Home Ownership Archives - Page 12 of 36

Apache is functioning normally

August 12, 2023 by Brett Tams

Buying a house with your partner? You’ll need to make many decisions during the process — like figuring out who gets to use that sweet spare room as a home office or what your landscaping will look like. But one of the most important choices is how the two of you hold the title of the house. It might sound like a no-brainer, but there are actually a few different legal ownership designations to know and understand.

Both joint tenancy and community property with right of survivorship are ownership structures that can be used by partners buying a home together. But community property with right of survivorship is specifically reserved for married couples, and is only available in certain states. Community property with right of survivorship offers certain tax benefits in the event that one spouse dies before the other, but both of these ownership structures confer joint ownership over the property to both people whose names are on the title.

Let’s take a closer look.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

What Is Joint Tenancy?

In order to fully understand community property, it’s helpful to first understand joint tenancy, which is the ownership structure that came first. In fact, community property with right of survivorship is a fairly new legal designation; it was invented by the California legislature back in 2001.

Before that time, joint tenancy was one of the most common ways that couples — or other parties holding an asset together — designated their ownership. Joint tenancy basically states that everyone has equal ownership over the shared asset, be it a piece of real estate or a joint brokerage account. Conceptually, it helps to think about each person owning 100% of the asset, rather than each holding a proportional amount (50/50, 33/33/33, etc). If you and your spouse are first-time homebuyers on the market, understanding this legal jargon is an important step in the journey.

Joint tenancy could be shared between more than two people under certain circumstances — like if you and two friends bought a vacation home together. But because everyone in the agreement owns 100% of the asset, nobody can sell their share of it or will it to their heirs after their death. That’s the “right of survivorship” part: Any surviving parties automatically have ownership rights over the asset if one of the owners dies.
💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

What Is Community Property?

Community property works very similarly to joint tenancy, but is reserved specifically for married couples. (That’s why it’s also sometimes known as marital property.) Community property is only a legal designation in a handful of U.S. states, including:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

Three additional states — Alaska, South Dakota, and Tennessee — allow couples to decide whether or not they’d like to opt into a community property ownership structure — whereas in the other states listed, community property is the default status for shared ownership of assets between married couples. It is, however, always possible to opt out of the community property system with a prenuptial agreement.

Under community property, each partner has equal joint ownership over shared assets — which, again, can range from a piece of real estate to bank accounts and even to debt (like a mortgage). This means that, in the event of a divorce, all assets are required to be split 50/50 — which is part of why some partners in those states might opt to sign a prenup ahead of time, if they want to hold onto an asset no matter what.

However, community property also comes with the added bonus of some tax incentives for spouses — which is part of why it was created in the first place.

Recommended: The Cost of Living By State

The Difference Between Joint Tenancy and Community Property With Right of Survivorship

The most salient difference between joint tenancy and community property with right of survivorship comes down to taxes.

That’s right: This ownership structure is really all about how much a surviving spouse stands to owe Uncle Sam if their partner passes away.

What Are the Tax Benefits for Surviving Spouses in Community Property States?

In a joint tenancy situation, even with right of survivorship, a property sold after the death of a spouse would be subject to capital gains taxes — taxes levied against earnings on an asset like a home or an investment.

Part of the reason buying a house is considered such a good financial move is because homes tend to appreciate, or grow in value, over time. With the capital gains tax, a surviving loved one would be required to pay taxes on that appreciated value if they chose to sell the home after their spouse’s death.

Community property with right of survivorship, however, allows these proceeds to be exempt from the capital gains tax — which can ease the overall financial burden in an already difficult time.

What Is the Right of Survivorship in Real Estate?

Now let’s take a look at the piece that both joint tenancy and this type of community property have in common: right of survivorship.

Right of survivorship in real estate pretty much does what it sounds like — it confers the surviving partner, in the event of the other party’s death, the right to continue to live in the house. Again, this can ease the burden for a surviving spouse in an incredibly difficult emotional time, when there are already other significant financial planning steps to take. However, it also means that couples under this ownership structure are unable to give the home to an heir, or anyone else, in their will. The property will instead automatically be under the ownership of the surviving spouse.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Does a Right of Survivorship Work With a Will?

So what happens if a person sharing community property — or joint tenancy, for that matter — with right of survivorship tries to leave some or all of their property to an heir in a will?

While every legal case is different, in most cases, the right of survivorship will take precedence over wishes stated in a will. So if Rebecca and Ann share a home under community property with right of survivorship, and Rebecca writes into her will that she’d like to leave her share of the home to her grandson Pete, it’s very likely this wish will be superseded by Ann’s right to survivorship in the event of Rebecca’s death.
💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Community Property vs Community Property With Right of Survivorship

It’s important to understand that the right of survivorship part of this kind of agreement is separate from the community property part.

Community property basically states that assets acquired in a marriage are evenly shared between the partners, 50/50 — and must be distributed that way in the event of a divorce. But without the right of survivorship, a partner would still be able to will their 50% of the home to whomever they want, which may or may not be their surviving spouse. Those few extra words make a big difference!

The Takeaway

Community property with right of survivorship is a legal ownership structure that confers ownership rights and possible tax benefits to married couples, while also creating rules as to how assets are distributed in the event of a divorce. You’ll need to decide on your preferred ownership structure when purchasing a home, along with other important decisions you’ll make.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the difference between joint tenancy and community property with right of survivorship in California?

Although the designation of community property with right of survivorship was originally invented in California, couples can own property there under either ownership structure — and indeed, many maintain joint tenancy. Community property requires couples to split assets 50/50 in a divorce, which is not the case with joint tenancy. However, in both cases, right of survivorship confers the surviving spouse the right to ownership over the home, and other assets, in the event of one spouse’s death.

What is the difference between joint tenancy and community property in California?

In California, as in all states, the most salient difference between joint tenancy and community property is how a property is taxed in the event it is sold after one party’s death. In addition, community property is an ownership structure only available to married couples.

What are the disadvantages of community property with a right of survivorship?

While every type of shared ownership structure has both benefits and drawbacks, one drawback of community property with right of survivorship is that neither owner can choose to will their share of the property to an heir — instead, ownership is automatically conferred to the other party in the event of their death. Additionally, community property must, by law, be split 50/50 in the event the couple divorces, whereas in other cases there’s more flexibility about what constitutes an “equal” dispersal of assets.

Photo credit: iStock/andresr

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

Apache is functioning normally

August 12, 2023 by Brett Tams

After finding that big, beautiful house, you now have to find a big, beautiful mortgage. If the amount you need to borrow is over the Federal Housing Finance Agency (FHFA) conforming loan limit of $726,200 for most geographic areas, you’ll need to get a jumbo loan.

A jumbo loan is a little different than a conventional, conforming mortgage and has its own benefits and drawbacks. You can expect increased scrutiny from potential lenders, and possibly some increased costs.

Jumbo Loans: The Basics

Luxury homes, vacation homes, unique properties, and homes in high-cost-of-living areas may need a jumbo loan. A jumbo loan is different from a conventional loan in that it isn’t guaranteed by Fannie Mae or Freddie Mac. This means the lender takes on more risk to issue a mortgage to the borrower. With the additional risk exposure, lenders have higher qualifications. This may include:

• A higher credit score

• A larger down payment

• Strong cash reserves — sometimes up to a year’s worth of mortgage payments

• A higher income

• A low debt-to-income ratio

• More stringent loan-to-value requirements

While the qualifications and loan amounts may be different, they may offer an interest rate similar to what you would find for a conventional loan below the conforming loan limits.

Keep in mind the more stringent requirements shouldn’t dissuade you from looking into jumbo loans. On the contrary, let’s take a closer look at jumbo loan pros and cons to help you decide if you want to go this direction or not.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Recommended: Local Housing Market Trends

Benefits of Jumbo Loans

A jumbo loan may allow you to buy property you otherwise wouldn’t be able to. Some of the main benefits of a jumbo loan include:

• Higher loan amount. A jumbo loan allows you to purchase property at a higher price point. If you’re looking for high-end property, a vacation property, or your dream home, a jumbo loan may be able to help you access the financing you need. Depending on where the property is located, the conforming loan limits are either $726,200 or up to $1,089,300.

• Comparable Interest rates. You may be surprised to learn that interest rates on jumbo loans may be comparable to those of conforming conventional loans. Sometimes, they’re even lower!

• Avoid PMI. There are some lenders that allow you to forgo private mortgage insurance with a jumbo loan, especially if you put down at least 10% on a property. This can save you money every month.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Drawbacks of Jumbo Loans

While jumbo loans can afford you the loan you need for a higher-priced property, they do have some drawbacks you should be aware of.

• More stringent qualifications. Jumbo loans are tougher to get. You need a higher income, a high credit score, and a big down payment. Lenders also want to see a debt-to-income (DTI) ratio lower than 43%, and the loan-to-value (LTV) ratio may max out at 80% of a property’s value.

• Potentially higher rates. Jumbo loans are not guaranteed by Fannie Mae or Freddie Mac, so a jumbo loan can reduce a lender’s liquidity and expose them to more risk. In the past, jumbo loans have been offered at higher interest rates, though recently, many lenders are offering jumbo loans at a lower interest rate than a conventional mortgage.

• Need to show cash reserves. For some of the best terms for jumbo loans, you may need to show anywhere from three to 24 months’ worth of cash reserves. Furthermore, jumbo loan lenders have different standards when it comes to what is considered a cash reserve. Some lenders may be able to count your 401(k) as part of your cash reserves, while others require money to be held in a more liquid account.

• Fewer lenders offer jumbo loans. This doesn’t mean jumbo loans are uncommon by any means, but you do have to find a lender in your area that offers jumbo loans.

• Higher costs. Because jumbo loans are so large, you have higher costs all around. Closing costs are based on a percentage of the transaction. With a higher loan amount, you’ll pay more for these services. You’ll also pay more for fixed-cost services, such as an appraisal or a home inspection, if your home is larger and has more to evaluate.

How Hard Is It to Qualify for a Jumbo Loan?

It’s true — fewer borrowers will be able to qualify for a jumbo loan. But if you know what lenders are looking for, your odds are good. Jumbo loan requirements may include:

• Credit score of 700 or higher

• Down payment of 20%, although some lenders allow as little as 10% down

• LTV ratio around 80% or lower

• DTI ratio of 43% or lower

• Cash reserves equal to 6 to 12 months of the monthly mortgage payment

• Higher income amount

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Jumbo Loan vs Conventional Loan

Technically, jumbo loans are conventional loans. A conventional loan is a mortgage that isn’t a government-backed mortgage. What’s different about a jumbo loan is that it is not a conforming conventional loan.

A conforming conventional loan is one where the loan amount is less than the conforming loan limit of $726,200 for most areas and $1,089,300 for high-cost areas. This distinction is important, but it’s also common to call a conforming conventional loan simply a conventional loan.

Aside from the loan amount, other major differences between a jumbo loan and a conventional conforming loan include the down payment amount, credit score requirement, LTV ratio, DTI ratio, income requirement, and cash reserve requirement. These key differences are outlined in the chart below:

	Jumbo Loan	Conventional Conforming Loan
Loan amount	Loan higher than $726,200 in most areas or $1,089,300 in high-cost areas.	Loan lower than $726,200 in most areas or $1,089,300 in high-cost areas.
Down payment	Down payment as low as 10%	Down payment as low as 3%
Credit score	700+	As low as 620
LTV	Around 80%	As high as 97%
DTI	43% or lower, 36% for some lenders	Up to 50%
Income	Higher	Lower
Cash reserves	As much as 12 months	Not required

The Takeaway

If you have your eye on a property that exceeds the conforming home loan limits for your area, a jumbo loan can make it happen for you. Prepare yourself for the more stringent salary, credit score, and cash reserves requirements and you’ll be able to call that home yours.

When you’re ready to take the next step, consider what SoFi Home Loans have to offer. Jumbo loans are offered with competitive interest rates, no private mortgage insurance, and down payments as low as 10%.

SoFi Mortgage Loans: We make the home loan process smart and simple.

FAQ

Who qualifies for a jumbo loan?

Borrowers with a high income, an excellent credit score, substantial funds on hand for a down payment (plus large cash reserves), and a low debt-to-income ratio may qualify for a jumbo loan. Check with lenders to learn their specific requirements.

How do you apply for a jumbo loan?

You can apply for a jumbo loan through any lender that offers a jumbo mortgage product.

Photo credit: iStock/FOTOGRAFIA INC.

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

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

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

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Source: sofi.com

Apache is functioning normally

August 11, 2023 by Brett Tams

When buying a house, many of us get caught up in the down payment and other large upfront costs. It’s important to factor in the long-term costs associated with a $250,000 mortgage, which includes the monthly mortgage payment.

Just how much will that payment be each month? Read to learn the monthly cost of a $250K mortgage.

Total Cost of a $250K Mortgage

Homebuyers have some large expenses to deal with before making mortgage payments. Both upfront costs and long-term expenses should factor into figuring out how much house you can afford.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Upfront Costs

Upfront costs associated with buying a home are more than just the earnest money and down payment. A buyer can expect to pay closing costs, including some or all of the following:

• Abstract and recording fees associated with the documentation of a property, which can cost from between $200 to $1,200 and $125, respectively.

• Application fees for a mortgage from the lender, which can cost up to $500.

• Appraisal fees to estimate the home’s value for the lender, which could cost between $300 to $400.

• Home inspection fees if the buyer opts for an inspection of the property before buying, can run between $300 to $500 on average.

• Title search and title insurance fees are required to ensure there are no liens or unexpected claims to the property being purchased. This usually costs between $75 to $200.

These fees before and during closing don’t include the down payment. The median down payment on a house is 13%, but to avoid things like private mortgage insurance, a buyer may have to put down as much as 20% of the home’s purchase price.

A buyer who takes out a $250K mortgage and makes a 20% down payment is likely putting in around $62,500. In addition to the down payment and closing costs, keep in mind expenses around moving and furnishing a new home.
💡 Quick Tip: You deserve a more zen mortgage. SoFi Mortgage Loan Officers are dedicated to closing your loan on time — backed by a $5,000 guarantee offer.^‡

Long-Term Costs

You’ll pay down the principal plus interest on your loan over the long term, with a higher proportion of interest in your monthly payments early in the life of the loan. Near the end of your loan term, you’ll be paying almost entirely principal.

If you put down less than 20% on your home, you may also be paying private mortgage insurance (PMI) each month. Here are some other long-term costs:

• Maintenance Homeowners should factor in the cost of maintenance and repairs in their long-term housing budget. Many owners default to the 1% rule, setting aside 1% of a home’s purchase price annually for ongoing repair costs.

• Property taxes These vary based on your location but can be thousands of dollars a year.

• Homeowners association (HOA), co-op, or condo fees These also vary, but you will know what they are before you close on the property.

• Insurance Depending on where your home is located, you may need hazard insurance to cover you in the event of a natural disaster, in addition to standard homeowners insurance.

Recommended: First-Time Homebuyer Guide

Estimated Monthly Payments on a $250K Mortgage

The monthly cost of a $250K mortgage payment will vary based on several factors, including:

• Down payment, or how much a buyer puts down when purchasing a home

• Length of loan, or the timeline in which a buyer agrees to pay off their mortgage

• APR, the annual percentage rate of the mortgage

Breaking things down further, the terms can also influence the monthly payments on a $250K mortgage. Buyers can choose between a:

• Fixed-rate mortgage, where they pay the same APR over the life of the loan.

• Adjustable-rate mortgage (ARM), where buyers typically pay a lower rate at the beginning of the loan, but the APR will change over the life of the loan.

How you choose from among the different types of home mortgage loans will depend on your financial goals and qualifications.

Monthly Payment Breakdown by APR and Term

What interest rate a buyer will get when applying for a mortgage depends on the market and their financial history. The length of the loan can also impact the estimated monthly mortgage payment. A 30-year loan will have lower monthly payments but you will pay significantly more interest over the life of the loan:

Interest rate	15-year term	30-year term
3.00%	$1,726	$1,054
3.5%	$1,787	$1,122
4%	$1,849	$1,193
4.5%	$1,912	$1,266
5%	$1,976	$1,342
5.5%	$2,043	$1,419
6%	$2,110	$1,499
6.5%	$2,178	$1,580
7%	$2,247	$1,663

As a reminder, these estimates do not include additional costs that might be included in monthly payments, like insurance and property taxes. Consider using a mortgage calculator to figure out monthly payments based on personalized annual percentage rate (APR) and terms.

How Much Interest Is Accrued on a $250K Mortgage?

How much interest a homeowner will accrue on a $250K mortgage depends on the APR and terms of the loan. As a general rule of thumb:

• The higher the APR, the more interest paid

• The longer the loan, the more interest paid

In the beginning, monthly mortgage payments will primarily cover the interest on the mortgage, paying only a small portion of the principal. However, over the life of the loan, the homeowner begins to pay more toward the principal and less in interest.

For example, on a $250K mortgage with a 30-year loan term and 4% APR, a buyer can expect to pay $179,673.77 in interest over the life of the loan. For a $250K mortgage with a 15-year loan term and 4% APR, a buyer will pay $82,859.57 in interest.

While the owner will pay less in interest with a shorter loan term, they can expect higher monthly payments than a 30-year loan term.
💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

$250K Mortgage Amortization Breakdown

Suppose a buyer secures a $250K mortgage on a home with a 7% rate and a 15-year term. Their monthly payment on the mortgage, including principal and interest, would be roughly $2,247.

Here’s how those payments would split between interest and principal balance over the life of the loan, otherwise known as an amortization breakdown:

Year	Beginning balance	Annual interest paid	Annual principal paid	Ending balance
1	$250,000	$17,190	$9,774	$240,226
2	$240,226	$16,484	$10,481	$229,744
3	$229,744	$15,726	$11,239	$218,506
4	$218,506	$14,914	$12,051	$206,454
5	$206,454	$14,042	$12,922	$193,532
6	$193,532	$13,108	$13,857	$179,675
7	$179,675	$12,107	$14,858	$164,817
8	$164,817	$11,032	$15,932	$148,885
9	$148,885	$9,881	$17,084	$131,801
10	$131,801	$8,646	$18,319	$113,482
11	$113,482	$7,321	$19,643	$93,838
12	$93,838	$5,901	$21,063	$72,775
13	$72,775	$4,379	$22,586	$50,189
14	$50,189	$2,746	$24,219	$25,970
15	$25,970	$995	$25,970	$0

Keep in mind that this table doesn’t include additional costs that may be rolled into mortgage payments, such as insurance or property taxes.

Amortization tables can be helpful tools for understanding payments across the life of a mortgage.

What Is Required to Get a $250K Mortgage?

The process of getting a $250K mortgage has several requirements, including:

• You’ll need a credit score of at least 500 for some mortgages, but most lenders require a score of 620 or more

• You’ll prequalify for a mortgage. You’ll provide a little information about yourself and the lender will perform a soft credit inquiry. This will give you a sense of what the lender might offer in terms of interest rate.

• You’ll find the right lender. The right lender for a borrower will vary based on the rates they offer, in addition to other fees and features.

• You’ll fill out a mortgage application and get preapproved for your mortgage. The application may require tax documents, W-2s, and bank account statements. If you’re preapproved, you’ll receive a letter from the lender providing conditional approval for the mortgage within a certain window, typically 60 to 90 days. SoFi’s Help Center can help you start your journey to homeownership today.

The Takeaway

Considering monthly payments on a $250,000 mortgage is an important step in understanding the budget behind buying a home. Multiple factors can impact the monthly cost, including interest rate and loan terms, making it essential to consider all options and make the choice that best suits your budget.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What’s the monthly payment on a $250K mortgage?

The size of your payment will depend primarily on the length of the loan’s term and its interest rate. A 15-year term at 7% would give you a monthly payment of about $2,247, while a 30-year term at 7% would yield a payment of $1,663. Note that although the 30-year term has a lower monthly payment, you’ll pay significantly more in interest over the lifetime of the loan.

How long will it take to pay off a $250K mortgage?

How long it takes to pay off a $250,000 mortgage will depend on the term of your loan and whether you refinance along the way. You might have a loan term of 30, 20, 15, or even 10 years. And remember, you can always pay off your loan sooner if you like, although in rare cases there can be a prepayment penalty.

How much do I need to earn to get a $250K mortgage?

You’d need to earn about $90,000 per year in order to afford a $250,000 mortgage, so that your monthly debt payments don’t cause undue financial stress.

Photo credit: iStock/Worawee Meepian

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

^‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will provide you $2,000.^ Terms and conditions apply. This Guarantee is available only for loan applications submitted after 6/15/22 for the purchase of a primary residence. Please discuss terms of this Guarantee with your loan officer. The property must be owner-occupied, single-family residence (no condos), and the loan amount must meet the Fannie Mae conventional guidelines. No bank-owned or short-sale transactions. To qualify for the Guarantee, you must: (1) Have employment income supported by W-2, (2) Receive written approval by SoFi for the loan and you lock the rate, (3) submit an executed purchase contract on an eligible property at least 30 days prior to the closing date in the purchase contract, (4) provide to SoFi (by upload) all required documentation within 24 hours of SoFi requesting your documentation and upload any follow-up required documents within 36 hours of the request, and (5) pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. The Guarantee will be void and not paid if any delays to closing are due to factors outside of SoFi control, including delays scheduling or completing the appraisal appointment, appraised value disputes, completing a property inspection, making repairs to the property by any party, addressing possible title defects, natural disasters, further negotiation of or changes to the purchase contract, changes to the loan terms, or changes in borrower’s eligibility for the loan (e.g., changes in credit profile or employment), or if property purchase does not occur. SoFi may change or terminate this offer at any time without notice to you. ^To redeem the Guarantee if conditions met, see documentation provided by loan officer.

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

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

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

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Source: sofi.com

Apache is functioning normally

August 11, 2023 by Brett Tams

Government-backed mortgages can be easier for potential homebuyers to qualify for as these loans are insured by the federal government, which brings down the risk for lenders. There are three main types of government-backed mortgages that can help consumers — and especially first-time homebuyers — reach their goal of homeownership.

Let’s take a closer look at these different types of government-backed mortgages and how these government-backed insured mortgages work.

What Is a Government-Backed Mortgage?

Essentially, a government-backed mortgage is a mortgage loan that a federal government agency insures. These types of mortgages are typically easier to qualify for than conventional home loans, as the lender takes on less risk due to the government insurance that forms the safety net underpinning the loan.

Of course, consumers can also apply for non-government-backed mortgages, so it’s important to do your research before applying for home loans to see which mortgages best suit your financial needs.
💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How Do Government-Backed Mortgages Work?

Let’s take a closer look at how government-backed home loans work. To start, they are insured by one of three different federal agencies.

• Federal Housing Administration (FHA loans)

• U.S. Department of Agriculture (USDA loans)

• U.S. Department of Veterans Affairs (VA loans)

The way this works is that if the borrower defaults on the loan, the government repays the lender instead. This greatly reduces the risk that the lender faces, which means they can in turn extend more favorable interest rates to borrowers who may not normally qualify for low interest rates. Many government-backed loans also don’t require a down payment.

Most of these loans are not issued by the government. Consumers still have to apply with private lenders and it’s a bit hit or miss which (if any) types of government-backed loans a private lender might offer.

A government-backed loan works differently than a conventional loan. To start, conventional loans don’t have any government backing and therefore have stricter eligibility requirements. Typically, government-backed loans also have different mortgage insurance requirements than conventional loans and may charge more upfront fees.

Borrowers who choose a government-backed loan also have to meet different eligibility requirements than borrowers who choose a conventional loan. For example, only members of the military or select family members can qualify for a VA loan.

Different Types of Government-Backed Mortgages

There are three different types of government-backed mortgages: FHA, VA, and USDA loans. Each type of mortgage is designed to meet the unique needs of different borrowers. Some consumers may qualify for all three loan types or they may meet the requirements and qualify for just one type of mortgage-backed loan. In some cases, a borrower may not qualify for any of these loans.

• FHA loans This loan type is backed by the Federal Housing Administration and it tends to be much easier to qualify for than USDA and VA loans. FHA loans are popular with first-time homebuyers. Having a credit score of at least 580 is a must and a down payment of 3.5% is necessary. Those with a credit score in the 500 to 579 range can still qualify, but only if they make at least a 10% down payment. The main disadvantage of FHA loans is they require mortgage insurance initially. If the borrower makes a downpayment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to escape this insurance.

• USDA loans Low- or moderate-income borrowers looking to buy a home in a rural area or select suburban areas may qualify for the USDA’s Rural Development Guaranteed Housing Loan Program. There are a few different types of USDA loans and which one a borrower can qualify for depends on their credit score and income. There are no down payment requirements with USDA loans, but there are mortgage insurance requirements. There is no way to remove mortgage insurance from the loan, however the insurance payments are typically lower than those for conventional or FHA loans.

• VA loans VA loans are only available to active-duty service members, veterans, reservists, National Guard members, and certain surviving spouses. There are no credit score requirements for VA loans or down payment requirements, although some lenders may have their own credit score requirements. There are no mortgage insurance requirements for VA loans, but there are some extra closing costs that can equate to 1.4% to 3.6% of the loan amount.

Pros and Cons of Government-Backed Mortgages

There are some unique advantages and disadvantages associated with government-backed mortgages:

Pros

• Can be easier to qualify for than conventional loans

• Lower down payment requirements (or no down payment at all)

• Lower credit score requirement (or no requirement at all)

• Potentially lower interest rates

Cons

• VA and USDA loans can be hard to qualify for

• You may need to pay mortgage insurance for the life of the loan

• Not all lenders offer government-backed mortgages

Examples of Government-Backed Mortgages

There are three types of government-backed mortgage. They are USDA loans, VA loans, and FHA loans. Here is how a USDA loan might work: Let’s say you are home-shopping in an area with a population under 20,000. If you have an average or only slightly above-average salary for the area and a credit score of 640 or higher, you might qualify for a USDA loan. (So, for example, if the median annual income in the area is $62,000, you could qualify with a salary of $71,300 or less.) If you borrowed $100,000, you would have a $1,000 mortgage insurance cost upfront, and you would pay about $29 per month for mortgage insurance after that.

If your military service history makes you eligible for a VA loan, you would likely need a credit score of at least 580 to go with a VA loan. You wouldn’t need a down payment or mortgage insurance, but you would pay an upfront funding fee of between 0.5% and 3.6% of the loan amount unless exempt. Your purchase would need to be a primary home, but unlike with the VA loan, there are no restrictions on where that home could be located or what your annual income might be.
💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Is a Government-Backed Mortgage Worth It?

Whether or not a government-backed mortgage is worth it depends entirely on the borrower’s other home loan options. It’s generally a good idea to shop around with different lenders for the best possible deal. Spend some time comparing potential interest rates, fees, and mortgage insurance requirements to see which loan will cost the most in the long run. First-time homebuyers often find government-backed mortgages especially attractive, in part because it can be difficult to come up with a down payment for a first home.

The Takeaway

Government-backed mortgages can be a great option for borrowers, especially those who don’t qualify for a conventional mortgage. While these government-backed mortgage loans can be hard to qualify for if the borrower doesn’t meet unique requirements (like being a military member or buying a home in a rural area), they can have more relaxed credit score and down payment requirements than those of conventional mortgages.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What are government-backed mortgages?

Government-backed mortgages are mortgage loans insured by a select federal government agency. There are USDA, FHA, and VA loans available to eligible borrowers. Because these loans are insured by the federal government, the private lenders who issue them take on much less risk and can work with borrowers who wouldn’t traditionally qualify for a home loan.

What are the benefits of a government-backed mortgage?

Often, government-backed mortgages are much easier to qualify for than conventional mortgages. They typically have lower credit scores and downpayment requirements. Because these loans are insured by the federal government, lenders can work with “riskier” borrowers to whom they may not normally offer a conventional home loan.

What are the three types of government-backed loans?

The three main types of government-backed loans are FHA, VA, and USDA loans. The Federal Housing Administration offers FHA loans, the U.S. Department of Agriculture backs USDA loans, and the Department of Veterans Affairs is responsible for VA loans.

Photo credit: iStock/Prostock-Studio

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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

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Source: sofi.com

Apache is functioning normally

August 2, 2023 by Brett Tams

Wednesday (May 13th) at 1:30 pst, Geek Estate is conducting a virtual discussion on the future of homeownership — facilitated by David Steckel from Setter. It is a discussion, not a webinar…. so limited to 15-20 participants. If you are a founder/operator working on a related product/service, we have a few open slots. There is an agenda outline included below to give you a better sense of what will be covered.

If interested in joining, please shoot me a note (drew at geekestatelabs dot com).

Consumer changes caused by economic/environmental/health uncertainty will impact homeownership in fundamental ways moving forward.

Stages

Pre Transaction
Transaction
Years 1-7

Maintenance
Insurance
Warranties
Mortgages

Selling at year 7

Ownership

Fractional
Rent to own
Co-living

Generations

Millennials
Gen z
Boomers

Probing questions:

If interested in joining, please shoot me a note (drew at geekestatelabs dot com).

Source: geekestateblog.com

Apache is functioning normally

July 23, 2023 by Brett Tams

[Note from editor: The “Mastermind Showcase” highlights companies and news from members of the GEM. Today’s showcase: Avail.]

Avail enables DIY landlords to easily manage their properties. Their product streamlines online rental listings, applications, lease templates, rental payments, maintenance requests, and tenant vetting. Scales with landlords as they acquire additional properties by serving as a central dashboard to manage everything.

Avail handles syndication of rental properties across the web and gives landlords a full profile of potential tenants by providing credit scores, criminal backgrounds, and eviction reports. They provide lawyer-approved, state-specific templates and integrated rental insurance. We completed a full product review as part of our category product review series for the small landlord property management software sector.

The company recently completed its 4.2 million Series A.

What we like: The maintenance and repair tracking feature relieves’ landlords from a plethora of manual tracking. There is little friction to onboarding users since the product is Free for landlords, with an option to upgrade later for $5.00 per unit per month.

Learn More

Source: geekestateblog.com

Apache is functioning normally

July 22, 2023 by Brett Tams

Buying a home is likely one of the biggest moves you’ll make in your personal and financial life, and your home may represent one of your largest assets.

If you take out a mortgage to help you buy it, you will end up making mortgage payments — and if your lender ends up servicing your loan after closing — you will make payments to that lender, possibly for decades. That’s why it’s important to shop around before committing to a mortgage lender and loan program that’s right for you.

Today, borrowers have more choices than ever. With the rise of online and marketplace lenders, there’s increased competition, which fuels improvements in process, service, and cost — and can mean a much better experience for you.

With so much choice, however, finding the right lender can feel overwhelming. To help simplify the process, we’ve listed five key things you may want to consider when shopping for a mortgage lender.

1. Does the lender offer competitive interest rates?

A good first step is to get the lay of the land by looking at various lenders and the rates and fees they advertise. Taking this step may help you understand what the market looks like overall and who may be offering competitive rates.

Remember that the rates and programs you are ultimately eligible for will likely depend not only on the lender you choose but also your needs and financial situation. However, this initial comparison can give you a baseline to start working from.

You’ll also want to look at the common loan types offered. Interest rates for fixed-rate loans do not change over the life of the loan. Interest rates for adjustable-rate mortgages (ARMs) can change over the life of the loan and are influenced by benchmark interest rates.

Hybrid adjustable-rate mortgages are mortgages that offer an initial fixed rate for a certain period of time. These hybrid ARMs often offer a low introductory rate for either 1, 3, 5, 7 or 10 years. Some hybrid ARMs will also offer an interest-only payment option for a specified period of time such as 10 years.

When the initial fixed-rate period is over, the interest rate is normally reviewed on an annual basis for adjustment. Although the benchmark index tied to the ARM rate may have moved much higher, these loans typically have yearly and annual interest rate caps to control rate and payment fluctuations.

When talking to a lender about their mortgage offerings, it’s a good idea to not only ask about interest rate, but also about APR, or annual percentage rate. This figure takes into account certain fees like broker fees, points, and other applicable credit charges, giving you an easier way to compare loan offers.

2. Does the lender offer loan products with terms that suit your needs?

Your needs and financial situation can play a large part in which mortgage programs you choose and are eligible for. For example, some lenders require a 20% down payment to qualify for a mortgage.

If you can’t pay 20%, lenders may require that you have private mortgage insurance (PMI), which covers them in case you default on your mortgage payments. Mortgage insurance premiums vary depending upon many factors.

It’s a good idea to ask your chosen lender how much insurance payments will add to your monthly payment. Also keep in mind that, in certain circumstances, PMI does not apply, such as with some jumbo loan programs. In addition, PMI can be eligible for removal from your home loan later if certain criteria is met.

If you can’t afford a 20% down payment, you can look for lenders who offer more flexible down payment requirements. Also, consider what term — the length of time you’ll be paying off your loan — works best for you. See what kinds of terms lenders offer and the interest rates that accompany those terms.

A shorter term will likely come with higher monthly payments, but lower interest rates that result in lower interest charges over time. Not everyone can afford those higher monthly payments, however, in which case a longer term may be preferable. Note that longer terms usually mean that you end up paying more in interest over the life of the loan.

Once you’ve found a loan with rates and terms that work for you, you can typically obtain a rate lock from your lender, generally for the time it takes to close on the transaction, such as 30 or 45 days.

You may have to pay a fee if you want to lock in the rate for a longer extended period of time. However, once you do, it will guarantee that you have access to the mortgage at a specific rate during the lock-in period, even if interest rates rise while your loan is being processed.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

3. What type of origination, lender, and other fees might you be responsible for?

We’ve already alluded to the fact that you’ll likely be on the hook for other costs in addition to your down payment. One good idea is to request a Loan Estimate (LE) for any mortgage you’re considering to see a solid estimate of what costs you may be on the hook for.

Keep your eye out for things like:

•   Commissions Mortgage brokers are paid on commission, which is either paid by you, your lender, or a combination of both.
•   Origination fees These fees may cover the cost of processing your loan application.
•   Appraisal fees Appraisal fees cover the cost of having a professional come in and put a value on the home you want to buy. You must have a property valuation of some type in order to borrow money to buy a home and in most cases a full appraisal is required.
•   Credit report fee This covers the cost of the bank obtaining your credit report from the credit reporting bureaus.
•   Discount points Optional fee the borrower can pay to reduce or buy down their interest rate.

Unless you receive a seller or lender credit towards closing costs, the added fees will impact the overall cost of buying the home, so doing your research and reading the fine print up front might pay off.

Depending on the loan terms and fees charged, some will be paid upfront at the beginning of the application process (such as credit report and appraisal), while other fees might be paid at loan closing (such as lender fees and title insurance).

In some cases, under certain loan programs, you can borrow the money to cover these fees, which will increase your overall mortgage payment(s). Therefore, having a clear understanding of what fees you’ll owe is critical to understanding how much you’ll end up paying.

It’s a good idea to request from your lender a quote on all the costs and fees associated with the loan. A Loan Estimate (LE) is a typical form used to disclose loan fees to a borrower. Ask questions about what each fee covers. Have your lender explain any fees you don’t understand, and then find out which ones may be negotiable or can be waived entirely.

4. How much of the process is online vs. on paper or in person?

How much facetime you have to put in to apply for a mortgage can vary by lender. Some online banks will have you complete the process entirely online, while brick and mortar banks may require an in-person visit.

In the past, applying for a mortgage required a lot of physical paperwork. But much of this has now been replaced by online interactions. For example, you are now likely able to send your financial information like bank statements and W-2s electronically.

Lenders who complete much, or all, of the mortgage application process online may be able to offer lower rates or fees, since they don’t have the cost of brick and mortar bank locations and their employees to maintain.

That said, if you’re someone who likes face-to-face help, you may consider a lender that allows you to apply in person or a lender who utilizes facetime.

5. How quickly can the lender close once you’re in contract?

Once you’ve found the home you want to buy and you’re under a purchase contract with the seller, the amount of time it takes to close on a loan can vary. Depending on the situation, you may have to wait for inspections, appraisals, and all sorts of paperwork to go through before you can close.

However, your lender may offer you ways to speed up the process. For example, you may be able to get preapproved for a loan, which takes care of a lot of potentially time-consuming paperwork upfront before you’ve even started shopping for a home.

Ask your lender how much time their closing process usually takes and what you can do to expedite it. Especially if you’re crunched for time, their answer can have a big impact on which lender you choose. After all, the faster you’re financed, the sooner you’ll be able to move in.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: Simple, smart, and so affordable.

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

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

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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Source: sofi.com

Apache is functioning normally

July 20, 2023 by Brett Tams

With an abundance of Americans reaching retirement age—10,000 people will turn 65 every day for the next two decades—some of those will be looking for a new place to call home and a way to finance it.

You might think of the young and middle-aged as typical homebuyers and older people as more likely to have paid off, or nearly paid off, their homes and wanting to stay put. But with opportunity in the air and a desire to downsize—and sometimes upsize—more retirees could well be in the market for a new home.

Lenders and Age: No Legal Gray Area

Mortgage lenders look for a variety of things when qualifying a home loan applicant. What they can’t do is take age into consideration when making a lending decision.

The Equal Credit Opportunity Act bans creditors from using age to influence a loan application decision.

Retirees applying for a home loan, like people still working, generally just need to have good credit, minimal debt, and enough ongoing income to repay the mortgage.

Here are some of the main factors you need to buy a house that lenders look for:

•   Proof of income
•   Low debt-to-income ratio
•   Decent credit profile
•   Down payment
•   If it’s a primary or secondary home

Let’s take a look at each.

Proof of Income

While many retirees live on a fixed income, putting multiple sources of income together can help establish income that is “stable, predictable, and likely to continue,” as Fannie Mae instructs lenders to look for.

Social Security. The average monthly Social Security payout was $1,827 in 2023, enough to contribute to a mortgage payment. But if Social Security is an applicant’s only source of income, they may have trouble qualifying for a certain loan amount.

Investment income. Sixty-nine percent of older adults receive income from financial assets, according to the Pension Rights Center. But half of those receive less than $1,754 a year, the center says.

But for those who do receive investment income, it’s important to know that a lender generally looks at dividends and interest, based on the principal in the investment. If an applicant plans to use some of the principal for a down payment or closing costs, the lender will make calculations based on the future amount.

Lenders may view distributions from 401(k)s, IRAs, or Keogh retirement accounts as having an expiration date, as they involve depletion of an asset.

Home loan applicants who receive income from such sources must document that it is expected to continue for at least three years beyond their mortgage application.

And lenders may only use 70% of the value of those accounts to determine how many distributions remain.

Annuity income can be used to qualify, as well, as long as the annuity will continue for several years (three years is likely the minimum).

Part-time work. Retirees who earn money driving for a ride-share service, teaching, manning the pro shop, and so forth add income to the pot that a lender will parse.

Clearly, the more income a retiree can note on a mortgage application, the better the odds of a green light.

Recommended: 11 Work-From-Home Jobs Great for Retirees

Debt

If your income level falls into a gray area, mortgage lenders are even more likely to focus on your debt-to-income ratio.

Debt-to-income is a straightforward proposition. It’s calculated as a percentage and it’s vetted by lenders and creditors as a percentage. Simply divide your regular monthly expenses by your total monthly gross income to get your debt-to-income ratio.

Let’s say you have $5,000 in regular monthly gross income and your regular monthly debt amount is $1,000. In that scenario, your debt-to-income ratio is 20% (i.e., $1,000 is 20% of $5,000.)

By and large, the higher your DTI ratio, the higher the risk of being turned down for a mortgage loan.

If you have a spouse who also has regular income and low debt, adding that person to the mortgage application could help gain loan approval. Then again, married couples applying for a loan may want to consider how a spouse’s death would affect their ability to keep paying the mortgage.

Lenders, though, cannot address that matter in the loan application.

Credit Profile

Mortgage lenders also give great weight to consumer credit scores when evaluating a home loan application. That’s understandable, as a high FICO® credit score—740 or above is considered generally quite mortgage-worthy—shows lenders that you pay your bills on time and that you’re not a big credit risk.

It might be smart to take some time before you apply for a mortgage to review your credit report, making sure all household bills are up-to-date and no errors exist that might trip you up. And it’s a good idea to limit credit inquiries on big-ticket items.

You can get a free copy of your credit scores at annualcreditreport.com and at any of the “big three” credit reporting agencies: Experian, Equifax, and Transunion.

The Property

Mortgage lenders will also take a close look at the home you wish to purchase.

In general, it’s easier to obtain a mortgage for a primary residence, as it represents the home you’ll live in long term and there’s only one mortgage to pay.

A second home, either as a vacation or investment property, is a riskier proposition, as it represents another mortgage to pay and may bring more debt to the lender’s mortgage approval score sheet.

Down Payment

Using the asset depletion method, a lender will subtract your expected down payment from the total value of your financial assets, take 70% of the remainder (if it’s a retirement account), and divide that by 360 months.

Then the lender will add income from Social Security, any annuity or pension, and part-time work in making a decision.

For borrowers, putting at least 20% down sweetens the chances of being approved for a mortgage at a decent interest rate.

Recommended: Home Affordability Calculator

The Takeaway

As a retiree, if your income, debt-to-income ratio, and credit score are solid, you’re as likely as any other borrower to gain approval for a new home loan. Lenders cannot legally take age into consideration when making their decisions.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: Simple, smart, and so affordable.

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

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

*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.

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

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

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

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Source: sofi.com

Apache is functioning normally

July 19, 2023 by Brett Tams

Most people consider a “good” mortgage rate to be the lowest average current rate available. But here’s what they may not realize: Not everyone will qualify for the best rates out there.

So what is a good mortgage rate? It can be different for every borrower, depending on their financial situation and credit score.

Many factors go into determining the mortgage rate you can get. Once you understand what these variables are, the better equipped you’ll be to navigate the mortgage market and find the best loan for your situation.

This guide will get you on your way.

What Is a Mortgage Interest Rate?

If you’re a first-time home buyer, you may have a lot of questions about mortgage interest rates. The interest rate on a loan is the cost you pay to borrow money. You pay the interest each month as part of your regular payments for your loan.

There are different types of mortgage rates. With a fixed rate mortgage, your interest stays the same over the life of the loan. This means your monthly payment will always be the same.

An adjustable-rate mortgage (ARM) changes with the prime interest rate, which is influenced by the federal funds benchmark set by the Federal Reserve (the Fed). An ARM typically starts with a fixed rate for the first five to seven years, and then might fluctuate, based on the prime rate. This could potentially make your payments much higher, depending on the state of the economy.

How Do Mortgage Interest Rates Work?

So what is a good mortgage interest rate? Interest rates are always changing. A variety of factors determine mortgage rate changes. Some you have control over, and others you don’t.

One of the critical factors that’s outside your control is what’s happening in the economy. Major economic events have a significant effect on interest rate fluctuations. For instance, if employment rates are high, the interest rate typically rises as well.

Inflation, which limits consumers’ purchasing power, also plays a role. Since 2022, inflation has been on the rise, and the Fed has raised interest rates numerous times to try to tame it.

Your personal financial situation also affects the interest rate you get, as outlined below.

How Lenders Determine Your Mortgage Rate

In addition to the economic factors and the influence of the Fed, your unique financial situation will help determine the mortgage rate you qualify for.

Here are a few key factors lenders typically consider when determining your rate.

Credit Score

Most lenders review your credit history to determine if you’re eligible for a mortgage.

With this in mind, you want to make sure you check your score regularly and that you’re doing everything you can to keep your score as high as possible, like paying your bills on time and keeping your credit balances low.

Credit report agencies will assign you a credit score by evaluating these factors. The most common model is the FICO® credit score, which ranges from 300 to 850.

Usually, if you have a credit score of 800 or higher, it’s considered exceptional, whereas a credit score between 740 and 799 is considered very good.

A credit score of 739 to 670 is good, and a score between 669 and 580 is fair. A score of 579 and lower is considered poor. A low credit score indicates that a borrower represents a higher risk. Borrowers with these credit scores may have trouble getting approved for a loan.

It’s important to note that specific credit score requirements may depend on the loan you apply for.

Income and Assets

Your income is another important factor lenders use to determine if you’re eligible for a mortgage. Lenders prefer borrowers with a steady income. To determine if you qualify, lenders evaluate your income and other assets, such as investments.

Also, your debt-to-income ratio (DTI) is essential information. Your DTI indicates what percentage of your monthly income is used for debt payments. This number gives lenders an idea of how well you’re doing financially.

If your DTI ratio is high, it may show that you’re not in a position to take on more debt. A lender might give you a higher interest rate or deny your mortgage application altogether.

Down Payment Amount

Sometimes your down payment amount can lower your interest rate or even determine what loans you’re eligible for. Lenders may see you as less of a risk if you put more money down.

A good standard tends to be a 20% down payment. A 20% down payment may help you get the most favorable interest rates.

However, if you’re applying for a government-backed loan, you may not need such a big down payment. For example, a Veterans Affairs mortgage requires no money down, and a Federal Housing Administration (FHA) loan only requires 3.5% down.

Also, some conventional home loans do not require 20% down.

Loan Term and Type

The loan term you select, such as 15 or 30 years, can also make a difference in the interest rate you receive. In general, a shorter-term loan will have a lower interest rate than a longer-term loan. However, your monthly payments will be higher with a shorter-term mortgage.

There are also several types of mortgage loan categories, including conventional, FHA, USDA, and VA loans. Each loan product may have very different rates.

Finally, as discussed, with a fixed-rate mortgage, your interest rate will remain the same for the life of the loan. But if you choose an adjustable-rate mortgage, your interest rate will vary after an initial fixed rate.

Before you take out any loan, it’s important to compare all of your options to make sure you find the best rate available.

Location

Where your property is located can also play a role in the interest rate you receive. Some real estate markets are simply more costly than others. For instance the cost of living in California is higher than it is in some other locations.

You can check the cost of living by state to see how your state ranks.

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Other Factors That Determine Your Mortgage Rate

In addition to your financial situation and location, and the type of loan you’re applying for, there are some other things that may influence the mortgage rate you get. They include:

The lender you choose

Different lenders offer different mortgage rates and terms. Shop around to find the best rate you can qualify for.

Housing market conditions

This factor is out of your control, but it’s good to understand how it works. If demand for houses is strong, mortgage rates tend to rise. And the opposite is true: When demand slows, rates tend to decrease. Knowing what the housing market is doing when you’re shopping for a home loan can help prepare you for what to expect.

What Is Considered a Good Mortgage Rate

Currently, in mid-June 2023, the average rate on a 30-year fixed-rate mortgage is 6.67%, according to Freddie Mac. Anything below or close to that number might be considered good.

But again, what’s a good mortgage rate for you depends on your financial situation and many other factors. A good rate is what you can qualify for. Be sure to compare rates from different lenders to get the best deal and the lowest rate you can.

As you’re comparing your options, be sure to look at the loan’s APR (annual percentage rate). An APR gives borrowers a more comprehensive measure of the cost to borrow money than the interest rate alone does.

The APR includes the interest rate, any points, mortgage broker fees, and other charges you pay to borrow money. So when you’re comparing options, you’ll want to review each lender’s APR to indicate the true cost of borrowing.

To get an idea of what your mortgage payments might be, you can use a mortgage calculator.

How to Get a Good Mortgage Rate

Now that you know the answer to the question, what is a good interest rate for a mortgage?, you’ll want to make sure you get the best rate for you. Making sure your finances are in order before you apply for a mortgage will likely help you obtain a better interest rate and loan terms. Here are some ways to do that.

• Pay off higher-interest debt. If you have debt like credit card debt, you’re likely paying a lot of money in interest. That money could be going toward other things like a mortgage payment. Second, carrying a large amount of debt means you lower your chances of approval for a home loan. Pay off as much of your debt as you reasonably can.

• Save more for a large down payment. Buyers who put down less than 20% may end up paying for private mortgage insurance (PMI), which typically costs between 0.5% and 1.5% of the loan amount annually.

• Review your credit history and check for errors. You can get a free copy of your credit report from the three major credit bureaus or from AnnualCreditReport.com. If you spot any errors, be sure to alert the credit bureaus right away. Correcting any mistakes may help improve your ability to get a home loan.

The Takeaway

What is a good interest rate on a mortgage? Your financial health, the health of the economy, the loan type and term, and other factors help determine the actual rates you’re offered. What you can do is work to strengthen your credit and financial situation and pay down debt you have, such as credit card debt.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: Simple, smart, and so affordable.

FAQ

What is the 30 year mortgage rate right now?

Right now, as of mid-June 2023, the average rate for a 30-year mortgage is 6.67%, according to Freddie Mac.

What is a good interest rate for a mortgage now?

A good rate for a mortgage now is anything below the average rate for a 30-year mortgage, which is 6.67% in mid-June 2023. But a good mortgage rate can be different for every borrower, depending on their financial situation and credit score, as well as the type of home loan they’re applying for, among other factors.

Is 4% a good rate for a mortgage?

Currently, in 2023, 4% is considered a good rate for a mortgage, compared to the average rate for a 30-year fixed-rate mortgage, which is 6.67%.

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

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

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

SOHL0523023

Source: sofi.com

Apache is functioning normally

July 18, 2023 by Brett Tams

Whether you’re planning to renovate your kitchen, add a room to your home, or upgrade your backyard, home improvement projects typically require a sizable financial investment. While you might be able to pay cash for small-scale repairs and upgrades, a more substantial project could require funding. That’s where home improvement loans come in.

A home improvement loan is typically a personal loan used to pay for home repairs and renovation projects. These loans aren’t backed by the equity you have in your home, and are generally one of the quickest ways to get funding for a home improvement project. However, they may have higher interest rates and offer lower amounts than other options, such as a home equity loan.

Read on to learn how home improvement loans work, their pros and cons, and how they compare to other home remodel financing options.

What Is a Home Improvement Loan?

Typically, a “home improvement loan” refers to a personal loan that is designed to be used to pay for home upgrades and renovations.

These are unsecured loans — meaning your home isn’t used as collateral to secure the loan. In fact, lenders typically don’t ask for any information about your home with this type of financing. Instead, a lender decides how much to lend to you and at what rate based on your financial credentials, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often five or seven years.

One of the advantages of a home improvement loan is that it allows you to access a significant amount of money upfront quickly, often within a day or two. You also don’t need to have built up any equity in your home, or risk losing your home should you default on the loan.

However, personal loans for home improvement tend to be shorter-term and offer smaller loan amounts than other home loan options, making them best suited for small to midsize projects, say renovating a bathroom or repainting the exterior of your home.

Recommended: Can I Pay off a Personal Loan Early?

Alternatives to a Personal Loan

While personal loans can be a quick and convenient way to fund home improvement projects, they aren’t your own option. Here are some alternatives you may also want to consider.

Home Equity Loan

Home equity is the portion of your home that you actually own. More specifically, it is the difference between what your home is currently worth and what you owe your lender. So, for example, if you took out a mortgage for $200,000 and have paid down $50,000 of that loan, you owe the lender $150,000. If your home gets appraised for $250,000, you have $100,000 in equity.

A home equity loan is a loan that utilizes the equity you have built in your home as collateral. Home equity loans often have fixed interest rates and terms that typically range from five to 30 years. These loans provide homeowners with a lump sum of money that can be used for various purposes, including home improvements. As you repay a home equity loan, your payments get added back to your principal, allowing you to build your equity back up.

With a home equity loan, you can often borrow up to 85% of the equity you have in your home.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is similar to a home equity loan, except that the funds are not distributed in a lump sum. The amount of money you can borrow is still tied to the amount of equity you have in your home, but you are given access to a line of credit that you can borrow from as needed.

HELOCs have a draw period, usually 10 years, when you can use some or all of the funds you’re approved to borrow. During that time you typically make interest-only payments on the amount you draw. You then repay the principal later, during the repayment period.

Like a home equity loan, a HELOC is essentially a second mortgage, so you’re using your house as collateral. Unlike a home equity loan, HELOCs have variable rates, which means your annual percentage rate (APR) could go up or down in the future.

One key advantage to a HELOC is its flexibility. This type of financing can be particularly useful for projects you’re doing in stages, or when you don’t know exactly how much the renovation will cost.

Cash-out Refinance

A cash-out refinance involves refinancing your existing mortgage for a higher amount than what you currently owe. The difference between the new loan amount and your current mortgage balance is paid out to you in cash, which you can use for home improvements.

Because cash-out refinancing involves revising your mortgage, it can be a good move if rates have dropped since you financed your home, or you’re in a better financial situation than when you originally took out your mortgage. Lenders typically look at an applicant’s financial history, as well as the appraised value of the home and how long the existing mortgage has been in place.

You’ll want to keep in mind, however, that closing costs can be 2% to 6% of the new mortgage amount, which could potentially be more than you plan to spend on the improvement project.

Construction Loan

If you’re planning significant renovations or an extensive home improvement project, a construction loan may be worth exploring. Construction loans are specifically designed for large-scale projects, such as significant structural changes or additions to a property. These loans usually have variable interest rates and short terms, often just one year.

Unlike mortgages and personal loans that make a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the home progresses. Generally, you make interest-only payments during the construction stage. Once construction finishes, the construction loan needs to be repaid or converted into a mortgage.

Applying for a Home Improvement Loan

Before choosing any type of home improvement loan, it’s a good idea to shop around and compare interest rates, terms, and fees from different lenders to ensure you’re getting the best possible deal.

When applying for a home improvement loan, you’ll need to gather all the necessary documentation to support your application. Lenders typically require proof of income, proof of residence, and information about the project you plan to undertake. Some lenders may also ask for estimates or contractor bids to assess the cost of the project.

Your current debts, housing payment, credit history, and total income will all play a role in what rates and terms you qualify for. If possible, take advantage of lenders that offer a prequalification process. This gives you a sense of your approval odds, predicted interest rate, and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score.

Bringing It Home

Home improvement loans allow you to finance a repair or remodeling project for your home. You may be able to get an unsecured personal loan designed to be used for home improvement or, if you’ve built up equity in your home, use a home equity loan, HELOC, or a cash-out refinance, to fund an upgrade. For a substantial structural change, you might consider a construction loan.

The best financing choice for your project will depend on how much money you need, how quickly you want to start work, how much equity you have in your home, your credit profile, and whether or not you want to use your home as collateral for the loan.

Ideally, a home improvement loan should pay for itself over time by increasing the value of your home and improving your overall quality of life.

If you think a personal loan might work well for your home improvement project, SoFi can help. SoFi’s home improvement loans range from $5K-$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a home improvement loan from SoFi is right for you.

FAQ

Why are home improvement loans so expensive?

Home improvement loans may have higher interest rates compared to traditional mortgages for a few reasons. One is that these loans are often unsecured, meaning you don’t have to use your home as collateral to get the loan, which poses more risk to the lender. Another is that these loans typically have shorter repayment terms compared to mortgages, resulting in higher monthly payments. Also keep in mind that interest rates can vary based on the borrower’s creditworthiness and prevailing market conditions.

Is a home improvement loan the same as a mortgage?

No. A mortgage is a loan used to purchase a property, while a home improvement loan is specifically used to fund renovations or improvements on an existing property. Home improvement loans are typically smaller in amount and have different terms and repayment options compared to mortgages.

How much debt to income do I need for a home improvement loan?

The specific debt-to-income (DTI) ratio required for a home improvement loan can vary depending on the lender and other factors. Generally, a DTI ratio below 43% is considered favorable for loan approval. This means that your total monthly debt payments, including the new loan, should not exceed 43% of your gross monthly income. However, different lenders may have different criteria, so it’s essential to check with the lender you’re considering for their specific DTI requirements.

What is the average length of a home improvement loan?

The average length or term of a home improvement loan will depend on the type of loan you choose. Personal loan terms can range from five or seven years. Loans based on the equity in your home (such as a home equity loan or line of credit) can have terms up to 30 years.

What is the downside to a home equity loan?

While home equity loans can be a useful option for funding home improvements, there are some potential downsides to consider. One is that these loans use your home as collateral, which means you risk foreclosure if you’re unable to repay the loan. Another is that, should your property value decline, you may owe more on the loan than the home is worth, which is known as being “underwater.” Finally, keep in mind that home equity loans typically come with closing costs and fees, similar to a mortgage, which will add to the cost of your remodel.

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

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

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Source: sofi.com

First-time homebuyers canprequalify for a SoFi mortgage loan,with as little as 3% down.

What Is Joint Tenancy?

What Is Community Property?

The Difference Between Joint Tenancy and Community Property With Right of Survivorship

What Are the Tax Benefits for Surviving Spouses in Community Property States?

What Is the Right of Survivorship in Real Estate?

How Does a Right of Survivorship Work With a Will?

Community Property vs Community Property With Right of Survivorship

The Takeaway

FAQ

What is the difference between joint tenancy and community property with right of survivorship in California?

What is the difference between joint tenancy and community property in California?

What are the disadvantages of community property with a right of survivorship?

Jumbo Loans: The Basics

First-time homebuyers canprequalify for a SoFi mortgage loan,with as little as 3% down.

Benefits of Jumbo Loans

Drawbacks of Jumbo Loans

How Hard Is It to Qualify for a Jumbo Loan?

Jumbo Loan vs Conventional Loan

The Takeaway

FAQ

Who qualifies for a jumbo loan?

How do you apply for a jumbo loan?

Total Cost of a $250K Mortgage

First-time homebuyers canprequalify for a SoFi mortgage loan,with as little as 3% down.

Upfront Costs

Long-Term Costs

Estimated Monthly Payments on a $250K Mortgage

Monthly Payment Breakdown by APR and Term

How Much Interest Is Accrued on a $250K Mortgage?

$250K Mortgage Amortization Breakdown

What Is Required to Get a $250K Mortgage?

The Takeaway

FAQ

What’s the monthly payment on a $250K mortgage?

How long will it take to pay off a $250K mortgage?

How much do I need to earn to get a $250K mortgage?

What Is a Government-Backed Mortgage?

First-time homebuyers canprequalify for a SoFi mortgage loan,with as little as 3% down.

How Do Government-Backed Mortgages Work?

Different Types of Government-Backed Mortgages

Pros and Cons of Government-Backed Mortgages

Pros

Cons

Examples of Government-Backed Mortgages

Is a Government-Backed Mortgage Worth It?

The Takeaway

FAQ

What are government-backed mortgages?

What are the benefits of a government-backed mortgage?

What are the three types of government-backed loans?

1. Does the lender offer competitive interest rates?

2. Does the lender offer loan products with terms that suit your needs?

First-time homebuyers canprequalify for a SoFi mortgage loan,with as little as 3% down.

3. What type of origination, lender, and other fees might you be responsible for?

4. How much of the process is online vs. on paper or in person?

5. How quickly can the lender close once you’re in contract?

Lenders and Age: No Legal Gray Area

Proof of Income

Debt

Credit Profile

The Property

Down Payment

The Takeaway

What Is a Mortgage Interest Rate?

How Do Mortgage Interest Rates Work?

How Lenders Determine Your Mortgage Rate

Credit Score

Income and Assets

Down Payment Amount

Loan Term and Type

Location

Other Factors That Determine Your Mortgage Rate

The lender you choose

Housing market conditions

What Is Considered a Good Mortgage Rate

How to Get a Good Mortgage Rate

The Takeaway

FAQ

What is the 30 year mortgage rate right now?

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.