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Personal Loans

9 Personal Loan Requirements, And How to Apply

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From paying hefty car repair bills to consolidating high-interest debt, there are many reasons for why you might suddenly need some extra cash. Personal loans are one way to get funds quickly to cover financial obligations.

Typically offered as unsecured installment loans, personal loans are not backed up by any collateral. That’s why lenders rely heavily on your creditworthiness as a way to determine both your eligibility and your ability to pay them back. Here are common personal loan requirements to expect, as well as some pointers to keep in mind when applying.

9 common personal loan requirements

Because personal loans are not secured by an asset like a car or a house, they may be more difficult to qualify for and involve higher interest rates than other types of loans. The lender doesn’t have the ability to seize and sell your property to cover the cost of your loan if you can’t pay it back. As a result, they may set out more comprehensive requirements to ensure you have a solid credit history.

While eligibility criteria may vary from lender to lender, here are some of the most common personal loan requirements:

  1. Have U.S. citizenship, permanent residency, a valid Social Security number or a long-term visa. Some lending institutions won’t lend to non-U.S. citizens at all as they are deemed to be too great of a risk, though they may consider it with an eligible cosigner. Lenders who do specialize in non-citizens may request information such as a verifiable job, a valid credit score, two years of credit history and other documentation.
  2. Live in a state where your lender of choice conducts business operations. Not all lenders operate in all 50 states. Some may offer different minimum and maximum amounts, loan terms and caps on APR rates depending on their area of jurisdiction.
  3. Be at least 18 years of age to get approved for a personal loan.
  4. Meet credit requirements set by the lender: Minimum credit score requirements may vary from lender to lender, but they usually revolve around the borrower’s FICO Score which is pulled during a hard credit check, their debt-to-income ratio and regular source of income.
  5. Show government-issued identification. Examples of acceptable documents could include a passport, driver’s license or Social Security card.
  6. Have a permanent address.
  7. Have a verified source of regular income. The lender may ask to see your recent tax returns, monthly bank statements and pay stubs to verify your income. Others may ask for a signed letter from your employer.
  8. Provide requested documentation. The lender may ask for proof of residential address such as a utility bill and proof of income such as a bank statement.
  9. Request a loan for an approved purpose: You may be unable to use a personal loan to fund certain postsecondary educational expenses such as college tuition, illegal or gambling activities, business or commercial purposes or the purchase of securities.

How to qualify for a personal loan in 5 steps

How to apply for a personal loan
Check your credit, and determine your financial needsLenders rely on your credit to determine eligibility. But you should also know how much you need to borrow, and why.
Research lenders and apply for prequalificationPrequalification doesn’t affect your credit, but it can allow you to see loan terms and interest rates you could be eligible for and compare lenders.
Choose a lender and submit a formal applicationFill in the appropriate paperwork and submit to a hard credit check.
Gather documentation and submit what’s requestedProvide copies of documents such as proof of employment, income and verification of your identity.
Wait for loan approvalOnce approved, your funds could be deposited into your bank account as soon as the next business day.

Check your credit, and determine your financial needs

Before applying for a personal loan, you’ll want to determine whether you can meet lender credit requirements. You can check your credit score for free from a number of places, such as your credit card issuer, the Discover Bank Free Credit Scorecard or by signing up with My LendingTree, a credit monitoring service offered by Through AnnualCreditReport.com, you can get a free credit report once every 12 months from the three major three credit bureaus: Equifax, Experian and TransUnion.

Knowing your credit score and what’s in your credit reports will give you an idea of the range of credit offers and interest rates you may be eligible for. For example, some lenders require a minimum credit score of 640.

You should also take a look at your overall budget and clarify your financial needs to determine how much you may need to borrow. (You can use this online personal loan calculator to see what’s affordable for you.) Personal loan lenders typically have borrowing limits between $1,000 and $50,000, while repayment terms generally last from 12 to 60 months or longer.

Research lenders and apply for prequalification

Make sure you shop around for the right lender for you, whether it’s a traditional financial institution like a bank, a credit union or an online lender. Depending on your overall financial health, you may discover you are eligible to borrow more funds with some lenders, pay better APRs (annual percentage rates) or benefit from longer terms in which to repay your loan.

As member-owned institutions, credit unions may be more forgiving of borrowers with dings on their credit. Online lenders, meanwhile, may offer lower interest rates as they have lower overhead costs. The flipside is that these lenders may not offer the same lending experience as traditional lenders, where you have the option of face-to-face interaction with your loan officer.

The prequalification process is a quick, convenient way to compare lenders online based on your credit profile, without affecting your score since only a soft pull is placed on your history. When applying for prequalification, expect to provide basic information such as:

  • Name
  • State where you live
  • Citizenship status
  • Your income
  • Requested loan amount and purpose

Choose a lender and submit a formal application

Once you have chosen a lender with the right terms for you, you will have to submit a formal application. This may be done either online or in-person if you have chosen a brick-and-mortar institution. The application will authorize the lender to perform a hard credit check, which will ding your credit score in the short term.

Gather documentation and submit what’s requested

As part of the application process, the lender will request supporting documentation, such as:

  • Government-issued ID
  • Proof of address, such as a utility bill
  • Proof of income, such as a bank statement or tax forms

You may also need to show what other debts you’re currently paying off. Depending on your personal circumstances you may be asked for other documentation such as a letter from your employer.

Wait for loan approval

Depending on your lender and your credit profile, you may be approved for a loan as quickly as the same day. Funds are typically deposited electronically directly into your bank account within a few business days, depending on the lender.

What to do if you’re denied for a loan

If you’re rejected for a personal loan, you can reach out to the lender to find out why. The reasons could be related to a low credit score, low income, unstable employment history or having too much debt.

Knowing why you were rejected can help you decide on your next steps, whether you’ll take time to improve your credit or seek out lenders with more relaxed credit requirements, such as personal loans for borrowers with bad credit.

To improve your overall creditworthiness, consider following these basic steps:

  • Review your credit reports regularly for any errors that could be lowering your credit score and file a dispute, if needed.
  • Pay your bills on time and in full every month.
  • Diversify your credit mix between mortgage, credit cards, student loans and other types of credit.
  • Pay off as much of your balances as you can to lower your overall credit utilization score.
  • Increase your cash flow, such as by increasing your income or by passing off debt.
  • Get a cosigner or coborrower with a high credit score.

Take caution with personal loans with easy approval

Because traditional personal loans rely heavily on your credit health, can come with high interest rates to offset your risk of defaulting on it. Be aware of predatory lenders with exorbitant rates and make sure to read the fine print before you sign anything.

A secured personal loan may be a viable alternative

Unsecured personal loans can be a better option for borrowers with high credit scores who are perceived to be at low risk of defaulting. A viable alternative may be getting a secured personal loan through a lender such as OneMain Financial. Since these loans are backed by a tangible asset such as a car or a home, they can be easier to qualify for as well as offer lower interest rates.

Beware payday loans

If you have bad credit, you may be tempted to take out a payday loan. These short-term loans come with high triple-digit APRs. Though some personal loans can come with over 100% APR for borrowers with bad credit, some lenders will offer much lower caps.

When shopping for lenders, be sure to review lender terms and fee structures. If this information isn’t readily available on the lender’s website, get in touch with their customer support team. They should be willing to help you so you can make an informed borrowing decision.

If a personal loan isn’t a viable option for you but you need to borrow funds, consider alternative options. You might charge the cost to a credit card, ask your workplace for a paycheck advance or borrow money from friends and family, for example.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Mortgage

Condo, House or Townhouse: Which Is Best for You?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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Buying a home allows you to choose a residence that fits your lifestyle.

Should you buy a house in a suburb or a historic downtown? What about a condo within walking distance of a train station? Or maybe a townhouse in a new urban infill community?

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Whether you’re a first-time homebuyer or are looking for a second home, choosing between a condo, house or townhouse requires you to consider location, maintenance and price. The good news is these housing styles have some overlap, so choosing one over the others may involve less sacrifice than you might expect.

What’s the difference between a condo and a townhouse?

Condominiums — called condos for short — are a kind of ownership, while townhouses and houses (stand-alone structures that most people would consider traditional, single-family homes) refer to physical structure styles.

Condos

Condos can come in a variety of shapes and sizes, though they are often similar in size and appearance to an apartment. At the same time, some condos can be quite expansive. They typically are private residences that are part of a building of multiple-unit communities, although some detached condominiums are available. Condos are occupied by an individual or a family and are often found in urban areas where land for construction is scarce.

Condos can also come in many configurations beyond apartment-style buildings, said Mark Swets, the former executive director of the Association of Condominium, Townhouse, and Homeowners Associations — “Condos have less restrictions. They can be converted from old office buildings or loft space.”

Regardless of their location or size, condo owners share ownership of common areas and facilities that are maintained by a board comprised of members elected from the condo community. The board collects dues from the community’s condo owners and uses the money to maintain and operate common areas and amenities, like community pools, gym facilities and landscaping.

Townhouses

Townhouses typically are vertical, single-family structures that have at least two floors and must be separated by at least one ground-to-roof wall with any other residence that may be attached to it.

Townhouses, which are individually owned, can be lined up in a row or arranged in a different configuration. Owners buy both the structure, including its interior and exterior, and the piece of land on which the townhouse is built, which may include a small yard.

In some cases, townhouses may be classified as condos. The way they’re categorized depends on what’s outlined in the declaration and bylaws for each association, Swets said.

Comparing condos, townhouses and houses

To help you decide which house and ownership type is best for you, we’ve highlighted comparisons as we look at condo versus townhouse, house versus condo and townhouse versus house.

Condo vs. townhouse

Benefits

Risks

Condos and townhouses both offer the opportunity to get to know neighbors and build a strong community and walkable amenities such as a pool or clubhouse, with generally less maintenance than a house. Condos may offer a variety of extra features, with new developments providing luxury conveniences such as rooftop bars, doormen and catering kitchens.Condo and homeowners association (HOA) fees can be expensive, and you’re trusting the HOA or condo association to provide satisfactory upkeep of the property. Condo fees tend to be higher than townhouse HOA fees — as much as several hundred dollars more — because condo associations typically provide more maintenance and amenities, and they can charge owners extra fees to pay for one-time facility expenses.

House vs. condo

Benefits

Risks

While condos offer a range of amenities and maintenance for the exterior of the property, owning a single-family home frees owners from the rules and restrictions of condo ownership. Buyers looking for privacy, a rural or suburban lifestyle or a larger property will have more options with a single-family house.Owning a single-family home means that the owner must pay for damage and upkeep to the interior and exterior that insurance doesn’t cover. Condo associations are liable for the exterior property and, if stated in the bylaws, “common elements” such as the roof and windows.

Townhouse vs. house

Benefits

Risks

Owners of both single-family houses and townhouses own their units, giving them freedom to improve and renovate as they see fit — within any guidelines for changes set by HOAs.Single-family homeowners assume responsibility for their property. Townhouse owners may not be liable for repairs, upkeep or incidents that occur outside their unit or the land on which it sits, depending on their HOA.

How to choose between condos and townhouses

Here are some factors to consider when deciding on what kind of residence to buy.

Maintenance

A single-family house gives you the freedom to fix up or renovate as you please, but you’re also responsible for repairs and maintenance. As a condo owner, the monthly fee you pay to a board or association may take care of maintenance such as mowing, exterior repairs and snow shoveling. Townhouse HOA fees may include maintenance of the community’s common areas, such as a shared backyard or playground, but that’s not always guaranteed.

“If I were to look at a condo, it would be because I didn’t want to worry about the maintenance outside,” said Lori Doerfler, immediate past president of the Arizona Association of Realtors. “If I wanted to have a piece of land but not a lot of yard, a townhome would be a good choice.”

Location and lifestyle

Condos, townhouses and stand-alone houses can offer a wide range of lifestyles and locations. Homebuyers should think through whether they’re interested in an urban, walkable lifestyle, a suburban neighborhood or something in between. Where you live also will determine your commute to work and proximity to family and friends.

Ownership restrictions

While condos can offer convenience and amenities, they also come with monthly dues and occasional assessment fees for special community projects, such as clubhouse repairs, and property rules, which can be strict. Single-family homes, especially those in neighborhoods without a homeowners association, have few or no restrictions.

Buyers should always check the community’s bylaws to understand the rules.

“I always want to get the covenants, conditions and restrictions to the buyer,” Doerfler said. “They describe the requirements and limitations of what you can do with your home as well as the grounds.”

Monthly fees

Any type of dwelling may come with a monthly fee to help pay for upkeep of the community’s amenities, which might include a gym, pool, clubhouse access and landscaping. Owners of a single-family house in a neighborhood with a homeowners association will pay monthly or annual HOA fees, and condo and townhouse owners will likely pay fees every month to their community board or association.

HOA fees typically can range from about $200 to $300 a month; other factors may contribute to how much the fee will be, like your location, unit size and available amenities. Monthly condo association fees can go as high as $700 or more, also depending on the amenities and services provided.

When factoring your monthly mortgage payment, be sure to add in the HOA or condo association fees to determine how much you’ll pay to live in the dwelling. Fees could significantly increase your cost, putting a seemingly affordable home out of reach.

Lending and price

Where you live will determine the price that you’ll pay for your home. Homes in desirable locations, such as a lively downtown area or a neighborhood with a good school district, can cost significantly more than homes with a long commute to a city.

Interest rates vary by lender and location, so it’s important to comparison shop with multiple mortgage lenders before making a decision.

Another consideration for each dwelling type is its resale value. It’s helpful to research resale information for similar homes in the community or neighborhood, and make a note of how long those properties were on the market before they were sold. You should also keep in mind that association fees could have an impact on whether a home is resold.

The bottom line

Your decision to buy a condo, house or townhouse should depend on:

  • What you can afford
  • How much maintenance you’re OK handling
  • Where you want to live
  • The type of community in which you want to live

For example, a family with kids may want a house with a big yard near a good school, while a single professional may be more interested in a downtown condo within walking distance to the office and nightlife.

As you consider which dwelling to buy, be sure to include the costs of condo or HOA fees in your housing expenses to determine whether your new home fits your lifestyle and your budget.

The information in this article is accurate as of the date of publishing. 

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Mortgage

APR vs Interest Rate: Understanding the Difference

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It’s common for homebuyers to focus on interest rates while shopping for a mortgage, however, there’s another number that might even be more important.

While a low interest rate is appealing and directly impacts your monthly mortgage payment, it’s also important to look at each loan’s annual percentage rate, which provides a clearer picture of how much the loan will cost you when other fees are factored in.

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The APR includes the interest rate as well as other fees and costs, and is expressed as a percentage. The interest rate only includes interest paid to the bank.

The difference between mortgage APRs and interest rates

An annual percentage rate (APR) is a broad measure of what it costs to borrow a loan. It includes the interest rate as well as other fees and costs.

The difference between an APR and an interest rate is that an APR gives borrowers a truer picture of how much the loan will cost them. Although an APR is expressed as rate just like interest, it is not related to your monthly payment — which is calculated using only the interest rate. Instead, an APR reflects the interest rate along with fees and other one-time costs a borrower will pay to get a mortgage.

“You can find a mortgage that has a 4% interest rate, but with a bunch of fees, that APR may be 4.6% or 4.7%,” said Todd Nelson, senior vice president of strategic partnership with online lender LightStream. “With all of those fees baked in, they are going to swing the interest rate.”

For example, one lender may charge no fees, so the loan’s APR and interest rate are essentially the same. The second lender may charge a 5% origination fee, which will increase the APR on that loan.

How APRs impact mortgages

Lenders calculate an APR by adding fees and costs to the mortgage interest rate and creating a new price for the loan. Let’s look at an example:

A lender approves a $100,000 mortgage at a 4.5% interest rate. The borrower decided to buy one discount point, which costs $1,000, to get the 4.5% rate (a discount point is a fee paid to the lender in exchange for a reduced interest rate). The loan also includes $900 in fees, which are being financed in the mortgage.

With the fees and costs mentioned above added to the loan, the adjusted starting mortgage balance becomes $101,900. The monthly payment (which consists of the principal plus interest) is then $516.31 with the 4.5% interest rate, compared with $506.69 if the balance had remained at $100,000.

To find the APR, the lender returns to the original loan amount of $100,000 and calculates the interest rate that would create a monthly payment of $516.31. In this example, that APR would be approximately 4.661%.

APRs will vary between lenders, as no two lenders are exactly alike. Some may offer competitive interest rates, but then tack on expensive fees and costs. Lenders with the same interest rate and APR probably aren’t charging any fees on that loan, and lenders that offer APR and interest rates that are close are likely charging a lower amount of fees and extra costs.

In short, APR gives you a way to compare two lenders offering the same interest rate so you make the smartest possible decision about your mortgage.

What factors influence an APR?

APRs change as interest rates fluctuate, but they’re more impacted by lender costs and fees. Below are some of the common charges that affect APRs:

  • Discount points: Lenders allow buyers to purchase points in return for a lower interest rate. The cost of a point is equal to 1% of the mortgage amount and typically lowers the interest rate on the loan by an eighth of a percentage point. For example, a buyer approved for a $100,000 loan could buy three points, at $1,000 each, to lower the interest rate from 4.5 to 4.125.
  • Loan origination fees: Loan origination fees typically average about 1% of the loan amount. This cost can be especially significant for larger loans.
  • Loan processing: This fee, which some lenders will negotiate, pays for the cost of processing a mortgage application.
  • Underwriting: These fees cover an underwriter’s review of a loan application, including the borrower’s income, credit history, assets and liabilities and property appraisal, to determine whether the lender should approve the loan application and what terms should be applied to the loan.
  • Appraisal review: Some lenders pay an outside reviewer to make sure an appraisal meets underwriting standards and that the appraiser has submitted an accurate report of the home’s value.
  • Document drawing: Lenders often charge a fee for creating mortgage documents for a loan.

Closing costs that aren’t commonly in an APR calculation are notary fees, credit report costs, title insurance and escrow services, home appraisal, home inspection, attorney fees, document preparation and recording fees.

Because an APR includes a loan’s interest rate, rising interest rates will increase the APR for several products including mortgages, auto loans and other types of loans and credit.

How interest rates affect mortgages

A mortgage interest rate is the rate a lender uses to determine how much to charge a homebuyer for borrowing money. Mortgage rates can either be fixed or adjustable.

Fixed mortgage rates don’t change over the life of a loan. For example, if you take out a 30-year loan at a 4.25% interest rate, that rate will stay the same — regardless of changes in the economy and market index — until the loan is paid off.

On the other hand, adjustable-rate mortgages (ARMs) will fluctuate as market conditions change after an introductory period, often set at five or seven years. That means your interest rate could go up or down depending on the economy, which will in turn raise or lower your mortgage payments.

ARMs often start with a lower interest rate than a fixed-rate mortgage, but can dramatically increase after the intro period ends.

If you are considering an ARM, it’s important to talk to lenders first about what an adjustable rate could mean for your monthly mortgage payments. Be sure to ask the following questions:

  • How long is the introductory fixed-rate period?
  • How often does the interest rate adjust after the fixed-rate period ends?
  • How does this loan compare to fixed-rate mortgage options?
  • How much will the monthly payment and interest rate increase with each adjustment?
  • What is the cap on how high or low the interest rate can go?
  • Is the monthly payment still affordable if the interest rate reaches the maximum allowed under the loan contract?

What factors influence an interest rate?

Don’t be surprised if a lender’s mortgage rate is higher than what was advertised. Each loan’s interest rate is primarily determined by market conditions and by the borrower’s financial health. There are several factors that help determine your rate, including:

  • Your credit score: Borrowers with higher credit scores generally receive better interest rates.
  • Your down payment: Lenders may offer a lower rate to borrowers who can make a larger down payment, which often is an indicator that the borrower is financially secure and more likely to pay back the loan.
  • The loan term: The number of months you agree to pay back the loan can make a difference. Generally, a shorter-term loan will have a lower rate than a longer-term loan — but higher monthly payments.
  • The loan amount: Interest rates can be different for loan amounts that are unusually large or small.
  • The loan type: While many borrowers apply for conventional mortgages, the federal government offers loan programs through the FHA, USDA and VA that may have lower interest rates.
  • The location of the property: Interest rates are different in rural and urban areas, and can also vary by county.

Below, we use MagnifyMoney’s mortgage calculator to illustrate how interest rates can affect monthly mortgage payments.

Loan amount$250,000 $250,000
Interest rate3.84% 4.20%
Monthly payment
(Principal and interest)
$1,170.59 $1,222.54
Interest paid after five years$8,651.39 $9,517.96

As shown above, an interest rate increase of even less than a half-percent could bump your monthly payment up by nearly $52, and your interest paid over the first five years by more than $800.

Mortgage comparison-shopping tips

When you’re shopping for a mortgage, it’s wise to gather quotes from multiple lenders to ensure you find your best mortgage terms available. It’s also important to get those mortgage quotes on the same day and around the same time.

Online marketplaces such as LendingTree can provide real-time loan offers from multiple lenders, which makes it easier to compare mortgage APRs and interest rates.

If a loan’s APR matches its interest rate, you likely have a good deal. Otherwise, investigate the costs and fees behind a quoted APR to determine which mortgage offer is your best deal. The most effective way to do so is by comparing the Loan Estimate documents you receive from each lender after submitting a mortgage application.

Recent research underscores the significance of shopping around. Homebuyers could realize a potential interest savings of nearly $50,000 over the life of a 30-year, fixed-rate $300,000 loan by comparison shopping for their best APR.

Lastly, once you’ve found your best rate, ask your lender about your rate lock options.

What about APRs on ARMs?

The annual percentage rate on an adjustable-rate mortgage won’t apply for the life of the loan, since the interest rate and monthly payment will change as the economy fluctuates. The APR only applies during the loan’s initial fixed-rate period, and no one can predict how much the rate will increase in the years that follow.

For example, a 7/1 ARM has a fixed interest rate for the first seven years that is determined by the market conditions on the day the loan was closed. After seven years, the interest rate will adjust annually, based on the movement of the index the ARM is tied to, which is commonly the one-year LIBOR.

The new rate likely won’t be the same as it was when the loan was originated. Mortgage rates fluctuate daily, and no economic forecaster can accurately predict how the index will change in the future.

The bottom line

While lenders often push their low interest rates when they advertise loans, Nelson said it’s vital that consumers check APRs when shopping around, and pay attention to how loan advertisements are worded. Lenders may advertise “no hidden fees,” he said, but that might just mean there are other fees that simply aren’t hidden.

“Look for a lender that’s transparent about disclosing all of those fees,” Nelson said.

Ask for clarity about any cost estimates you don’t understand, and try to negotiate lender fees where possible.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.