members, veterans, and certain spouses.

Do you pay a VA loan back?

Yes. A VA loan is a loan, not a gift, and It must be repaid. A homeowner who doesn’t make payments could lose their home and any equity they had built up in it.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Filing for bankruptcy is a tactic often used to erase large amounts of debt, but nondischargeable debts can prevent that clean slate.

Certain kinds of debt, including child support, student loans, and some tax bills, typically survive a bankruptcy filing.

Some 403,000 Americans filed for bankruptcy in the 12-month period ending March 31, 2023. For one reason or another they found themselves in debt situations complex enough to seek bankruptcy as a means of relief.

Though on the surface bankruptcy may appear to produce an opportunity for a fresh start, nondischargeable debts prevent it from being a true end-all solution.

What Does Nondischargeable Debt Include?

Nondischargeable debts can include home mortgages, certain taxes, child support, and student loans, and can vary based on the chapter of bankruptcy filed.

A debt may also be considered nondischargeable if a creditor formally objects to a discharge in court and wins.

When a debt is discharged through bankruptcy, the debtor is relieved of any legal obligation to pay it back, and the creditor is prevented from taking any further action to collect that debt. This includes contacting the debtor or filing a lawsuit.

Personal loans, credit card debt, and medical bills are types of debt generally considered dischargeable.

Nondischargeable debt, on the other hand, does not dissolve in a bankruptcy filing. The debtor remains liable for payment even after the filing is complete. These are types of debt that Congress has deemed unforgivable due to public policy.


💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

Types of Nondischargeable Debt

Nineteen categories of nondischargeable debt apply for Chapters 7, 11, and 12 of the Bankruptcy Code. (A more limited list of exceptions applies to cases under Chapter 13.)

Except in unique circumstances, if a debt falls under one of these categories, it is not considered dischargeable.

1. Debt incurred from U.S. taxes or a customs duty.

2. Debt for money, property, or services obtained fraudulently or under false pretenses.

3. Any debt excluded from bankruptcy filing paperwork (unless the missing creditor received prior notice and had ample time to respond to the filing).

4. Debt acquired due to fraud, larceny, or embezzlement while working as a fiduciary.

5. Debt contracted for a domestic support obligation, including child support and alimony.

6. Debt from intentionally harming another person or their property.

7. Tax debt as a result of a fine, penalty or forfeiture that is, at minimum, 3 years old.

8. Student loan debt (unless not discharging the debt would impose an “undue hardship”).

9. Debt incurred due to the death or injury of someone caused by the debtor while operating a vehicle, vessel, or aircraft while intoxicated.

10. Any debts that were or could have been listed in a prior bankruptcy filing, and the debtor waived or was denied a discharge.

11. Debt obtained by committing fraud or misappropriating funds while acting as a fiduciary at a bank or credit union.

12. Debt incurred for the malicious or reckless failure of a debtor to fulfill any commitment to a federal depository.

13. Debts for any orders of restitution.

14. Debt incurred by penalty in relation to U.S. taxes.

15. Any debt to a spouse, former spouse, or child that is incurred through a separation or divorce.

16. Debts incurred due to condominium ownership or homeowners association fees.

17. Legal fees imposed on a prisoner by a court for costs and expenses related to a filing.

18. Debts owed to a pension, profit-sharing, stock bonus, or another retirement plan, as well as any loans taken from an individual retirement annuity.

19. Debt obtained for violating federal or state securities laws, common law, or deceit and manipulation in connection with the purchase or sale of any security.

Recommended: Understanding Bankruptcy: Is it Ever the Right Option?

How Will Nondischargeable Debt Affect Me?

Nondischargeable debt is just like any other debt in the sense that it must be paid off on time to avoid negative consequences.

If a debt is left unpaid for too long, the creditor may sell the debt to a collection agency, which then may result in any number of the following repercussions:

•   Significantly lowering a credit score

•   Flagging a borrower as “high risk” to future lenders

•   Decreasing the odds of approval for future credit offerings

•   Increasing high-interest rate offers with less favorable terms

•   Adding negative remarks to your credit history

•   Activating a lien against a property or asset

•   Prompting creditors to pursue legal action

•   Enacting wage or asset garnishment

💡 Quick Tip: With low interest rates compared to credit cards, a personal loan for credit card consolidation can substantially lower your payments.

How Can I Resolve Nondischargeable Debts?

Making plans to resolve any outstanding debts as soon as possible is key to managing a credit history and salvaging future credit opportunities. Here are a few strategies to consider for paying off debts.

Stop Using Credit

The first step toward debt resolution is to stop collecting it.

The average American consumer has 3.84 credit cards, and the average balance is $5,910 in 2022, according to data from Experian.

Making a point not to purchase anything that can’t be bought with cash outright can help curb unnecessary expenses. This includes larger purchases that may require financing. Leaving credit cards at home and removing their information from online payment systems can also help remove the temptation of using them.

Create a Budget

According to a 2022 Debt.com survey, 85% of Americans said making a budget helped them get out of or stay out of debt.

A monthly plan including income and expenses can help reveal where extra money might be coming in and where you can cut back on unnecessary spending. A plan will provide a holistic view of spending habits, allowing for larger decisions to be made about how to change habits in order to fit new, debt-focused priorities.

Cutting back on expenses and carefully tracking spending can help reveal extra dollars and cents needed to pay down debts.

Start a Part-Time Job

When paying down debt is a top priority, taking on another job or picking up additional hours at your current one can be extremely helpful.

An extra check here and there can provide funds to make additional payments on debts, helping to dissolve them more quickly. Consider options such as working weekends at a local coffee shop, picking up a temporary gig in food delivery, or freelancing for additional income.

Recommended: 19 Jobs That Pay Daily

Consolidate Debt

Applying for a personal loan is a strategy for managing several debts simultaneously. Though it may seem counterintuitive to take on another loan, a personal loan can be used to pay off multiple existing lines of credit, such as credit cards, and consolidate them into one loan with a single monthly payment and, possibly, a lower interest rate.

In addition to comparing rates, it’s important to make sure you understand how a new loan could benefit you in the long run. For instance, if your monthly payment is lower because the loan term is longer, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

However, a debt consolidation loan could help streamline payments and ease the anxiety that comes with being responsible for managing numerous lines of credit.

The Takeaway

Nondischargeable debts require more than bankruptcy to be resolved, and without proper management, they could worsen your current financial situation. Like any other debt, nondischargeable debt must be paid off on time in order to avoid negative repercussions. Creating a plan to handle outstanding debts as soon as possible is a smart choice.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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