STEM Career Guide

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If you’re unsatisfied with your current career, changing to a career in STEM — which stands for science, technology, engineering and math — might be a solid option.

Employment in STEM occupations has grown 79 percent since 1990, from 9.7 million to 17.3 million and has outpaced overall U.S. job growth. The thirst for STEM workers hasn’t subsided, either. The demand for STEM professionals creates a huge need for new entrants into the STEM workforce.

Transitioning to a STEM career can come with financial barriers, but it can be worth the initial investment in the long run. Personal loans, grants and other sources of funding can mitigate career-change expenses.

Interested in opting for a STEM career instead of your current nine-to-five? We’ll help you understand the financial benefits, obstacles and how to get around any barriers to your STEM-related future.

Why you should consider changing your career

There are several reasons you might change to a STEM career, and they include high salary potential, job satisfaction, positive impact on society and job flexibility.

High salaries

STEM jobs pay out about 70 percent more than the national average, says StratoStar, an education company. More specifically, data from Pew Research Center states that the typical full-time, year-round STEM worker earns $54,745 and a similarly educated non-STEM worker earns $40,505, or 26 percent less.

Though not an exhaustive list, here are the different STEM sectors and possible opportunities within those sectors:

Science: Physics, chemistry, life sciences, geoscience, astronomy, social sciences, environmental studies and biology.

Technology: Information technology, programming, web development, software development, IT architecture, database administration and security and systems analysis.

Engineering: Mechanical, chemical, civil, electrical, management and geotechnical engineer (and hundreds of subcategories as well).

Math: Applied and theoretical mathematics, statistics, calculus, finance and probability.

Growing field

STEM careers are some of the fastest growing, most in-demand career categories, partially because of technology’s constant evolution.

There’s high demand for diverse, talented individuals to seek careers in these well-paid, future-shaping STEM fields. “By far, the greatest labor shortages of women and minorities will be in information and communication technologies,” says Dani Gehm, who works for ChickTech, which engages women and girls of all ages in the technology industry.

STEM unemployment rate is low, and according to the U.S. Bureau of Statistics, STEM jobs are expected to grow almost twice as much as other jobs, at 21.4 percent. In addition, 80 percent of jobs will require technical skills within the next decade.

Job satisfaction

A Pew survey indicated that 66 percent of those working in a STEM profession or teaching felt their job gave them an identity. Only 43 percent of those working in manual or physical occupations and 37 percent of those working in retail or service jobs said the same.

Impact on society

STEM extends beyond petri dishes and coding on a computer. It includes food production, manufacturing and more than meets the initial eye. Its impact on society and current gaps in U.S. STEM jobs are two reasons why many schools so heavily push STEM education. In total, the Department of Education committed $279 million in STEM discretionary grant funds in 2018.

“You can make a material difference in humanity’s quest to increase our knowledge of the universe,” says Jason Gibson, an electrical engineer who worked for NASA then started an online tutoring company helping students in the STEM field. “Whether you work in a factory, a chemical plant, design computer chips or launch rockets, people who go into STEM fields in a tangible way increase the sum total knowledge of our species on this planet.”

Flexibility

Only 18 percent of Americans believe careers in STEM have more flexibility for balancing work and family compared to jobs in other industries, according to Pew.

From virtual physics teacher to technology marketing manager, there are more flexible STEM careers available than you might think. For example, many registered nurses such as case managers or hotline nurses (who answer patients’ questions over the phone) can telecommute.

Here are a few other ideas of flexible STEM sectors and/or jobs:

• Software development

• Some engineering careers

• Medical science liaison

• Technical support representative

Affording your career change

Once you’ve decided to make the leap to a new STEM career, figure out whether your new career will require you to go back to school. If so, can you get the degree online? Or will it require attaining an online certification?

Do your research

Research the salary potential and years of school needed for your anticipated career. This will help you with a financial budget and plan.

Any initial investment could be offset by your high-paying career down the road.

However, the costs depend on what stage of your career you’re in and what degrees you’re going after. Do the math to make sure the cost of an educational program or degree will be recouped in the increased salary you’ll earn.

Always look for any grants or scholarships you can find. Grants and scholarships are free money that you don’t have to pay back for college or career school. Grants are often need-based, while scholarships are usually merit-based. Grants and scholarships can come from the federal government, your state government, the college or career school you’re considering or an organization.

You can also consider getting a student loan. Direct Subsidized and Unsubsidized loans are great options because interest rates are lower than private loans you could get from a student loan lender.

Finally, visit the schools you’re considering and ask for a full breakdown of all of your potential costs, from tuition to transportation to technology costs and more.

Online learning/certifications for specific skills

Not sure you want to fully go back to school or want to prepare before you do? Many classes and certifications are offered online. You can find both free and fee-based programs to advance your career and knowledge base.

You can find course materials, videos and lecture series through the following free and low-cost programs, some at highly-ranked colleges and universities.

You’ll need a blend of technical and professional skills to make a STEM career switch. In addition to training programs offered from colleges, universities, certificate programs, coding academies and more, take advantage of tech-focused meet-up groups and workshops. Networking is just as important as technical skills and can lead to a job, according to the National Center for Biotechnology Information.

Creating a new 529 or using leftover funds

A 529 plan is a tax-advantaged investment vehicle that encourages savings for future qualified higher education expenses such as tuition, fees, books, computers, computer software and other supplies and equipment. The advantage of a 529 plan is that while it’s not tax deductible at the federal level, it may be tax deductible at the state level or you may qualify for a tax credit. Check into your state-sponsored 529 plan.

You may still have money left over in a 529 plan if your child didn’t use it all or if he or she didn’t go to college. You can change the beneficiary to yourself by completing a form found on the plan’s website. Note that the beneficiary cannot be changed to a parent if the 529 plan is a custodial 529 plan.

You can also start a new 529 plan for yourself even though you may not have as much time on your side to build savings as you might have with a child’s account.

Grants and funding for going back to school

Don’t forget to see what educational opportunities your company currently offers — your company may pay for you to go back to school part-time. Visit your current company’s human resources office for more details on the particular back-to-school tuition reimbursement program your company offers.

Once you’ve done that, check out federal opportunities for STEM students based on various STEM sectors.

Minority and female resources

There are fewer females in traditionally white male-dominated STEM fields. The National Science Foundation reported that women’s lowest degree shares are in computer sciences and engineering (S&E).

When it comes to occupations, female and underrepresented minority scientists and engineers were more likely than their male counterparts to work in a non-S&E occupation.

Despite these numbers, female and minority numbers in STEM careers continues to increase each year. In addition to searching for grants and scholarships, it’s important to seek out women or minority mentors already in the STEM industry who can provide guidance on entering a STEM career.

Scholarship and grant opportunities for women include:

BHW Scholarship

Society of Women Engineers Scholarships

Women Techmakers Scholar Program

National Physical Science Consortium’s Fellowships in the Physical Sciences

Women in Engineering and Computer and Information Science Awards

Regent’s Healthcare Scholarship for Medicine and Dentistry

Scholarship and grant opportunities for minorities include:

National Action Council for Minorities in Engineering

Xerox Technical Minority Program

Ford Foundation’s Pre-doctoral Fellowship for Minorities

National Black Nurses Association

National Physical Science Consortium’s Fellowships in the Physical Sciences

Regent’s Healthcare Scholarship for Medicine and Dentistry

Other ways to pay

If you can’t get the assistance or funding you need to go back to school, there are a few other possibilities. Look into the benefits of a personal loan over student loans. Personal loans can be used for any purpose and have less stringent requirements than student loans. You also won’t need to verify that you’re enrolled in college when you apply for a personal loan.

Consider a side hustle or an extra job while you’re going to school — or don’t quit your day job so you can pay for your education. Being a part-time student can be a great way to pay the bills.

 

Bridge Loans Ease The Transition Between Homes - At A Cost

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They can save the day for homebuyers in a pinch, but people looking for a “bridge loan” to span the gap between the sale of an old home and the purchase of a new one should ask if the cost is worth it.

Experts say it almost never is, and people would be better off staying put until they’ve unloaded their first residence. If that’s impossible, they warn, be prepared to shoulder a heavy burden.

“There are many sad stories about homeowners who took bridge loans, and our best advice would be, ‘Don’t do it,'” says Richard Roll, president of the American Homeowners Association in Stamford, Connecticut. “You can find yourself in a totally untenable position, and you can lose your first house.”

What is a bridge loan?

A bridge loan is a short-term loan designed to provide financing during a transitionary period – as in moving from one house to another. Homeowners faced with sudden transitions, such as having to relocate for work, might prefer bridge loans to more traditional mortgages.

Bridge loans aren’t a substitute for a mortgage. They’re typically used to purchase a new home before selling your current home. Each loan is short-term, designed to be repaid within 6 months to three years. And like mortgages, home equity loans, and HELOCs, bridge loans are secured by your current home as collateral.

Terms can vary widely

A tool used by movers in a bind, bridge loans vary widely in their terms, costs and conditions. Some are structured so they completely pay off the old home’s first mortgage at the bridge loan’s closing, while others pile the new debt on top of the old. Borrowers also may encounter loans that deal differently with interest. Some carry monthly payments, while others require either upfront or end-of-the-term lump-sum interest payments.

Most share a handful of general characteristics, though. They usually run for six-month terms and are secured by the borrower’s old home. A lender also seldom extends a bridge loan unless the borrower agrees to finance the new home’s mortgage with the same institution. As for rates, they accrue interest at anywhere from the prime rate to prime plus 2 percent.

One Norwest Corp. bridge loan, for example, would total $70,000 on a customer’s old $100,000 home with $50,000 in mortgage debt outstanding, says Patty Stubbs, branch operations supervisor for the company’s Des Moines, Iowa, mortgage division. Of that, $50,000 would go toward the old house’s lien and a few thousand would cover the bridge loan’s closing costs, origination charges and fees, leaving the customer with about $16,000 for the new home’s down payment, closing costs and fees.

This example helps to show how the high fees associated with bridge loans can cause problems. Norwest’s customer, for example, would end up paying between $2,000 and $3,000 for closing on the bridge loan, 1.5 percent to 2 percent of its value for an origination fee, and another couple thousand dollars for closing on the new home’s mortgage.

What if the sale goes sour?

Real estate market risks can exacerbate the danger, Roll says. For example, Norwest and others are usually willing to extend bridge loans slightly beyond the standard six months. But what happens to a homeowner who gets the financing and extension, so the old home’s buyer can have a little more time, only to see the transaction fall through?

“Let’s say they need some of that money to buy their new house, so it’s predicated on selling their old house,” Roll says. “What happens if they don’t sell that house, or if the buyer doesn’t get financing?”

In such a case, the lender could go as far as to foreclose on the old property after the bridge loan extensions expired, Stubbs says, or a customer could deed the property to the bank, which would sell it and apply the proceeds toward paying off the loan.

Consider other options

For those trying to stay away from bridge financing, borrowing against a 401(k) plan or taking out loans secured by stocks, bonds or other assets are options, says Kevin Hughes, a mortgage loan specialist at Cambridgeport Bank, based in Cambridge, Massachusetts. Some lenders also offer hybrid mortgage products that behave similarly to bridge loans.

For example, a Cambridgeport customer with $50,000 equity on a $100,000 home, for example, could obtain a combination first and second mortgage on a second $100,000 home, Hughes says. Only one set of closing costs of about $1,300 would be required, with about $184 in additional costs for the second mortgage.

As part of the bank’s program, that person would make a $10,000 down payment on the new property, which would have both a first mortgage for $50,000 and a second for $40,000. Upon selling the old home, the borrower could use the $50,000 worth of equity to simultaneously pay off the new home’s second mortgage and recoup the money that covered the down payment.

Bridge loans vs. home equity loans

Home equity loans are one of the most popular alternatives to bridge loans. Like a bridge loan, they are secured loans using your current home as collateral. But that’s where the similarities end.

Home equity loans borrow against available equity in your home. They are usually long-term loans, and repayment periods can be anywhere from 5 to 20 years. If you qualify, interest rates tend to be more favorable with home equity loans than with bridge loans.

But using a home equity loan to finance part of a new home purchase, such as the down payment, can still be risky. If your original home fails to sell, you may find yourself paying three loans: your original mortgage, your new mortgage, and the home equity loan. We still recommend waiting until a deal closes on your original property. But if you’ve built up sufficient equity in your current home, a home equity loan may be a solid alternative to bridge loans.

Compare home equity loan rates in your area

Total debt climbs

Whether a homeowner takes a bridge loan or a hybrid stand-in, however, a significant amount of new debt will end up being added to the pile. The Cambridgeport borrower, for instance, would have to make three payments each month in order to cover the old home’s mortgage, and the first and second mortgages on the new house.

But even though they aren’t the best deal, bridge loans or other short-term mortgage financing products may be necessary when homebuyers land in tight spots, lenders say. There will always be people relocating for work without much advance notice, trying to keep others from beating them to the punch on a property, or needing help with the expensive upfront costs of buying a new home before their old one sells.

“It’s a way for the customer to get into that home without having to go through all the gyrations of trying to get cash for a down payment,” says John Bollman, a mortgage product manager with National City Corp. in Dayton, Ohio. “The Realtors tend to use it as a tool to help buyers buy their home.”

Bridge loans nevertheless remain relatively obscure in a lending landscape dominated by more widely publicized home equity loans and lines of credit. A fast-churning real estate market also eases the demand because it shortens the amount of time it takes for people to sell their homes, Hughes says.

Norwest, for instance, said only 140 of the 240,122 mortgage loans it extended last year were bridge loans, while Continental Savings Bank, based in Seattle, closes just four bridge loans a month on average out of 775 total mortgages.

Small-Business Loans

The recovering economic environment has meant that small businesses have had to be more creative when looking for loans.

However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

“For creditworthy, high-scoring small businesses, there is money available,” says George Cloutier, CEO of American Management Services, a consultant to small businesses.

Bank loans

The best place to get a small-business loan is still a bank, says Cloutier. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

RATE SEARCH: Compare business credit card rates.

“Many small businesses try three or four banks and then stop looking,” Cloutier says. A more persistent approach has better odds of success.

Calculate business loan payment

Want to calculate your small-business loan payment? Go to Bankrate’s loan and amortization calculator.

“Take out the phone book, target 10 banks and work through that list,” he says.

That strategy worked for Michael McKean. He is founder of The Knowland Group, a company that helps hotels fill up their meeting space.

A few years ago, as the success of The Knowland Group grew, McKean began searching for a bank that would give the growing company expanded access to credit.

“We talked to every bank in our area, at least a dozen,” McKean says. “Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms.”

Finally, M&T Bank came through.

“They just wanted to get our business,” McKean says.

McKean says his company did not approach M&T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

“We did everything right, approaching the right person at each bank,” he says. “We’re a profitable business. I think it was just the … credit crunch that prevented us from getting a loan.”

Cloutier says the key to success with banks is to show past profitability, and to describe a well thought-out plan for future profits.

“If you aren’t making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won’t be able to get a loan,” he says.

He also recommends that businesses start small in their loan requests.

“If you need money for four trucks, ask for two,” Cloutier says. “The bigger the loan request, the harder it is to get it approved.”

SBA loans

Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you’ll have the advantage of approaching banks specifically interested in lending to small businesses.

Interested businesses should contact the SBA office nearest to them, which can be found on the agency’s website. Jeanne Hulit, the SBA’s acting administrator, urges businesses to seek a bank that is an experienced SBA lender.

Banks granting SBA loans place increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she says. The SBA also can refer businesses to free counseling centers to improve their performance.

Online opportunities

Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders, such as individuals and small companies.

Interest rates are generally a little higher than what a bank will charge, but it’s much less than what you’ll have to pay on many credit cards.

Look around at different sites, some may charge a one-time fee to list your business, while others are free to list but might have fees reflected in loan rates.

If you’re going to list your company on one of these sites, describe your business in clear and concise language.

Lastly, make sure to investigate the company you are looking to post your business on. These kinds of companies were successful in 2008 and during the recession, but times have changed. Many have since gone out of business. Before paying for anything, make sure the company is legit.

5 Ways To Spot Student Loan Scams

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There is an estimated $1.5 trillion of outstanding student loan debt. The burden is taking a toll on Americans, from preventing homeownership to delaying other major life milestones, like marriage.

Still, it’s easy for Americans to want to eliminate that debt as soon as possible — and criminals are capitalizing on the growing desire to do so.

The Federal Trade Commission (FTC) has been cracking down on scammers in recent years, claiming they’ve have been charging illegal upfront fees and misleading consumers.

While it may be tempting to go after a quick fix to eliminate student loan debt, it can have numerous and costly consequences.

Here are five warning signs to watch for when looking for student debt relief.

1. The company asks you to pay upfront fees

Companies charging upfront fees to help with consolidation is illegal. According to the Federal Student Aid website, consumers should “never have to pay for help” with student loans.

In 2017, the Federal Trade Commission started a nationwide crackdown on student loan debt relief scams called “Operation Game of Loans.” The operation was a result of scammers taking over $95 million in illegal fees from consumers over a number of years.

If you call a relief company and they ask for money before helping you, the company is participating in illegal activity; hang up and file a complaint with the FTC.

2. Think twice before signing a power of attorney

Scam companies will ask consumers to sign over a power of attorney, which will give it power to make decisions on your behalf. Often, they will use the power to put your loans in forbearance, which is a major warning sign, writes Robert Farrington on The College Investor, a blog for student loan advice.

Here’s how it works: After you sign a power of attorney, the company will put your loans in forbearance, resulting in you not having monthly payments sent directly to your servicer. Instead, the company will ask you to pay it directly.

Instead of your money going toward your loans, the company will keep it for itself, instead of putting it toward your loans.

“The problem is, these scams usually involve the company taking your money, your student loans remain in forbearance for months or years, and the borrower finds out that the forbearance has expired and that nothing was done,” Farrington writes.

This strategy capitalizes on consumers who aren’t familiar with the many different repayment options for loans.

When a loan is in forbearance, payments temporarily stop or are lowered. Under forbearance, you are still responsible for any interest incurred while not making payments; under a deferment, you might not be.

According to the Federal Student Aid website, forbearance and deferment should be considered only as temporary or short-term solutions if you’re struggling to repay your loans. Long-term solutions to high payments are income-driven repayment plans, which determine your monthly payment based on your pay.

3. The provider offers ‘quick relief’

Most scams make false promises, such as fast loan forgiveness through dispute or programs that don’t exist. These scams often promise quick relief without having specific details of individual accounts and situations.

As of now, there is no quick fix to eliminate student debt. There are loan forgiveness programs available, such as public service loan forgiveness, but even those programs require years of payments before the balance being forgiven. Additionally, student loans cannot be discharged through bankruptcy.

There is no quick fix for eliminating student debt. Those struggling with payments and can’t get relief through payment plans can consider refinancing to a lower-interest loan to make payments more manageable.

4. Think twice before paying to get on a payment plan

While it’s legal for companies to offer services to help customers navigate the student loan repayment system, the FTC says it’s an unnecessary cost.

“Consumers can apply for loan deferments, forbearance, repayment and forgiveness or discharge programs directly through the U.S. Department of Education or their loan servicer at no cost,” the FTC writes on its Game of Loans website. “These programs do not require the assistance of a third-party company or payment of application fees.”

5. Do your research

Those who are feeling unsure about a debt-relief program should do their due diligence in research before committing to or paying for any services.

Use the Better Business Bureau (BBB) search tool to determine if the business is BBB accredited. This tool will also pull up any reviews and complaints made by other consumers.

What to do if you’ve fallen victim to a debt relief scam

If you’ve given away personal information, such as your FSA ID, or have paid a company that might not be legitimate, there are steps you can take before further damage is done.

The Federal Student Aid website lists the following steps you should take:

Change your FSA ID: If you provided your FSA ID to a company, you should log in and change your username and password.

Contact your loan servicer: Be sure to revoke any power of attorney you may have signed over to the party. Review any recent changes or actions that were taken on your loans.

Block all payments: Contact your bank and block any payments to the scam company.

File a complaint: Log on to the FTC website and file a complaint. After, file a report in the FSA feedback system.

7 tips for navigating student loans on your taxes

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An estimated 40 million Americans have student loan debt. While many are seeking to pay off their loan burdens as soon as possible, interest continues to accrue.

The good news is the government wants to help manage those interest payments.

Come tax season, there are a few ways to include your student loans while filing your taxes. And if you’re still in school, a few tax credits might help you as well.

Before considering deductions and credits, knowing the basics of how student loans play into your taxes is essential.

Here are seven tips for navigating your student loans while filing your taxes.

1. Use the student loan interest deduction

The biggest benefit of paying your student loans (besides them eventually being paid off, of course,) is that you can write off interest paid as a deduction, which can potentially help you save hundreds on your tax bill.

You can deduct up to $2,500 through the student loan interest deduction; it does not need to be itemized. Those who have paid $600 or more in interest on their loans will be sent a Form 1098-E from their student loan servicer.

“Even if you’re below the $600, that by itself doesn’t mean that you aren’t able to claim a deduction,” says Eric Bronnenkant, head of tax at Betterment. “It just means you won’t get a tax form from your servicer. But you should still take advantage of the deduction.”

Keep in mind that a tax deduction is different from a tax credit. Under a credit, you subtract the credit amount from your total taxes due; with a deduction, your taxable income is reduced by the deduction amount and you save a percentage of money you aren’t paying taxes on, according to your tax bracket.

The deduction also comes with limits. If you are filing single with an adjusted gross income over $65,000, the deduction starts to lessen until it’s eliminated at $80,000; the same happens for couples filing jointly with an AGI of $135,000 and phases out at $165,000 for a joint return.

Bronnenkant adds that the standard deduction increased this year, and that you don’t need to itemize the student loan deduction — it’s an “above the line” reduction. This means you can claim both the standard deduction and student loan interest deduction, thus lowering your overall tax bill even more, Bronnenkant says.

2. Filing as a dependent

If your parent is claiming you as a dependent, you cannot deduct student loan interest from your overall tax bill.

However, Bronnenkant points out that if someone is helping you pay your student loans, like a parent or grandparent, and is not listing you as a dependent, you can still take advantage of the interest deduction.

“Let’s say you’re 25 years old, on your own, not a dependent anymore,” Bronnenkant says. “Say you’re struggling and your grandparents are paying your student loans to help you get by. That’s fine — that’s actually a good thing. It’s actually assumed the money is gifted to the grandchild, who then pays the interest — and so the grandchild gets the deduction in this scenario.”

3. Watch out for the marriage penalty

The marriage penalty is an industry nickname for a total tax bill being affected by a married couple filing their taxes jointly. Often, joint filing can result in a higher total tax bill than if the couple filed separately.

Bronnenkant says that there aren’t any situations where being married and filing separately would be beneficial while deducting student loan interest on taxes. In fact, married couples filing separately are not eligible for the student loan interest deduction.

4. Take advantage of relevant tax credits if you’re still in school

While those still in school aren’t required to make payments toward their student loans, that doesn’t mean they can’t use their student status to their full advantage on their taxes.

There are two main tax credits for those who are still in school:

The American Opportunity Credit

The American Opportunity Credit is worth up to $2,500 per student per year, but can only be claimed four total tax years per student.

The AOC has strict qualifying requirements, including:

• The student must be attending school at least half-time for at least one academic term.
• The student must not have finished the first four years of a post-secondary program prior to the end of the tax year.
• The student must be pursuing a program that will end with a degree or other recognized credential.

The Lifetime Learning Credit

The Lifetime Learning Credit, worth up to $2,000 per year, per student, has less strict requirements:

• There is no minimum on hours enrolled to qualify, and no limit to how many years the credit can be claimed.
• The credit covers tuition, books, fees and supplies for any student pursuing college or career education.

5. Avoid default at all cost

More than 1 million people default on their student loans each year. Not only can defaulting on anything hurt your credit loan, it has the potential to have your wages garnished — or your tax return withheld.

“This won’t happen if you’ve taken appropriate steps to set up a repayment plan or forgiveness program,” says Josh Zimmelman, owner and president of Westwood Tax & Consulting. “But if you’re just in default on your loans, then your tax refund is at risk.”

Student loans don’t go into default if you miss one payment. Ninety days after a loan is past due, it is then reported to the three major credit bureaus. After 270 days, the loan goes into default — which is when it drastically damages credit and erases any eligibility for deferment, forbearance and forgiveness.

If you are struggling with student loan payments, consider calling your servicer to create a plan that will help you better manage the cost. You might be eligible for a hardship program or settlement.

6. Don’t use 529 funds to make student loan payments

Under current law, funds in 529 plans can be used on a 100 percent tax-free basis when put toward qualified educational expenses, such as tuition and fees or room and board.

However, you cannot use 529 funds to make student loans payments. If you do, you’ll be hit with a 10 percent penalty and will be taxed on that money as income.

7. Received forgiveness? Get ready to pay

Student loans are not taxable as income.

However, if you are granted loan forgiveness, then you will be taxed on the total amount forgiven.

Keep in mind that loan forgiveness is not the same as loan discharge. Any student loan debt that is discharged due to death or total and permanent disability (TPD) is no longer taxable. This law is in effect for eligible loans discharged from Jan. 1, 2018 to Dec. 31, 2025.

Resources for tax help with student loans

Overall, navigating student loans on your taxes can be tricky. Thankfully, there are plenty of resources available to help guide you through the process.

Those who want direct help from the IRS can access the 970 worksheet, titled “Tax Benefits for Education,” through its website. This worksheet outlines tuition reductions, how to claim credits, an explanation of the interest deduction and more.

Those who feel unsure of filing their taxes themselves should reach out to a certified accountant for help.

Need more help? Check out Bankrate’s 10 best tax-planning tips for filing in 2019.

What Happens When Your Student Loan Servicer Gets Bought

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In August 2018, Andrew Fanno, a 28-year-old lawyer in Boston, refinanced his $200,000-plus student loan balance into Earnest, a popular fintech refinancing company. Fanno was lured by the ability to make biweekly payments through the service and the user-friendly interface.

Two months later, though, the fintech company made a few functional changes, including removing its popular biweekly payment option and changing the dashboard. After doing some research, Fanno realized the changes occurred as a result of the company being acquired by Navient Corp., one of the largest companies that manages student loan debt, in 2017.

“I had no idea the merger was coming,” Fanno says. “And, honestly, I had heard not-so-great things about Navient. It was a bummer.”

It happens more than you might think: You receive a letter in the mail, saying your student loans are being transferred to a new servicer, either from a company buy-out or federal loans being transferred.

Your loans, and those of thousands of other borrowers, will be held under a different company — and no, you don’t get a say in the matter.

What happens when your student loan servicer gets bought

Student loans get transferred from one servicer to another “as part of (the U.S. Department of Education’s) efforts to ensure that all borrowers are provided with customer service and repayment support,” according to the Federal Student Aid website.

And while loan terms often don’t change, it can lead to a confusing shuffling of funds, some of which take borrowers by complete surprise.

Earnest sold for nearly half than its 2015 valuation of $375 million, according to The Wall Street Journal. After, Fanno was notified by mail and email that his loans would be held under Navient. He read his promissory note before signing on to his new loans, which stated that they would be transferred in the future.

The buyout wasn’t shocking for Fanno. It did, however, lead to some disappointing changes.

The acquisition came with two major blows to incentives that led Fanno to Earnest in the first place: the biweekly payment feature was gone, and Fanno says the site began having frustrating glitches.

He plans on refinancing with another company within the next six months.

Important things to consider during the transfer

There are no “rights” that consumers hold when it comes to their loan servicers getting bought, says Mark Kantrowitz, student loan expert and vice president of research of SavingForCollege.com. But there are a few things that borrowers can look out for to make sure the transition goes as smooth as possible.

Kantrowitz offers the following advice.

Auto debits might not transfer to the new servicer

If you have your monthly payments automatically taken out of your bank account, you will likely need to re-enroll in the service once the transition is complete.

Doing so is crucial — most servicers don’t inherit your past authorization and require a new one. If you don’t re-enroll, you might go months without actually making a payment on your loans, which could result in them ending up in default.

Some features might disappear

If you’ve consolidated your loans with another company, like Fanno did, you might lose some enticing features, like automatic biweekly payments.

If you set up something similar with your new servicer, make sure you specify where you want your extra payment to be going. Some servicers might not automatically put it toward interest.

Just because your account says ‘$0’ doesn’t mean your loans have magically disappeared

While it would be a welcomed miracle for an entire balance to “get lost” in the transition, it’s highly unlikely that will happen.

Fanno recalls his balance being $0, as well as expected payments being $0, up until a week before his payment was due.

“I was freaking out a little,” Fanno says.

But just because the balance might be $0, Kantrowitz warns not to let it mystify you.

“Even if you don’t hear from anybody that your loans are still owing, they are,” Kantrowitz says. “You need to make the payments.”

Be proactive about any repayment or forgiveness plans you were previously on

With any data transfer, things can get lost along the way. This can be detrimental if you’re on a loan forgiveness program, like income-driven repayment, where each month’s payment counts toward your loans being erased.

Once the transfer is complete, call the new servicer to confirm your plan.

Make copies of your account balance, monthly payment and schedule

Kantrowitz stresses the importance of keeping records from before and after the transition. He recommends making printouts of your loan balances, as well as your monthly payment amounts, before and after the transition.

By keeping track of how much you owe and what your payments are, you can avoid any mixups from turning into costly interest payments.

“You need to pay attention,” Kantrowitz says. “You need to stay on top of things because if they somehow lose your paperwork during the transition, it will manifest itself in the future.”

Cosigning A Student Loan Can Be A Risky Move For Parents

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With the total amount of outstanding student loan debt surpassing $1.5 trillion, many borrowers are beginning to feel the consequences of their burdens — and that doesn’t just mean students.

When a student doesn’t receive enough financial aid to fund their educations, their families often turn to private loans to help cover the remaining costs. Parents are commonly asked to cosign on loans in order to get their child a better rate, or approved altogether. That willingness to help could be detrimental.

“Would you give a teenager who is irresponsible the keys to your financial future?” That’s how Mark Kantrowitz, student loan expert and vice president of research at Savingforcollege.com describes the risk in cosigning on a child’s student loans.

Reasons why parents probably shouldn’t cosign

Only private student loans can utilize a cosigner — Federal student loans do not allow the practice. With a cosigner, a student with low or no credit can be offered a better rate or increase the chances of seeing their loans approved. Helping a child qualify for a way to pay for their education may seem like a given for most parents, but it comes with immense risks.

Here are some important reasons why parents may want to think twice before cosigning on their children’s private student loans, according to Kantrowitz.

Cosigners are financially responsible if a student defaults on the loan

Cosigning on any type of loan means you are now on the hook for the balance, should the primary signer fail to make payment. And that doesn’t mean the student loans have to end up in default in order for the lender to come after a cosigner, either.

“Actually, as soon as the student borrower is late with a payment, the lender will seek repayment from the cosigner,” Kantrowitz says.

Around two-fifths of general loan cosigners end up repaying the debt, according to CreditCards.com, a Bankrate sister site. If you aren’t capable of repaying the student loan balance entirely on your own, this could cause serious financial distress.

The risk of damaged credit

Cosigning on a private student loan means the loan balance will show up on your credit report. Considering debt-to-income is a major factor in determining a credit score, the large balance can hurt your score.

Kantrowitz also notes that a delinquency won’t only hurt the student — it’ll hurt the cosigner, too.

“Delinquencies and defaults will show up on the credit history of both the student borrower and the cosigner, ruining the cosigner’s credit, not just the student’s,” according to Kantrowitz.

Once your credit is damaged, it will be harder to get approved for good rates on credit cards, auto loans or mortgages. The implications of poor credit stretch far beyond just a low number.

There are no financial benefits for the cosigner

While a parent may be helping a child invest in their future, they won’t receive any direct benefits from cosigning on the student loans.

“All of the benefits — qualifying for a loan, getting a lower interest rate — are received by the student, not the cosigner,” Kantrowitz says.

Seniors facing student loan debt put their retirements at risk

Should any of the private student loans end up in default, the affected cosigner could face an unstable financial future.

In total, Americans who are 60 years old and over owe $86 billion in student loan debt. That number has surged by 161 percent since 2010, as reported by the Wall Street Journal.

Should retirees be unable to repay loans in default, they face an alarming realization in that their retirement will be put at risk. More than 40,000 people aged 65 and older in 2015 faced garnished Social Security benefits because of defaulted student or parent loan debt, the Wall Street Journal reports.

Tips for parents who cosign on a child’s student loans

After considering all of the risks, some parents still might make the decision to cosign on a child’s student loans as every situation is different. While cosigning on any type of loan can have dire consequences, cosigners have rights, should the loans end up in default.

Seek a cosigner release

Under this agreement, the cosigner can be freed from financial responsibility after the primary borrower meets certain requirements. For example, a cosigner can be released from the financial responsibility of a loan after the primary borrower makes a certain number of consecutive payments that are all on time.

Those seeking a cosigner release should contact their lender for more information and to create a plan. The lender will likely ask for proof of your income and creditworthiness, in order to determine eligibility.

Consider refinancing

If you’re unable to be granted a cosigner release, refinancing the loans might be a good idea. In doing so, you will be able to have your name removed from the balance entirely.

(See today’s personal finance loan rates)

Learn more:

5 expert strategies for paying off graduate school student loans

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Graduate school: It’s one of the biggest investments of your life. Not only does it extend your academic career, but it has the ability to make your student loan debt burden skyrocket.

If you go to graduate school, chances are you’re going to need help paying for its costs. Graduate student loan debt is proven to have higher borrowing rates and larger balances than undergraduate student loan debt, according to a 2018 report by the Urban Institute and AccessLex Institute. Those balances were more than three times the amount of undergrad balances during the 2015-2016 school year — and can seem like a daunting obligation to fulfill.

Just how much money are we talking? Research by New America finds one in four borrowers have a combined undergraduate and graduate student loan balance of nearly $100,000 — almost half of the national average mortgage debt in 2017.

Those considering graduate school shouldn’t be intimidated by the large balances, though. A graduate degree can double your earnings, according to the Urban Institute, making it an investment with the potential for generating a positive return.

Best ways to pay off graduate school loans

Bankrate asked a number of experts to share some of the best ways to pay off graduate student loans. Here’s what they recommend:

1. Find a repayment plan that matches your ability to pay

One of the hardest parts about having student loans is figuring out how to afford monthly payments. The higher the total balance, the more you’ll owe each month on a standard repayment plan, which spreads out an even number of payments over 10 years.

There are ways to lower monthly payments, though, which include putting yourself on a repayment plan. That includes some income-driven repayment plans, which cap payments at 10 percent of your discretionary income.

“I’m on an income-driven repayment plan, which means I can breathe a little bit knowing my payments won’t bankrupt me,” says Felicia Golden, a 30-year-old public relations specialist in London who had around $28,000 in student loans after graduate school. “But for me, it’s really important to pay as much as I can each month and not just the contractual minimum. Because then the interest just builds up until it’s unmanageable.”

Pros: Your monthly payment will likely be capped at 10 percent of your discretionary income, meaning they will be more affordable than payments on a standard repayment plan.

Cons: Some repayment plans stretch out payments for longer periods of time, meaning you might end of paying much more in interest than you would on a standard repayment plan.

Best for: Graduates with moderate-to-low incomes.

2. Consider refinancing to save on interest

If you took out private loans for graduate school, refinancing them can likely lower your interest rate. Plus, you can consolidate loans from multiple servicers, meaning you’ll likely only have one payment to make each month. This could also potentially lower your monthly payment, making it more manageable in your budget.

Before choosing a company to refinance with, it’s important to shop around for the best rate. Comparison tools like Bankrate’s help individuals look at refinancing options with multiple lenders in one easy place, allowing them to choose a loan with the best terms. (Compare student loan rates on Bankrate.)

Pros: Refinancing loans can save you thousands on interest and potentially lower your monthly payment.

Cons: Federal loans cannot be refinanced through government lenders, meaning if borrowers choose to refinance privately, they will forfeit their ability to use payment plans. Getting approved for private refinancing will depend on creditworthiness.

Best for: Individuals with fair-to-excellent credit scores who have private student loans.

(Check out Bankrate’s guide to refinancing student loans)

3. Figure out ways to earn more money

Earning extra money is quickly becoming a common way of life in America. A recent Bankrate survey found that nearly half of working Americans have a side gig outside of their primary job and use the money for a variety of purposes, such as spending, paying for regular living expenses or savings.

For someone with a large graduate loan debt balance, getting a side gig could be a great way to knock off that debt faster.

“I’m a firm believer that everyone can earn an extra $100 per month if they try to,” says Robert Farrington, founder of The College Investor. “That extra $100 per month can be applied to your student loan debt, eliminating $1,200 per year from your loan balance.”

Pros: Working a side gig can have multiple rewards, including creating your own schedule

Cons: Working more hours means not only giving up valuable personal time, but you run the risk of burnout. Be sure to get strategic with any side hustle, and keep in mind that gigs like driving for Uber won’t make you rich — they’ll just make a few extra dollars available toward paying back your loans. Additionally, many side-gig employees work on a freelance basis, and therefore are usually not eligible for standard employment benefits.

Best for: People willing to be flexible and put in extra effort for the extra cash.

4. Seek out state assistance

According to Farrington, 45 of the 50 U.S. states, as well as the District of Columbia, offer some type of student loan assistance. These programs are often used as incentives to retain or attract talent in certain fields of work.

For example, Kansas offers student loan forgiveness up to $15,000 over five years for residents living in certain parts of the state; California offers loan forgiveness for doctors, health professionals and dentists.

Pros: Thousands of dollars in assistance are available to put toward your loan balance.

Cons: Some of these programs require individuals to live in rural opportunity zones, meaning they could be far from big cities with advantages like public transportation or easy accessibility. Additionally, these programs aren’t intended to forgive your loans in full, but they will help pay a good chunk of them off.

Best for: Those willing to relocate and establish residency, or provide professional services for a continuous period of time.

5. Learn how to budget

Creating a budget may seem like an obvious tip for conquering student loan debt, but Golden says it’s the “biggest thing” that has helped her manage her student loan debt.

“Once I started to seriously budget (using a template spreadsheet my very practical uncle gave me), I was able to cut down on wasteful things and divert that towards my monthly loan payment,” Golden says. “I was also able to determine how much I could realistically pay each month.”

Creating a budget not only will help you stay on track with your plan to payoff the debt, but it will give you the opportunity to analyze where you’re overspending. When it comes to interest accumulating on your loan balance, every extra dollar you’re able to put toward it will help.

Need help creating a budget? Start by writing down your spending and expenses. After seeing it all in one place, it’ll be easier to determine what your discretionary spending should be after accounting for your fixed expenses.

(Ready to get started? Here are Bankrate’s 5 secrets to creating a budget)

Pros: You’ll have a clearer picture of where your money is going each month. Additionally, you’ll be able to find ways to cut spending and be able to funnel additional money to your student loans.

Cons: Some folks have a hard time sticking to a budget. Keep in mind that budgets can be flexible; if you happen to spend more in one category, adjust the allowance of others to make up for it. You can easily adjust a budget using apps like Mint or You Need a Budget (YNAB).

Best for: Everyone! A budget is an essential tool no matter your financial situation.

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Home Equity Line of Credit Payoff Calculator

Refinancing your HELOC into a Home Equity Loan

HELOC payments tend to get more expensive over time. There are two reasons for this: adjustable rates and entering the repayment phase of the loan.

HELOCs are variable rate loans, which means your interest rate will adjust periodically. In a rising-rate environment, this could mean larger monthly payments.

Additionally, once the draw period ends borrowers are responsible for both the principal and interest. This steep rise in the monthly HELOC payment can be a shock to borrowers who were making interest-only payments for the first 10 or 15 years. Sometimes the new HELOC payment can double or even triple what the borrower was paying for the last decade.

To save money, borrowers can refinance their HELOC. Here we’ll take a look at two options and how they work.

Home equity loan

You can take out a home equity loan, which has a fixed rate, and use this new loan to pay off the HELOC. The advantage of doing this is that you could dodge those rate adjustments. The disadvantage is that you would be responsible for paying closing costs.

New HELOC

Apply for a new HELOC to replace the old one. This allows you to avoid that principal and interest payment while keeping your line of credit open. If you have improved your credit since you got the first HELOC, you might even qualify for a lower interest rate.

If you’re interested in refinancing with a HELOC or home equity loan, use Bankrate’s home equity loan rates table to see current rates.

Home equity loans vs. HELOCs

Home equity loans and home equity lines of credit, or HELOCs, are two types of loans that use the value of your house as collateral. They’re both considered second mortgages.

The main difference between them is that with home equity loans you get one lump sum of money whereas HELOCs are lines of credit which you can draw from as needed.

Paying off a home equity loan

The faster pay off your loan, the less interest you’ll pay. You might even be able to reduce your interest rate by refinancing your loan to a shorter term. Often, lenders will reward shorter terms with lower interest rates, so it’s worth investigating if you want to pay off your loan faster.

Before you get the loan, find out if there’s a penalty for paying it off early. If there is a penalty, factor that amount into your calculations.

You should also note any balloon payments that are included in your contract. These are large lump sums owed at the end of your home equity loan term. Some loans are not amortized, which means you could end up making interest-only monthly payments only to have the full principal balance due on a specific date.

This could mean trouble for homeowners who haven’t prepared. If your loan has a balloon payment, set aside enough money each month to make that payment when it comes due.

Paying off a HELOC

HELOCs are different from home equity loans in that they function more like a credit card. Your lender will extend credit, based on several factors including your credit history and the equity in your house. You only owe what you borrow. For example, if you’re extended $50,000 and use just $25,000, then you only owe $25,000.

Many HELOCs allow borrowers to make interest only payments during the draw period, which can vary. Normally, draw periods last between 10 and 15 years. When that period ends, you must make principal and interest payments.

HELOCs can become a drain on your finances if you put off making payments on the principal. If possible, make extra monthly payments on your principal. Like home equity loans, find out if there are prepayment penalties.

First-Time Homebuyer Mistakes To Avoid

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Buying your first home comes with many big decisions, and it can be as scary as it is exciting. It’s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer’s remorse later.

If this is your first rodeo as a homebuyer or it’s been many years since you last bought a home, knowledge is power. Along with knowing what issues to avoid, it’s important to glean first-time homebuyer tips from the pros so you know what to expect and what questions to ask.

First-time homebuyer mistakes

Here are 14 common first-time homebuyer mistakes, along with first-time homebuyer tips on how to avoid them:

1. Looking for a home before applying for a mortgage

Many first-time buyers make the mistake of viewing homes before ever getting in front of a mortgage lender. In some markets, housing inventory is still tight because there’s more buyer demand than affordable homes on the market. And in a competitive market, you could lose a property if you aren’t preapproved for a mortgage, says Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, California.

How this affects you: You might get behind the ball if a home hits the market you love. You also might look at homes that, realistically, you can’t afford.

What to do instead: “Before you fall in love with that gorgeous dream house you’ve been eyeing, be sure to get a fully underwritten preapproval,” Arteaga says. Being preapproved sends the message that you’re a serious buyer whose credit and finances pass muster to successfully get a loan.

2. Talking to only one lender

This one is a biggie. First-time buyers might get a mortgage from the first (and only) lender or bank they talk to, potentially leaving thousands of dollars on the table.

“A good mortgage loan officer can look at your situation and diagnose any potential roadblocks ahead to give you a clear understanding of your home-buying options,” Arteaga says.

How this affects you: The more you shop around, the better basis for comparison you’ll have to ensure you’re getting a good deal and the lowest rates possible.

What to do instead: Shop around with at least three different lenders, as well as a mortgage broker. Compare rates, lender fees and loan terms. Don’t discount customer service and lender responsiveness; both play key roles in making the mortgage approval process run smoothly.

3. Buying more house than you can afford

It’s easy to fall in love with homes that might stretch your budget, but overextending yourself is never a good idea. And with home prices still rising, this is easier said than done.

How this affects you: Buying a home that exceeds your budget can put you at higher risk of losing your home if you fall on tough financial times. You’ll also have less wiggle room in your monthly budget for other bills and expenses.

What to do instead: Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan, that doesn’t mean you can afford the monthly payments that come with it. Factor in your other obligations that don’t show on a credit report when determining how much house you can afford.

4. Moving too fast

Buying a home can be complex, particularly when you get into the weeds of the mortgage process. Rushing the process can cost you later on, says Nick Bush, a Realtor with TowerHill Realty in Rockville, Maryland.

“The biggest mistake that I see (first-time buyers make) is to not plan far enough ahead for their purchase,” Bush says.

How this affects you: Rushing the process means you might be unable to save enough for a down payment and closing costs, address items on your credit report or make informed decisions.

What to do instead: Map out your home-buying timeline at least a year in advance. Keep in mind it can take months — even years — to repair poor credit and save enough for a sizable down payment. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get preapproved.

5. Draining your savings

Spending all or most of their savings on the down payment and closing costs is one of the biggest first-time homebuyer mistakes, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Illinois.

“Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance, but they are picking the wrong poison because they are left with no savings at all,” Conarchy says.

How this affects you: Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage. That’s usually translated into substantial savings on the monthly mortgage payment. But it’s not worth the risk of living on the edge, Conarchy says.

What to do instead: Aim to have three to six months of living expenses in an emergency fund. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is riskier.

6. Being careless with credit

Lenders pull credit reports at preapproval to make sure things check out and again just before closing. They want to make sure nothing has changed in your financial picture.

How this affects you: Any new loans or credit card accounts on your credit report can jeopardize the closing and final loan approval. Buyers, especially first-timers, often learn this lesson the hard way.

What to do instead: Keep the status quo in your finances from preapproval to closing. Don’t open new credit cards, close existing accounts, take out new loans or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30 percent of your available credit limit, and pay your bills on time and in full every month.

7. Fixating on the house over the neighborhood

Sure, you want a home that checks off the items on your wish list and meets your needs. Being nitpicky about a home’s cosmetics, however, can be short-sighted if you wind up in a neighborhood you hate, says Alison Bernstein, president and founder of Suburban Jungle, a real estate strategy firm.

“Selecting the right town is critical to your life and family development,” Bernstein says. “The goal is to find you and your brood a place where the culture and values of the (area) match yours. You can always trade up or down for a new home; add a third bathroom or renovate a basement.”

How this affects you: You could wind up loving your home but hating your neighborhood.

What to do instead: Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it’s an area that appeals to you.

8. Making decisions based on emotion

Buying a house is a major life milestone. It’s a place where you’ll make memories, create a space that’s truly yours, and put down roots. It’s easy to get too attached and make emotional decisions, so remember that you’re also making one of the largest investments of your life, says Ralph DiBugnara, president of Home Qualified in New York City.

“With this being a strong seller’s market, a lot of first-time buyers are bidding over what they are comfortable with because it is taking them longer than usual to find homes,” DiBugnara says.

How this affects you: Emotional decisions could lead to overpaying for a home and stretching your budget beyond your means.

What to do instead: “Have a budget and stick to it,” DiBugnara says. “Don’t become emotionally attached to a home that is not yours.”

9. Assuming you need a 20 percent down payment

The long-held belief that you must put 20 percent down payment is a myth. While a 20 percent down payment does help you avoid paying private mortgage insurance, many buyers today don’t want (or can’t) put down that much money. In fact, the median down payment on a home is 13 percent, according to the National Association of Realtors.

How this affects you: Delaying your home purchase to save up 20 percent could take years, and you could limit cash flow that could be put to better use maximizing your retirement savings, adding to your emergency fund or paying down high-interest debt.

What to do instead: Consider other mortgage options. You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.

10. Waiting for the ‘unicorn’

Unicorns do not exist in real estate, and finding the perfect property is like finding a needle in a haystack. Looking for perfection can narrow your choices too much, and you might pass over solid contenders in the hopes that something better will come along. But this type of thinking can sabotage your search, says James D’Astice, a real estate agent with Compass in Chicago.

How this affects you: Looking for perfection might limit your real estate search or lead to you overpaying for a home. It can also take longer to find a home.

What to do instead: Keep an open mind about what’s on the market and be willing to put in some sweat equity, DiBugnara says. Some loan programs let you roll the cost of repairs into your mortgage, too, he adds.

11. Overlooking FHA, VA and USDA loans

First-time buyers might be cash-strapped in this environment of rising home prices. And if you have little saved for a down payment or your credit isn’t stellar, you might have a hard time qualifying for a conventional loan.

How this affects you: You might assume you have no financing options and delay your home search.

What to do instead: Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S Department of Agriculture (USDA loans). Here’s a brief overview of each:

FHA loans require just 3.5 percent down with a minimum 580 credit score. FHA loans can fill the gap for borrowers who don’t have top-notch credit or little money saved up. The major drawback to these loans, though, is mandatory mortgage insurance, paid both annually and upfront at closing.

VA loans are backed by the VA for eligible active-duty and veteran military service members and their spouses. These loans don’t require a down payment, but some borrowers may pay a funding fee. VA loans are offered through private lenders, and come with a cap on lender fees to keep borrowing costs affordable.

USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes.

12. Miscalculating the hidden costs of homeownership

If you had sticker shock from seeing your new monthly principal and interest payment, wait until you add up the other costs of owning a home. As a new homeowner, you’ll pay for property taxes, mortgage insurance, homeowners insurance, hazard insurance, repairs, maintenance and utilities, to name a few.

How this affects you: A Bankrate.com survey found that the average homeowner pays $2,000 annually on maintenance services. Not having enough cushion in your monthly budget — or a healthy rainy day fund — can quickly put you in the red if you’re not prepared.

What to do instead: Your agent or lender can help you crunch numbers on taxes, mortgage insurance and utility bills. Shop around for insurance coverage to get compare quotes. Finally, aim to set aside at least 1 percent to 3 percent of the home’s purchase price annually for repairs and maintenance expenses.

13. Not lining up gift money

Many loan programs allow you to use a gift from a family, friend, employer or charity toward your down payment. Not sorting who will provide this money and when, though, can throw a wrench into a loan approval.

How this affects you: “The time to confirm that the Bank of Mom and Dad is ready, willing and able to provide you with help for your down payment is before you start home shopping,” says Dana Scanlon, a Realtor with Keller Williams Capital Properties in Bethesda, Maryland. “If a buyer ratifies a contract to purchase a home with an understanding that they will be getting gift money, and the gift money fails to materialize, they can lose their earnest money deposit.”

What to do instead: Have a frank discussion with anyone who offers money as a gift toward your down payment about how much they are offering and when you’ll receive the money. Make a copy of the check or electronic transfer showing how and when the money traded hands from the gift donor to you. Lenders will verify this through bank statements and a signed gift letter.

14. Not negotiating a homebuyer rebate

The concept of homebuyer rebates, also known as commission rebates, is an obscure one to most first-time buyers. This is a rebate of up to 1 percent of the home’s sales price, and it comes out of the buyer agent’s commission, says Ben Mizes, founder and CEO of Clever Real Estate based in St. Louis.

How this affects you: Homebuyer rebates are available in most U.S. states, but not all. Ten states prohibit homebuyer rebates: Alaska, Alabama, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon and Tennessee.

What to do instead: If you live in a state that allows homebuyer rebates, see if your agent is willing to provide this rebate at closing. On a $300,000 home purchase, this can be a $3,000 savings for you so it’s worth asking.

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First-Time Homebuyer Grants & Programs

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Shelling out big bucks for your first home, along with shopping for a mortgage, might seem daunting. Luckily, though, there are numerous first-time homebuyer programs and grants that can help you get your foot in the homeownership door.

Here’s a look at 10 first-time homebuyer programs that are popular with rookie house hunters.

 

1. FHA loan – A loan insured by the Federal Housing Administration that’s ideal for borrowers with lower credit scores or little money saved up for a down payment.
2. USDA loan – A loan program guaranteed by the U.S. Department of Agriculture for lower-income borrowers in eligible rural areas.
3. VA loan – A loan backed by the U.S. Department of Veteran Affairs for military personnel, veterans and their families. VA loans have minimal closing costs, competitive rates and no down payment requirement, however, a funding fee is required for some borrowers.
4. Good Neighbor Next Door – A HUD program that provides housing aid — a discount of 50 percent on a home’s list price in revitalization areas — for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers.
5. Fannie Mae or Freddie Mac – Loans backed by Fannie Mae or Freddie Mac require 3 percent down for conventional mortgages making them ideal for first-time buyers who have strong credit but little savings for a down payment.
6. HomePath ReadyBuyer Program – A program that provides 3 percent in closing-cost assistance to first-time buyers who complete an educational course and purchase a foreclosed Fannie Mae property.
7. Energy-efficient mortgage – An EEM is backed by FHA or VA loan programs and allows borrowers to combine the cost of energy-efficient upgrades onto a primary loan upfront — all without a larger down payment.
8. FHA Section 203(k) – An FHA-backed loan that lets you borrow the funds needed to pay for home improvement projects and roll the costs into one loan with your primary mortgage.
9. Local first-time homebuyer programs and grants – Many states and cities offer first-time buyer programs and grants for down payment or closing cost assistance. These programs typically come with income restrictions and have to be repaid when you sell the home.
10. Native American Direct Loan – Backed by the VA, this program provides direct home loans to eligible Native American veterans to buy, renovate or build homes on federal trust land.

Here’s an in-depth look at each of these programs.

1. FHA loan

Pros

• Require lower credit score than conventional mortgages
• Low down payment requirement of 3.5 percent

Cons

• Requires upfront and annual mortgage insurance premiums
• Overall borrowing costs tend to be higher

Best for: Buyers with less-than-pristine credit and those who don’t have a large down payment.

If you’re not sitting on a pile of down payment cash and you have a spotty credit record, there’s a loan for that. Insured by the Federal Housing Administration, FHA loans typically come with smaller down payments and lower credit score requirements than most conventional loans. First-time homebuyers can buy a home with a minimum credit score of 580 and as little as 3.5 percent down, or a credit score of 500 to 579 with at least 10 percent down.

FHA loans have one big catch called mortgage insurance. You’ll pay an upfront premium and annual premiums, driving up your overall borrowing costs. Unlike homeowners insurance, this coverage doesn’t protect you; it protects the lender in case you default on the loan. It’s the price borrowers pay when they have less skin in the game.

Learn more about finding the best FHA lender for you.

2. USDA loan

Pros

• Requires a little to no down payment
• Can qualify with a lower FICO score (640 or higher)

Cons

• Borrower income is restricted to less than 115 percent of the median income for purchase area

Best for: Borrowers with lower or moderate incomes purchasing a home in a USDA-eligible rural area.

You may not know it, but the U.S. Department of Agriculture, or USDA, guarantees loans for some rural homes and you can get 100 percent financing. This doesn’t mean you have to buy a farm, shack up with livestock or live in the boondocks, but you do have to buy a home in a USDA-eligible area.

USDA loans also have income limits based on where you live, meaning they’re geared toward folks who earn lower to moderate incomes. Typically, you need a credit score of 640 or higher to qualify for a streamlined USDA loan. If your score falls short, you’ll have to provide extra documentation on your payment history to get a stamp of approval.

3. VA loan

Pros

• No down payment requirement, and funding fee can be rolled into loan
• Doesn’t require a minimum FICO score or private mortgage insurance

Cons

• Lenders may have their own minimum FICO score overlays

Best for: Active-duty military members, veterans and their spouses who are eligible for VA loan benefits.

Many U.S. military members (active duty and veterans) are eligible for loans backed by the U.S. Department of Veterans Affairs, or VA. VA loans are a sweet deal for eligible borrowers because they come with lower interest rates than most other loan types and require no down payment. A funding fee is required on VA loans, but that fee can be rolled into your loan costs and some service members may be exempt from paying it altogether.

Other VA loan perks include no PMI or minimum credit score. If you struggle making payments on the mortgage, the VA can negotiate with the lender on your behalf to take some stress from the equation.

4. Good Neighbor Next Door

Pros

• Deeply discounted home prices
• Can use with FHA, VA or conventional financing, or cash
• Can sell after 36 months and keep the profits

Cons

• Limited number of homes available for a limited timeframe
• Must live in property for 36 months
• Homes are sold “as-is” with no buyer’s warranty

Best for: Teachers, law enforcement, firefighters or emergency medical technicians who are looking for an affordable home.

The Good Neighbor Next Door program, sponsored by the U.S. Department of Housing and Urban Development, or HUD, provides housing aid for law enforcement officers, firefighters, emergency medical technicians and pre-kindergarten through 12th-grade teachers — the folks who help keep communities safe and well educated.

Through this program, you can receive a discount of 50 percent on a home’s listed price in regions known as “revitalization areas.” Using the program’s website, you can search for properties available in your state. You must commit to living in the home for at least 36 months so this may not be ideal if you plan to move sooner.

5. Fannie Mae or Freddie Mac

Pros

• Low down payment requirement of 3 percent
• Variety of loan terms available with fixed and adjustable rates
• Some programs allow a debt-to-income ratio, or DTI, of up to 50 percent

Cons

• Requires a minimum FICO score of 620
• Adheres to strict loan limits set by the government
• Private mortgage insurance is typically required with less than 20 percent down

Best for: Borrowers with strong credit and stable incomes who may not have a large down payment saved up.

The names might sound a bit kitschy, but Fannie Mae and Freddie Mac are government-sponsored entities that keep the U.S. mortgage market going strong. The GSEs, as they’re called for short (government-sponsored enterprises), each set borrowing guidelines for loans they’re willing to buy from conventional lenders on the secondary mortgage market.

Both programs require a minimum down payment of 3 percent. Homebuyers also need a minimum credit score of 620 (or higher, depending on the lender) and a relatively unblemished financial and credit history to qualify. Fannie Mae accepts a debt-to-income ratio as high as 50 percent in some cases. You’ll still pay for PMI because you’re putting less than 20 percent down, but you can get it canceled once your loan-to-value ratio drops below 80 percent.

6. Fannie Mae’s HomePath ReadyBuyer Program

Pros

• Provides up to 3 percent in closing cost assistance for first-time buyers

Cons

• Selection of homes may be limited in your area
• Must complete an online first-time buyer education course before making an offer

Best for: First-time homebuyers who don’t have a lot of money for closing costs and don’t mind buying a foreclosed home.

Fannie Mae’s HomePath ReadyBuyer program is a little-known initiative geared toward first-time buyers interested in foreclosed homes that are owned by Fannie Mae. After taking a required online home-buying education course, eligible borrowers can receive up to 3 percent in closing cost assistance toward the purchase of a HomePath property. The trick is finding a HomePath property in your market, which might be a challenge since foreclosures account for a smaller chunk of listings today.

7. Energy-efficient mortgage (EEM)

Pros

• Can roll the cost of energy efficient improvements into a primary mortgage
• Insured by FHA or VA loan program
• Doesn’t require a larger down payment to add improvements into primary loan amount

Cons

• Loans may have dollar-amount caps on energy-efficient upgrades

Best for: Homebuyers who want to make their home more energy-efficient but don’t have the up-front cash for upgrades.

Making a home more energy efficient is good for the environment, and good for your wallet by lowering your utility bills. Making green upgrades can be costly, but you can get an energy-efficient mortgage, or EEM loan, that’s insured through the FHA or VA programs.

An EEM loan lets you tack the cost of energy-efficient upgrades (think new insulation, a more efficient HVAC system or double-paned windows) onto your primary loan upfront — all without a larger down payment.

8. FHA Section 203(k)

Pros

• Allows you to roll cost of renovations into your primary mortgage
• Home’s value is calculated is based on its improved value
• Low down payment requirement of 3.5 percent

Cons

• Improvements must cost more than $5,000
• May pay a higher interest rate to roll rehab costs into loan

Best for: Homebuyers interested in purchasing a fixer-upper but who don’t have a lot of cash to make major home improvements.

If you’re brave enough to take on a fixer upper but don’t have the extra money to pay for renovations, an FHA Section 203(k) loan is worth a look.

Backed by the FHA, the loan calculates the home’s value after improvements have been made. You can then borrow the funds needed to pay for home improvement projects and roll the costs into one loan with your primary loan amount. You’ll need a down payment of at least 3.5 percent, and improvements must cost more than $5,000.

9. Local first-time homebuyer programs and grants

Pros

• Offers down payment and closing cost assistance to bridge gap in cash savings
• Loans come with low or zero interest rates

Cons

• Income limits typically apply, depending on the program
• Some loans have to be repaid when you sell the home

Best for: First-time homebuyers who need closing cost or down payment assistance.

In an effort to attract new residents, many states and cities offer first-time homebuyer grants and programs. The aid comes in the form grants that don’t have to be repaid or low-interest loans with deferred repayment to cover down payment or closing costs. Some programs may have income limits, too. Before buying a home, check your state’s housing authority website for more information.

Contact a real estate agent or local HUD-approved housing counseling agency to learn more about first-time homebuyer loans in your area.

10. Native American Direct Loan

Pros

• No down payment or PMI required
• Low closing costs and interest rate

Cons

• Maximum loan limits apply depending on the area
• Property selection may be limited

Best for: Eligible Native American veterans wishing to buy a home on federal trust land.

The Native American Direct Loan provides financing to eligible Native American veterans to buy, improve or build a home on federal trust land. This loan differs from traditional VA loans in that the VA is the mortgage lender.

The NADL has no down payment or private insurance requirements, and closing costs are low. Borrowers are required to pay a minimal funding fee of 1.25 percent to the VA. The VA states on its website that borrowers typically pay a 4.75 percent interest rate but that can change with market conditions. Maximum loan limits apply.

First-Time Home Buyer Programs by State: