Home Ownership

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Recourse loans are secured loans in which the lender can seize a borrower’s collateral and, if necessary, other assets, should the borrower default on the loan. Common types of recourse debt are auto loans, credit cards and, in most states, home mortgages. Recourse loans are low risk to lenders so they tend to have lower interest rates than non-recourse loans.

Non-recourse loans are also secured by collateral but in this case, the lender can only seize the collateral pledged for the loan; they can’t take any other assets. Non-recourse loans are less common than recourse loans and tend to have higher interest rates due to their higher risk.

Read on to learn more about how non-recourse and recourse loans compare.

What Is a Recourse Loan?

A recourse loan is a secured loan for which the lender can seize more than just the collateral if the borrower defaults. The lender is also able to seize other assets the borrower didn’t use as collateral, including income and money in bank accounts.

How Recourse Loans Work

When a borrower defaults on a recourse debt, the lender can seize not only the loan’s collateral, but can also attempt to attach other assets to collect what’s owed. In essence, the lender has additional recourse to recoup their losses.

Between recourse vs. nonrecourse debt, recourse debt favors the lender while nonrecourse debt favors the borrower.

Examples of Recourse Loans

Hard money loans, which are typically based on the value of the collateral rather than just the creditworthiness of the borrower, tend to be recourse loans.

An auto loan is one example of a recourse loan. If an auto loan borrower defaults on the loan, the lender has the right to seize the vehicle and sell it to recoup its losses. If the vehicle has depreciated, however, and the sale doesn’t cover the loan balance, the lender can ask for a deficiency judgment for the difference. In that case, the borrower’s wages could be garnished or the lender could seize other assets.
💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

What Is a Non-Recourse Loan?

A nonrecourse loan is a secured loan for which the lender cannot seize assets that weren’t put up as collateral in the original loan agreement.

How Non-Recourse Loans Work

When a borrower pledges collateral on a secured loan, the lender can take that asset — but no others — if the borrower defaults on the loan. The lender will typically sell the asset to recoup their loss on the loan. The lender has no other recourse than seizing the collateralized asset, even if the sale of that asset doesn’t cover the balance of the loan.

Examples of Non-Recourse Loans

Lenders may be cautious about offering non-recourse loans because it limits their ability to recoup losses in the event of a default. Therefore, loans are typically classified as recourse loans.

Mortgages are classified as non-recourse debt as a matter of law in 12 states, meaning the lender cannot pursue a borrower’s other assets if they default and end up in foreclosure. The financial consequences would likely be limited to foreclosures of the home and damage to the borrower’s credit score.

A lender might be willing to offer a non-recourse loan to an applicant with excellent credit and steady, verifiable income if confident in their ability to repay the debt.

Recourse vs Non-Recourse Loans

Both recourse and non-recourse debt can be secured by collateral, which a lender can seize in the event of nonpayment.

The biggest difference between the two is that the lender is prevented from pursuing other assets owned by the borrower to repay what’s owed on a non-recourse debt. Basically, the lender has no other recourse for repayment of the debt other than the collateral that secures the loan.

Recourse Loan Non-Recourse Loan
Lender can seize assets other than those put up as collateral Lender can seize only assets that were put up as collateral
Borrower can lose collateralized and other assets if they default Borrower can lose collateralized asset and have a negative entry on their credit report if they default
Loan rate and terms are based on the value of asset used as collateral and creditworthiness of applicant Lender may consider creditworthiness of applicant greater than value of collateral when determining loan rate and terms
Less risky for lenders Less risky for borrowers

Pros and Cons of Recourse vs Non-Recourse Debt

Depending on whose perspective the situation is being viewed from, recourse and non-recourse debt each has benefits and drawbacks.

Pros and Cons of Recourse Loans

Recourse debt is more favorable to the lender than the borrower because this type of debt gives the lender more avenues to collect when a debt goes unpaid.

Approval for recourse loans, on the other hand, may be easier since they pose less risk for lenders.

From the borrower’s perspective, here are some pros and cons of recourse loans:

Pros of Recourse Loans Cons of Recourse Loans
Approval qualifications may be less stringent than for a nonrecourse loan Lender can seize collateralized asset and other assets if the borrower defaults
Interest rates can potentially be low Borrower assumes greater risk than lender

Pros and Cons of Non-Recourse Loans

A non-recourse loan is more favorable to the borrower in the case of default. In that situation, the lender could only seize the asset put up as collateral, but couldn’t lay claim to any of the borrower’s other assets.

Non-recourse financing is usually riskier for the lender since they’re limited to collecting only the collateral when a borrower defaults. As such, lenders may charge higher interest rates for non-recourse loans and/or require borrowers to meet higher credit scores and income requirements to qualify.

From the borrower’s perspective, here are some pros and cons of non-recourse loans:

Pros of Non-Recourse Loans Cons of Non-Recourse Loans
Only the asset put up as collateral can be seized if the loan is defaulted on Borrower’s credit can be negatively affected if the lender must write off uncollected debt
Personal assets are not at risk Interest rates may be high

Managing Recourse vs Non-Recourse Loans

Generally, the only reason for a borrower to be concerned about whether they have recourse vs. non-recourse debt is if they’re in danger of default. As long as they’re keeping up with their payments, whether a debt is recourse or non-recourse shouldn’t be an issue.

But if there is a concern about potentially falling behind in paying a debt, then it helps to do some research before borrowing. For example, if trying to qualify for a home loan, asking upfront whether the loan is treated as recourse or non-recourse debt under a particular state’s laws will help in the decision making.

Making a larger down payment, for example, means less a borrower has to finance. Ultimately, though, a borrower should do what is right for their particular financial situation. It may be better for some borrowers to choose a home loan that allows for a lower down payment so they can keep more cash in the bank to cover financial emergencies down the line.

If you’re planning to apply for a car loan, you might consider buying a vehicle that tends to hold its value longer or making a larger down payment. Those could both help you avoid ending up underwater on the loan if you happen to default for any reason.

Credit cards are revolving debt, not a lump sum being borrowed, so the amount owed can change month to month as purchases are made and paid off. Some ways to manage this type of recourse debt include:

•   Keeping card balances low

•   Paying the balance in full each month, if possible

•   Setting up automatic payments or payment alerts as notification of when a due date is approaching

With any type of debt, recourse, or non-recourse, it’s important that you get in touch with your lender or creditor as soon as you think you’ll have trouble making payments. The lender may be able to offer options to help you manage payments temporarily. Depending on the type of debt, that may include:

•   Credit card hardship programs

•   Student loan forbearance or deferment

•   Mortgage forbearance

•   Skipping or deferring auto loan payments

Reaching out before a payment is missed can help you avoid loss of assets, as well as any negative impact on your credit.
💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Is a Recourse or a Non-Recourse Loan Best for You?

It’s likely you won’t have much of a choice between a recourse and a Non-Recourse loan when looking at financing options. Lenders are likely to offer only recourse loans because they have more options to recover losses if the borrower defaults on the loan.

If you are presented with both options, choosing a recourse or Non-Recourse loan may depend on your financial situation.

•   A recourse loan may be a good option for those with a limited credit history because in exchange for additional avenues to recoup their losses, if necessary, a lender may offer low interest rates.

•   A non-recourse loan could be a good option for an applicant with good credit and steady income, as the lender may consider them a low-risk borrower and not feel the need to have additional assets to secure the loan.

SoFi Personal Loans Rates

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

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

FAQ

What does recourse mean in lending?

Recourse refers to a lender’s options when recouping losses when a borrower defaults on a loan. With a recourse loan, lenders can recoup defaulted loan balances by seizing both the loan collateral and — when necessary — the borrower’s other assets.

Are you required to pay a non-recourse loan?

Yes, borrowers are required to make payments on both recourse and non-recourse loans.

Are non-recourse loans more expensive?

Non-recourse loans can have higher interest rates than recourse loans because lenders may perceive them as having higher risk.

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.

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

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.

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

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If you are offered a relatively low mortgage rate, locking it in can secure it and potentially save you a bundle of money over the life of your loan. In other words, it can be a smart move.

That said, when applying for a mortgage, you only have so much control over the mortgage rate, as lenders will consider your credit score, income, and assets to determine your risk as a borrower. What’s more, mortgage rates change daily based on external economic factors like investment activity and inflation.

Read on to learn how a mortgage rate lock works and the benefits and downsides of using this option.

What Is a Mortgage Rate Lock?

A mortgage rate lock is an agreement between a borrower and lender to secure an interest rate on a mortgage for a set period of time. Locking in your mortgage rate safeguards you from market fluctuations while the lender underwrites and processes your loan.

Interest rates can rise and fall significantly between mortgage preapproval and closing on a property.

Remember that in the home-buying process, when you’re pre-approved for a mortgage, you will know exactly how much you most likely can borrow, and then you can shop for a home in that range.

So when can you lock in a mortgage rate? Depending on the lender, you may have the option to lock in the rate any time between preapproval and when underwriting begins.

Before preapproval and locking in, it’s recommended to get multiple offers when shopping for a mortgage to find a competitive rate.
💡 Quick Tip: Want the comforts of home and to feel comfortable with your home loan? SoFi has a simple online application and a team dedicated to closing your loan on time. No surprise SoFi has been named a Top Online Lender in 2024 by LendingTree/Newsweek.

How a Mortgage Rate Lock Works

Mortgage rate locks are more complicated than simply securing a set rate in perpetuity. How the rate lock works in practice will vary among lenders, loan terms, different types of mortgages, and geographic locations.

Once you lock a mortgage rate, there are three possible scenarios: Interest rates will increase, decrease, or stay the same. The ideal outcome is securing a lower rate than the prevailing market interest rate at the time of closing.

Here are some key points to know if you are considering a rate lock:

•   Rate locks are sometimes free but often cost between 0.25% and 0.50% of the loan amount.

•   When you choose to lock in your rate, it’s stabilized for a set period of time — usually for 30 to 60 days, but up to 120 days may be available.

•   If the rate lock expires before closing on the property, the ability to extend is subject to the lender.

•   Time it right. The average mortgage took 44 days to close as of February 2024, according to ICE Mortgage Technology, underscoring the importance of timing a mortgage rate lock with your expected closing date. Otherwise, you could face fees for extending the rate lock or have to settle for a new, potentially higher rate.

•   Whether borrowers are charged for a rate lock depends on the lender. It could be baked into the cost of the offer or tacked on as a flat fee or percentage of the loan amount. The longer the lock period, the higher the fees, generally speaking.

•   Lenders have the discretion to void the rate lock and change your rate based on your personal financial situation. Say you take out a new line of credit to cover an emergency expense during the mortgage underwriting process. This could affect your credit and debt-to-income ratio, causing the lender to reevaluate your eligibility for the offered rate and financing.

•   Lenders also determine the mortgage rate based on the types of houses a borrower is looking at: A primary residence vs. a vacation home or investment property, for example, would influence the interest rate.

Recommended: A Guide to Buying a Duplex

Consequences of Not Locking in Your Mortgage Rate

There are risks to not locking in a mortgage rate before closing.

If you don’t lock in a rate, it can change at any time. An uptick in interest rates would translate to a higher monthly mortgage payment. Granted, a slight bump to your monthly payment may not lead to mortgage relief, but it could cost thousands over time.

Example: The monthly payment on a $300,000 loan at a 30-year fixed rate would go up by $88 if the interest rate increased from 4% to 4.5%. This would add up to an extra $31,611 in interest paid over the life of the loan.

You can use a mortgage calculator tool to see how much a rise in rates could affect your mortgage payment.

Furthermore, a higher monthly payment might potentially disqualify you from financing, depending on the impact on your debt-to-income ratio. After a jump in interest rates, borrowers may need to make a larger down payment or buy mortgage points upfront to obtain financing.

Even if you lock in a mortgage rate early on, you could face these consequences if it expires before closing. Deciding when to lock in a mortgage rate should account for any potential contingencies that could delay the process.
If you’re unsure, ask your lender for guidance on when you should lock in.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

What to Do if Interest Rates Fall After Your Rate Lock

The main concern with mortgage rate locks is that you could miss out on a lower rate. In most cases, buyers will pay the rate they are locked in at if the prevailing interest rate is less.

A float-down option, however, protects you from rate increases while letting you switch to the lower interest rate at closing.

•   Float-down policies vary by lender but generally cost more than a conventional rate lock for the added flexibility and assurance.

•   It’s also possible that a float-down option won’t be triggered unless a certain threshold is met for the drop in rates.

•   It’s worth noting that borrowers aren’t committed to the mortgage lender until closing, so reapplying elsewhere is an option if rates change considerably.

Pros and Cons of Mortgage Rate Lock

Back to the big question: Should I lock my mortgage rate today? It’s important to weigh the pros and cons to decide when to lock in a mortgage rate.

Pros Cons
Locking in a rate you can afford can lessen money stress during the closing process A rate lock might prevent you from getting a better deal if rates fall later on
You could save money on interest if you lock in before rates go up If a rate lock expires, you may have to pay for an extension or get stuck with a potentially higher rate
Lenders may offer a short-term rate lock for free, providing a window to close the deal if rates spike but an opportunity to wait it out if they drop Rate locks can involve a fee of 0.25% to 0.50% of the loan amount.

The Takeaway

A favorable interest rate can make a difference in your home-buying budget. If you’re considering a rate lock because you’re concerned that rates will be rising, it’s important to choose a lock period that gives the lender ample time to process the loan to avoid extra fees or a potentially higher rate.

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

How long does a rate lock period last?

Rate locks usually last 30 to 60 days but can be shorter or longer depending on the agreement. It’s not uncommon for lenders to offer a free rate lock for a designated time frame.

Should you use a mortgage rate “float-down”?

If you’re worried about missing out on low interest rates, a mortgage rate float-down option could let you secure the current rate with the option to take a lower one if rates drop. Take note that these agreements usually outline a specified period and minimum amount the rate must drop to activate the float-down.

How much does a rate lock cost?

Lenders don’t always charge for a rate lock. If they do, you can expect costs to range from 0.25% to 0.50% of the loan amount for a lock period (usually 30 to 60 days). A longer lock period or adding a float-down option typically increases the rate lock cost.

What happens if my rate lock expires?

If your rate lock expires before you’ve finalized the deal, you can choose to extend the lock period (usually for a fee) or take the prevailing rate when you close on the loan.

Photo credit: iStock/Vertigo3d

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.

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

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It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.

With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging.

Here’s everything you need to know about selling a home with a mortgage.

What Happens to Your Mortgage When You Sell Your Home?

When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.

A Typical Sale

In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.

A Short Sale

A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).

In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.

When You Buy Another House

There are several roads you can take when you buy another house before selling your own. You may have the option of:

•   Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.

•   Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.

•   Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Selling a House With a Mortgage: Step by Step

Here are the steps to take to sell a home that still has a mortgage.

Get a Payoff Quote

To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.

The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.

Determine Your Home Equity

Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.

When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.

Secure a Real Estate Agent

A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.

Set a Price

With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.

Accept a Bid and Open Escrow

After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?

You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.

Review Your Settlement Statement

You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.

Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Selling a House With a Negative Equity

Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.

If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.

In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.

The Takeaway

Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit.

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

Who is responsible for the mortgage on the house during the sale?

The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.

What happens if you sell a house with a HELOC?

When you sell a home that has a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.

What happens to escrow money when you sell your house?

Your mortgage escrow account will be closed, and any money left will be refunded to you.

Can I make a profit on a house I still owe on?

Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.

Can I have two mortgages at once?

Yes, you can have two mortgages at once if the lender approves it.

Photo credit: iStock/Beton studio

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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

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Embarking on a home renovation to transform your living space is an exciting endeavor. Home improvements are also an investment that can significantly increase the value of your property, so it’s important to track expenses to be prepared for capital gains tax when you sell your home. Tracking home improvement costs can also help homeowners stick to a budget and ensure a greater return on investment.

Let’s take a closer look at how to track home improvement costs, which upgrades qualify for tax purposes, and options for financing a home renovation.

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

Why Track Home Improvement Costs?

Amid all the work and logistics that goes into renovations, tracking home improvement costs might not feel like a high priority. However, having documented home improvement costs can help reduce potential capital gains tax when it’s time to sell your home.

The IRS allows qualifying home improvement costs to be added to the original purchase price of the property, known as the cost basis, when calculating capital gains on a home sale. The basis is subtracted from the home sale price to determine if you’ve realized a gain and subsequently owe tax. But by adding home improvement expenses to your cost basis, the profit from the sale that’s subject to taxes decreases — lowering or even potentially exempting you from property gains tax.

Besides home improvements, other factors that affect property value, like location and the current housing market, could make a property sale subject to capital gains tax.

Here’s an example of how capital gains tax on a home sale works: A married couple that purchased a home for $200,000 in 2001 and sold it for $750,000 in 2024 would have a $550,000 realized gain. Assuming that the sellers made this home their main residence for two of the last five years, they’d be able to exclude $500,000 of the gain from taxes. The remaining $50,000 would be taxed at 0%, 15%, or 20% based on the sellers’ income and how long they owned the property.

However, the sellers spent $70,000 on home improvements during their 23 years of homeownership, so the capital gains calculation would be revised to: $750,000 – ($200,000 + $70,000) = $480,000. Tracking home improvement costs in this example exempted the sellers from needing to pay capital gains taxes.

Note that single filers may exclude only the first $250,000 of realized gains from the sale of their home. Eligibility for the exclusion also requires living in the home for at least two years out of the last five years leading up to the date of sale. Those who own vacation homes should note that the IRS has very specific rules about what constitutes a main residence.
💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

Qualifying vs Nonqualifying Improvements

The IRS sets guidelines that determine what home improvements can be added to your cost basis for calculating capital gains tax. Thus, not every dollar spent on sprucing up your home’s curb appeal or living space needs to be tracked for tax purposes. Generally, tracking costs is a good idea for any home improvements that increase your home’s value and fall outside general repair and upkeep to maintain the property’s condition.

Qualifying Improvements

According to the IRS, improvements that add value to the home, prolong its useful life, or adapt it to new uses can qualify. This includes the following categories and home improvements:

•   Home additions: Bedroom, bathroom, deck, garage, porch, or patio

•   Home systems: HVAC systems, central humidifier, central vacuum, air/water filtration systems, wiring, security systems, law and sprinkler systems.

•   Lawn & grounds: Landscaping, driveway improvements, fencing, walkways, retaining walls, and pools

•   Exterior: Storm windows, roofing, doors, siding

•   Interior: Built-in appliances, kitchen upgrades, flooring, wall-to-wall carpeting, fireplaces

•   Insulation: Attic, walls, floors, pipes, and ductwork

•   Plumbing: Septic system, water heater, soft water system, filtration system

It’s also important to track any tax credits or subsidies received for energy-related home improvements, such as solar panels or a heat pump system, since these incentives must be subtracted from the cost basis.

Recommended: How to Find a Contractor for Home Renovations and Remodeling

Nonqualifying Expenses

Owning a home requires routine maintenance and occasional repairs — think fixing a leaky pipe or mowing the lawn. And the longer you own your home, the greater the chance you reapproach past home improvements with a fresh design or modern technologies. The IRS considers regular maintenance and any home improvement that’s been later replaced as nonqualifying costs.

For instance, a homeowner could have installed wall-to-wall carpet and later swapped it out for hardwood floors. In this case, the hardwood floors would qualify, but not the carpeting.

Recommended: The Costs of Owning a Home

How to Track Your Costs

Developing a system for tracking home improvement costs depends in part on where you are in the process. Here’s how to get track home improvement costs before, during, and after a renovation project.

Before You Renovate

The average cost to renovate a house can vary from $20,000 to $80,000 based on the size of the home and type of improvements. Given this range in cost expectations, it’s helpful to create an itemized budget that estimates the cost for each improvement. It’s hardly uncommon for renovations to take more time and money than expected, so consider budgeting an extra 10-20% for the unexpected.

Your itemized budget can be leveraged for tracking home improvement costs once the project starts. Simply plug in the completion date, cost, and description for each improvement, and keep receipts, to itemize the expense as it’s incurred.

Recommended: How to Make a Budget in 5 Steps

Keep Detailed Records

Tracking home improvement costs goes beyond crunching the numbers. The IRS requires documentation to adjust the cost basis on a property. As improvements are made, catalog contractor and store receipts and take pictures before and after the work is done to document the improvements for your records. Store these records digitally in a secure and accessible location; the IRS recommends keeping records for three years after the tax return for the year in which you sell your home.

Catch Up After the Fact

Tracking home improvement costs after the work has been completed is doable, but it requires more effort. If your renovations required any building permits, your municipality should have records on file.

For other projects, start by searching your email for receipts and records can help find a paper trail and track down documentation. Reach out to contractors you worked with for copies of missing receipts or invoices. If you paid with a check or credit card, you can browse through your previous statements or contact the bank for assistance.

Consult a Tax Pro

Taxes are complicated. If you have any doubts about what improvements qualify, consult a tax professional for assistance. Homeowners who used their property as a home office or rented it for any duration could especially benefit from a tax pro. Any property depreciation that was claimed in previous tax years may need to be recaptured if the home sale price exceeds the cost basis.

Home Improvement Financing Options

Renovations and upgrades to your home can be expensive. Many homeowners use a combination of savings and financing to pay for home improvements.

•   HELOC: A Home Equity Line Of Credit lets homeowners tap into their existing equity to fund a variety of expenses, such as home improvements. With a HELOC, you can take out what you need as you need it, rather than the full amount you’re approved for, which is often 75%-85% of your home’s value. You only pay interest on the amount you draw.

•   Cash-out refinance: Some owners take out a new home loan that allows them to pay off their old mortgage but also provides them with a lump sum of cash that they can use for home repairs (or other expenses). How much cash you might be able to take will depend on the amount of equity you have in your home.

•   Personal loan: An unsecured personal loan could be a good option for quick funding that doesn’t require using your home as collateral. The interest rate and whether you qualify are largely based on your credit score.

•   Credit card: Financing a home improvement with a credit card can help earn cash back or rewards on your investment. However, these perks should be weighed against the risk of higher interest rates. If using a 0% interest credit card, crunch the numbers to ensure you can pay off the balance before the introductory offer expires.
💡 Quick Tip: You can use money you get with a cash-out refi for any purpose, including home renovations, consolidating other high-interest debts, funding a child’s education, or buying another property.

The Takeaway

Tracking home improvement costs from the start can help stick to your project budget and lead to significant tax savings when it comes time to sell your property. A HELOC is one way to fund home improvements, and may be especially useful to borrowers who aren’t sure how much money they will need for home projects. If you’re unsure whether a home improvement qualifies under the IRS rules around capital gains tax on home sales, consult a tax professional.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 95% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

Photo credit: iStock/Cucurudza

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.

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

²

To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).

All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.

You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.

SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.

In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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.

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

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Millions of employees work from home at least part time. They’ve carved out dedicated office space and plopped laptops on kitchen counters and in closets. They almost never can declare the home office tax deduction.

Millions of self-employed people have also created workspaces at home. If they use that part of their home exclusively and regularly for conducting business, and the home is the principal place of business, they may be able to deduct office-related business expenses.

Why the difference? The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated many itemized deductions, including unreimbursed employee expenses, from 2018 to 2025.

Read on to learn whether or not you may qualify for the home office tax deduction.

What Is a Home Office Tax Deduction?

The home office tax deduction is available to self-employed people — independent contractors, sole proprietors, members of a business partnership, freelancers, and gig workers who require an office — who use part of their home, owned or rented, as a place of work regularly and exclusively.

“Home” can be a house, condo, apartment, mobile home, boat, or similar property, and includes structures on the property like an unattached garage, studio, barn, or greenhouse.

Eligible taxpayers can take a simplified deduction of up to $1,500 or go the detailed route and deduct office furniture, homeowners or renters insurance, internet, utilities needed for the business, repairs, and maintenance that affect the office, home depreciation, rent, mortgage interest, and many other things from taxable income.

After all, reducing taxable income is particularly important for the highly taxed self-employed (viewed by the IRS as both employee and employer.)

An employee who also has a side gig — like driving for Uber or dog walking — can deduct certain expenses from their self-employment income if they run the business out of their home.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Am I Eligible for a Home Office Deduction?

People who receive a W-2 form from their employer almost never qualify.

In general, a self-employed person who receives one or more IRS 1099-NEC tax forms may take the home office tax deduction.

Both of these must apply:

•   You use the business part of your home exclusively and regularly for business purposes.

•   The business part of your home is your main place of business; the place where you deal with patients or customers in the normal course of your business; or a structure not attached to the home that you use in connection with your business.

Regular and Exclusive Use

You must use a portion of the home for business needs on a regular basis. The real trick is to meet the IRS standard for the exclusive use of a home office. An at-home worker may spend nine hours a day, five days a week in a home office, yet is not supposed to take the home office deduction if the space is shared with a spouse or doubles as a gym or a child’s homework spot.

There are two exceptions to the IRS exclusive-use rules for home businesses.

•   Daycare providers. Individuals offering daycare from home likely qualify for the home office tax deduction. Part of the home is used as a daycare facility for children, people with physical or mental disabilities, or people who are 65 and older. (If you run a daycare, your business-use percentage must be reduced because the space is available for personal use part of the time.)

•   Storage of business products. If a home-based businessperson uses a portion of the home to store inventory or product samples, it’s OK to use that area for personal use as well. The home must be the only fixed location of the business or trade.

Principal Place of Business

Part of your home may qualify as your principal place of business “if you use it for the administrative or management activities of your trade or business and have no other fixed location where you conduct substantial administrative or management activities for that trade or business,” the IRS says.

Can You Qualify for a Home Office Deduction as an Employee?

Employees may only take the deduction if they maintain a home office for the “convenience of their employer,” meaning the home office is a condition of employment, necessary for the employer’s business to function, or needed to allow the employee to perform their duties.

Because your home must be your principal place of business in order to take the home office deduction, most employees who work part-time at home won’t qualify.

Can I Run More Than One Business in the Same Space?

If you have more than one Schedule C business, you can claim the same home office space, but you’ll have to split the expenses between the businesses. You cannot deduct the home office expenses multiple times.

How to Calculate the Home Office Tax Deduction

The deduction is most commonly based on square footage or the percentage of a home used as the home office.

The Simplified Method

If your office is 300 square feet or under, Uncle Sam allows you to deduct $5 per square foot, up to 300 square feet, for a maximum $1,500 tax deduction.

The Real Expense Method

The regular method looks at the percentage of the home used for business purposes. If your home office is 480 square feet and the home has 2,400 square feet, the percentage used for the home office tax deduction is 20%.

You may deduct 20% of indirect business expenses like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning service.

Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are 100% deductible.
💡 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.

Things to Look Out for Before Applying for the Home Office Tax Deduction

If you’re an employee with side gigs or just self-employed, it might be a good idea to consult a tax pro when filing.

To avoid raising red flags, you may want to make sure your business expenses are reasonable, accurate, and well-documented. The IRS uses both automated and manual methods of examining self-employed workers’ tax returns. And in 2020, the agency created a Fraud Enforcement Office, part of its Small Business/Self-Employed Division. Among the filers in its sights are self-employed people.

The IRS conducts audits by mail or in-person to review records. The interview may be at an IRS office or at the tax filer’s home.

A final note: Taking all the deductions you’re entitled to and being informed about the different types of taxes is smart.

If you’re self-employed, you generally must pay a Social Security and Medicare tax of 15.3% of net earnings. Wage-earners pay 7.65% of gross income into Social Security and Medicare via payroll-tax withholding, matched by the employer.

So self-employed people often feel the burn at tax time. It’s smart to look for deductions and write off those home business expenses if you’re able to.

To shelter income and invest for retirement, you might want to set up a SEP IRA if you’re a self-employed professional with no employees.

Recommended: First-Time Homebuyers Guide

The Takeaway

If you’re an employee working remotely, the home office tax deduction is not for you, right now, anyway.

If you’re self-employed, the home office deduction could be helpful at tax time. To qualify for the home office deduction, you must use a portion of your house, apartment, or condominium (or any other type of home) for your business on a regular basis, and it generally must be the principal location of your business. This is something to keep in mind if you’re in the market for a new home, since writing off a portion of your home expenses could help offset some of the costs of homeownership.

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

How much can I get written off for my home office?

Using the simplified method of calculating the home office deduction, you can write off up to $1,500. Using the regular method, you’ll need to determine the percentage of your home being used for business purposes. You may then be able to deduct that percentage of certain indirect expenses (like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning services). Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are generally 100% deductible.

Can I make a claim for a home office tax deduction without receipts?

The simplified method does not require detailed records of expenses. If using the regular method, you should be prepared to defend your deduction in the event of an IRS audit.

The IRS says the law requires you to keep all records you used to prepare your tax return for at least three years from the date the return was filed.

What qualifies as a home office deduction?

Things like insurance, utilities, repairs, maintenance, equipment, and rent may qualify as tax deductions.

Photo credit: iStock/Marija Zlatkovic

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 Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.

[cd_ tax]
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

Over the life of a $350,000 mortgage with a 7% interest rate, borrowers could expect to pay from $216,229 to $488,233 in total interest, depending on whether they opt for a 15-year or 30-year loan term. But the actual cost of a mortgage depends on several factors, including the interest rate, and whether you have to pay private mortgage insurance.

Besides interest, homebuyers need to account for a down payment, closing costs, and the long-term costs of taxes and insurances that are included in a $350,000 mortgage payment.

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

Cost of a $350,000 Mortgage

When you finance a home purchase, you have to pay back more than the borrowed amount, known as the loan principal. The total cost of taking out a $350,000 mortgage is $838,281 with a 30-year term at a 7% interest rate. This comes out to $488,233 worth of interest, assuming there aren’t any late monthly mortgage payments or pre-payments.

When you buy a home, there are usually some upfront costs you’ll have to pay, too. Mortgages often require a down payment, calculated as a percentage of home purchase price, that’s paid out of pocket to secure financing from a lender. The required amount varies by loan type and lender, but average down payments range from 3% – 20%.

Closing costs, including home inspections, appraisals, and attorney fees, represent another upfront cost for real estate transactions. They typically sum up to 3% to 6% of the loan principal, or $10,500 to $21,000 on a $350,000 mortgage.

The total down payment on $350,000 mortgages also impacts the total cost of taking out a home loan. Unless buyers put 20% or more down on a home purchase, they’ll have to pay private mortgage insurance (PMI) with their monthly mortgage payment. The annual cost of PMI is generally between 0.5% – 1.5% of the loan principal. Borrowers can get out of paying PMI with a mortgage refinance or when they reach 20% equity in their home. If this is your first time in the housing market, consider reading up on tips to qualify for a mortgage.
💡 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.

Monthly Payments for a $350,000 Mortgage

The monthly payment on a $350K mortgage won’t always be the same amount. You’ll need to factor in your down payment, interest rate, and loan term to estimate your $350,000 mortgage monthly payment.

With a 30-year loan term and 7% interest rate, borrowers can expect to pay around $2,328 a month. Whereas a 15-year term at the same rate would have a monthly payment of approximately $3,146. However, these estimates only account for the loan principal and interest. Monthly mortgage payments also include taxes and insurances, but these costs can differ considerably by location and based on a home’s assessed value.

There are also different types of mortgages to consider. Whether you opt for a fixed vs adjustable-rate mortgage, for instance, will affect your monthly payment.

To get a clearer idea of what your monthly payment might be with different down payments and loan terms, try using a mortgage calculator.

Recommended: Best Affordable Places to Live in the U.S.

Where to Get a $350,000 Mortgage

Homebuyers have many options in terms of lenders, including banks, credit unions, mortgage brokers, and online lenders.

The homebuying process can be stressful, so it may be tempting to go with the first mortgage offer you receive. However, shopping around and getting loan estimates from multiple lenders lets you choose the one that’s the most competitive and cost-effective.

Even a fraction of a percentage point difference on an interest rate can add up to thousands in savings over the life of a mortgage. Besides the interest rate, assess the fees, terms, and closing costs when comparing mortgage offers.

Recommended: Home Loan Help Center

What to Consider Before Applying for a $350,000 Mortgage

When taking out a mortgage, it’s important to consider the total cost of the loan. You’ll need cash on hand for a down payment and closing costs, plus sufficient income and funds to cover the monthly payment and other homeownership costs.

Before applying for a $350,000 mortgage, crunching the numbers in a housing affordability calculator can give a better understanding of how these costs will work with your finances.

It’s also helpful to see how $350,000 mortgage monthly payments are applied to the loan interest and principal over the life of the loan. The majority of the monthly mortgage payment goes toward interest rather than paying off the loan principal, as demonstrated by the amortization schedules below.

Here’s the mortgage amortization schedule for a 30-year $350,000 mortgage with a 7% interest rate — which would amount to $488,233 in interest. For comparison, we’ve also included the mortgage amortization schedule for a 15-year $350,000 mortgage with a 7% interest rate. A $350,000 mortgage payment, 15 years’ out, would add up to $216,229 in interest. When weighing a 30-year vs 15-year loan term, the shorter loan term carries a higher monthly payment but less than half the total interest over the life of the loan.

Amortization Schedule, 30-year Mortgage at 7%

Year Beginning Balance Total Interest Paid Total Principal Paid Remaining Balance
1 $350,000 $24,386 $3,555 $346,425
2 $346,425 $24,129 $3,812 $342,613
3 $342,613 $23,853 $4,088 $338,525
4 $338,525 $23,558 $4,383 $334,142
5 $334,142 $23,241 $4,700 $329,442
6 $329,442 $22,901 $5,040 $324,402
7 $324,402 $22,537 $5,404 $318,998
8 $318,998 $22,146 $5,795 $313,203
9 $313,203 $21,717 $6,214 $306,989
10 $306,989 $21,278 $6,663 $300,326
11 $300,326 $20,796 $7,145 $293,182
12 $293,182 $20,280 $7,661 $285,520
13 $285,520 $19,726 $8,215 $277,306
14 $277,306 $19,132 $8,809 $268,497
15 $268,497 $18,496 $9,446 $259,051
16 $259,051 $17,813 $10,128 $248,923
17 $248,923 $17,081 $10,861 $238,062
18 $238,062 $16,295 $11,646 $226,417
19 $226,417 $15,454 $12,488 $213,929
20 $213,929 $14,551 $13,390 $200,539
21 $200,539 $13,583 $14,358 $186,181
22 $186,181 $12,545 $15,396 $170,784
23 $170,784 $11,432 $16,509 $154,275
24 $154,275 $10,238 $17,703 $136,573
25 $136,573 $8,959 $18,982 $117,590
26 $117,590 $7,586 $20,355 $97,236
27 $97,236 $6,115 $21,826 $75,409
28 $75,409 $4,537 $23,404 $52,006
29 $52,006 $2,845 $25,096 $26,910
30 $26,910 $1,031 $26,910 $0

Amortization Schedule, 15-year Mortgage at 7%

Year Beginning Balance Total Interest Paid Total Principal Paid Remaining Balance
1 $350,000 $24,065 $13,684 $336,296
2 $336,296 $23,076 $14,673 $321,624
3 $321,624 $22,015 $15,733 $305,890
4 $305,890 $20,878 $16,871 $289,020
5 $289,020 $19,658 $18,090 $270,929
6 $270,929 $18,351 $19,398 $251,531
7 $251,531 $16,948 $20,800 $230,731
8 $230,731 $15,445 $22,304 $208,427
9 $208,427 $13,832 $23,916 $184,510
10 $184,510 $12,103 $25,645 $158,865
11 $158,865 $10,249 $27,499 $131,366
12 $131,366 $8,261 $29,487 $101,879/td>
13 $101,879 $6,130 $31,619 $70,260
14 $70,260 $3,844 $33,904 $36,355
15 $36,355 $1,393 $36,355 $0

Recommended: The Cost of Living By State

How to Get a $350,000 Mortgage

To qualify for a $350,000 mortgage, borrowers will need to meet the income, credit, and down payment requirements. It’s also important to have an adequate budget for long-term housing costs and other financial goals and obligations like savings and debt.

Using the 28/36 rule, a monthly mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt to be considered affordable. With a $2,328 monthly mortgage payment, you’d need a minimum gross monthly income of at least $8,300, or annual income of $96,600, to follow the 28% rule. Similarly, your total debt could not exceed $660 to keep housing and debt costs from surpassing 36%.

Home mortgage loans, with the exception of certain government-backed loans, require a minimum credit score of 620 to qualify. However, a higher credit score can help secure more competitive rates. If you qualify as a first-time homebuyer, you could get a FHA loan with a credit score of 500 or higher, though borrowers with a credit score below 580 will have to make a 10% down payment.

As mentioned above, it’s a good idea to compare lenders and loan types to find the most favorable rate and loan terms. From there, getting preapproved for a home loan is a logical next step to determine the loan amount and interest rate you qualify for. It also puts you in a better position to demonstrate you’re a serious buyer when making an offer on a property.

After putting in an offer, completing the mortgage application requires many of the same forms used for preapproval, plus an earnest money deposit.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

Buying a home is the largest purchase many Americans make in their lifetime. How much you’ll end up paying for a $350,000 mortgage depends on the interest rate and loan term. On a $350,000 mortgage, the monthly payment can range from $2,328 to $3,146 based on these factors.

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

How much is a $350K mortgage a month?

The cost of a $350,000 monthly mortgage payment is influenced by the loan term and interest rate. On a $350K mortgage with 7% interest, the monthly payment ranges from $2,328 to $3,146 depending on the loan term.

How much income is required for $350,000 mortgage?

Income requirements can vary by lender. But using the 28/36 rule, a borrower who isn’t burdened by lots of other debts should make $99,600 a year to afford the monthly payment on a $350,000 mortgage.

How much is a down payment on a $350,000 mortgage?

The down payment amount depends on the loan type and lender terms. FHA loans require down payments of 3.5% or 10%, while buyers could qualify for a conventional loan with as little as 3% down.

Can I afford a $350K house with a $70K salary?

It may be possible to afford a $350,000 house with a $70,000 salary, but only if you are able to make a sizable down payment to lessen the amount of money you need to borrow. Having a good credit score and minimal debt would also better your chances.

Photo credit: iStock/sturti

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.

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.

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.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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Source: sofi.com

Apache is functioning normally

A $450K mortgage payment is between $3,000 and $4,000 per month in the current interest-rate environment, depending on your loan type and term. This amount, however, does not include other variables that affect your payment, such as property taxes and insurance. Here’s the lowdown on what you can expect.

Cost of a $450,000 Mortgage

A $450K mortgage payment is primarily influenced by your loan term and interest rate. A 30-year loan at 7% interest would result in a monthly cost of $2,993 (not including taxes and insurance). But a 15-year loan at the same interest rate would have monthly payments of $4,044.
💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

Monthly Payments for a $450,000 Mortgage

The amount you pay each month for a $450,000 mortgage payment is going to be somewhere between $2,993 and $4,044. However, keep in mind that there are a few variables that affect your monthly payment. These include:

•   Interest rate

•   Fixed or variable interest rate

•   Length of repayment period (15, 20, or 30 years)

•   Mortgage insurance

•   Property taxes

•   Property insurance

Another thing to consider are homeowners association (HOA) fees. Although they are paid directly to the HOA association and shouldn’t affect your monthly mortgage payment, these fees are an additional living expense.

If you’re a first-time homebuyer, it’s important to understand the true cost of owning a home because your monthly payment is more complicated than simply the amount you borrow. Housing costs and property taxes, for example, vary based on location. If you’re open to where you live, you may want to compare the cost of living by state. The best affordable places to live in the U.S. may pique your interest!

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

Where to Get a $450,000 Mortgage

Banks, credit unions, and online lenders can all provide you with a $450,000 mortgage. Make sure you shop around and compare lenders to get the lowest interest rate. As you apply, you’ll receive loan estimates that show the cost of a loan. While the annual percentage rate (APR) is certainly important, also compare expenses such as the loan origination fee and mortgage insurance.

What to Consider Before Applying for a $450,000 Mortgage

Before applying for a $450,000 mortgage, consider the cost difference between a shorter loan repayment period and a longer loan repayment period. For a 30-year mortgage with a 7% interest rate, the total interest paid during the life of the loan would be $627,791.

For a 15-year mortgage with the same interest rate, you would have a higher monthly payment, but the total amount you would pay in interest would be more than halved: just $278,050. For an extra $1,050 each month, a 15-year loan would save $349,739 in interest compared to a 30-year loan.

If you can’t afford a 15-year mortgage now, just remember that you can always do a mortgage refinance in the future.

$450,000 mortgage with a term of 30 years and a 7% interest rate:

Year Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $450,000 $2,993.86 $31,355.19 $4,571.14 $445,428.86
2 $445,428.86 $2,993.86 $31,024.74 $4,901.59 $440,527.26
3 $440,527.26 $2,993.86 $30,670.41 $5,255.93 $435,271.33
4 $435,271.33 $2,993.86 $30,290.45 $5,635.88 $429,635.45
5 $429,635.45 $2,993.86 $29,883.04 $6,043.30 $423,592.15
6 $423,592.15 $2,993.86 $29,446.17 $6,480.17 $417,111.98
7 $417,111.98 $2,993.86 $28,977.71 $6,948.62 $410,163.36
8 $410,163.36 $2,993.86 $28,475.40 $7,450.94 $402,712.43
9 $402,712.43 $2,993.86 $27,936.77 $7,989.57 $394,722.86
10 $394,722.86 $2,993.86 $27,359.20 $8,567.13 $386,155.73
11 $386,155.73 $2,993.86 $26,739.88 $9,186.45 $376,969.27
12 $376,969.27 $2,993.86 $26,075.79 $9,850.54 $367,118.73
13 $367,118.73 $2,993.86 $25,363.70 $10,562.64 $356,556.09
14 $356,556.09 $2,993.86 $24,600.12 $11,326.21 $345,229.88
15 $345,229.88 $2,993.86 $23,781.35 $12,144.98 $333,084.90
16 $333,084.90 $2,993.86 $22,903.39 $13,022.95 $320,061.95
17 $320,061.95 $2,993.86 $21,961.96 $13,964.38 $306,097.58
18 $306,097.58 $2,993.86 $20,952.47 $14,973.86 $291,123.71
19 $291,123.71 $2,993.86 $19,870.01 $16,056.32 $275,067.39
20 $275,067.39 $2,993.86 $18,709.30 $17,217.04 $257,850.35
21 $257,850.35 $2,993.86 $17,464.68 $18,461.66 $239,388.69
22 $239,388.69 $2,993.86 $16,130.08 $19,796.25 $219,592.44
23 $219,592.44 $2,993.86 $14,699.01 $21,227.33 $198,365.12
24 $198,365.12 $2,993.86 $13,164.48 $22,761.85 $175,603.27
25 $175,603.27 $2,993.86 $11,519.03 $24,407.31 $151,195.96
26 $151,195.96 $2,993.86 $9,754.62 $26,171.71 $125,024.25
27 $125,024.25 $2,993.86 $7,862.67 $28,063.67 $96,960.58
28 $96,960.58 $2,993.86 $5,833.94 $30,092.39 $66,868.19
29 $66,868.19 $2,993.86 $3,658.56 $32,267.77 $34,600.41
30 $34,600.41 $2,993.86 $1,325.92 $34,600.41 $0

$450,000 mortgage with a term of 15 years and 7% interest rate:

Year Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $450,000 $4,044.73 $30,942.64 $17,594.09 $432,405.91
2 $432,405.91 $4,044.73 $29,670.76 $18,865.97 $413,539.94
3 $413,539.94 $4,044.73 $28,306.94 $20,229.79 $393,310.15
4 $393,310.15 $4,044.73 $26,844.52 $21,692.20 $371,617.94
5 $371,617.94 $4,044.73 $25,276.39 $23,260.34 $348,357.61
6 $348,357.61 $4,044.73 $23,594.90 $24,941.83 $323,415.78
7 $323,415.78 $4,044.73 $21,791.85 $26,744.87 $296,670.91
8 $296,670.91 $4,044.73 $19,858.46 $28,678.26 $267,992.64
9 $267,992.64 $4,044.73 $17,785.31 $30,751.42 $237,241.23
10 $237,241.23 $4,044.73 $15,562.29 $32,974.44 $204,266.79
11 $204,266.79 $4,044.73 $13,178.56 $35,358.16 $168,908.62
12 $168,908.62 $4,044.73 $10,622.52 $37,914.21 $130,994.41
13 $130,994.41 $4,044.73 $7,881.70 $40,655.03 $76,144.79
14 $76,144.79 $4,044.73 $4,942.74 $43,593.99 $31,524.68
15 $31,524.68 $4,044.73 $1,791.33 $46,745.40 $0

It’s important to understand how costs vary between the different types of mortgage loans. A mortgage calculator can help you get a quick idea of what to expect before you commit to a home mortgage loan.

How to Get a $450,000 Mortgage

To get a $450,000 mortgage, you need a strong credit score, a steady source of income, and a low debt-to-income ratio. Other tips to qualify for a mortgage include things like saving up for a higher down payment and submitting all of the appropriate paperwork to your lender in a timely manner. If you’re just starting out on your home buying journey, a home loan help center may be a good resource.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

Payment on a $450,000 mortgage is influenced by a few different variables, such as your loan term and interest rate. Other factors that come into play include mortgage insurance, property taxes, and property insurance. A higher down payment and a stronger credit score may help lower your monthly payment.

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

How much is $450K mortgage a month?

A $450,000 mortgage should cost you around $3,000 to $4,000. Just remember to also include property taxes and insurance in your calculations.

How much income is required for $450,000 mortgage?

You probably need to earn around $140,000 a year to afford a $450,000 mortgage. A general guideline is that all of your housing costs should be at or below 30% of your gross income. Assuming you opt for a 30-year loan, your mortgage payment, property tax, and insurance cost would total around $3,200 per month. Factor in a budget for utilities and repairs and your total annual cost would be $42,000 — that’s 30% of $140,000.

How much is a down payment on a $450,000 mortgage?

A conventional loan requires a down payment of at least 3%. Therefore, your down payment should be, at minimum, $13,500. A down payment of 20% ($113,000 on a property costing $563,000) would allow you to skip paying the additional cost of mortgage insurance.

Can I afford a $450K house with a $70K salary?

It’s not likely. Assuming you choose a 30-year loan, your monthly payment would be around $3,000, which would be more than 50% of your gross income — well over the 30% that is considered the maximum amount you should spend on housing. The only way to make it work would be to have a large down payment (more than $150,000) to lower the amount you would have to borrow and thus your monthly payments.

Photo credit: iStock/AntonioGuillem

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.

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

+Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

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.

SOHL0124069

Source: sofi.com

Apache is functioning normally

A $150,000 mortgage will cost a total of $341,318 over the lifetime of the loan, assuming an interest rate of 6.5% and a 30-year term. It might be tempting to think that a $150,000 mortgage will cost…well, $150,000. But lenders need to earn a living for their services and mortgage loans come with interest.

What’s the True Cost of a $150,000 Mortgage?

The specific price you will pay to borrow $150,000 depends on your interest rate — which, in turn, is based on a wide range of factors including your credit score, income stability, and much more. Here’s what you need to know to get an estimate of how much a $150,000 home mortgage loan might cost in your specific circumstances.
💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

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

Where Do You Get a $150,000 Mortgage?

Good news: There are many banks and institutions that offer $150,000 mortgages. For 2024, the maximum amount for most conventional loans is more than $750,000, so the loan you’re considering is well within reach. To see how your salary, debts, and down payment savings affect how much home you can afford, use a home affordability calculator.

However, it’s important to understand that even a $150,000 mortgage may cost far more than the sticker price after interest and associated fees. For instance, let’s say you purchase a $200,000 home with a 25% down payment and a $150,000 mortgage. If your interest rate is 7% and your loan term is 30 years, the total amount you’d pay over that time is $359,263.35 — which means you’d actually pay more than the home price ($209,263.35) in interest alone. (And that’s before closing costs, home insurance, property taxes, or mortgage insurance.)

At prices like that, it may seem like taking out a mortgage at all is a bad deal. Fortunately, property has a tendency to increase in value (or appreciate) over time, which helps offset the overall cost of interest. (Of course, nothing is guaranteed.)

Keep in mind that you can potentially lower the interest rate you qualify for by lowering your debt-to-income (DTI) ratio, improving your credit score, or increasing your cash flow by getting a better-paying job. Even a small decrease in interest can have a big effect over the lifetime of a loan. In our example above, with all else being equal, you’d pay only $139,883.68 in interest if your rate were 5% instead of 7% — a savings of nearly $70,000!

Recommended: The Best Affordable Places to Live in the U.S.

Monthly Payments for a $150,000 Mortgage

When you take out a $150,000 mortgage, you’ll repay it over time in monthly installments — of a fixed amount, if you have a fixed mortgage, or amounts that can change if you take out a variable rate loan.

Your monthly $150K mortgage payment includes both principal (the amount you borrowed) and interest (the amount you’re being charged), and may also wrap in your property taxes, homeowners insurance, and mortgage insurance if applicable. (You’ll only need to pay mortgage insurance if your down payment is less than 20%.)

But there is another caveat here that some first-time homebuyers don’t know about. Even if your mortgage payments are fixed each month, the proportion of how much principal you’re paying to how much interest you’re paying does change over time — a process known as the amortization of the loan. It’s a big word, but its bottom line is simple: Earlier on in the loan’s life, you’re likely paying more interest than principal, which increases the amount of money the bank earns overall. Later on in the loan, you’ll usually pay more principal than interest.

What to Consider Before Applying for a $150,000 Mortgage

Amortization is important to understand because it can affect your future financial decisions. For example, if you’re not planning on staying in your house for many years, you may find you have less equity in your home than you originally imagined by the time you’re ready to sell — because the bulk of your mortgage payments thus far have been going toward interest. It might also affect when it makes sense to refinance your mortgage.

Most lenders make it easy to make larger payments or additional payments against the principal you owe so that you can chip away at your debt total faster, but be sure to double-check that your lender doesn’t have early repayment penalties.

Of course, there are different types of home loans. Here are some sample amortization schedules for two $150,000 home loans. (You can also build your own based on your specific details with a mortgage calculator or an amortization calculator online.)

Amortization Schedule, 30-year, 7% Fixed

Years Since Purchase Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $150,000 $997.95 $10,451.73 $1,523.71 $148,476.29
3 $146,842.42 $997.95 $10,223.47 $1,751.98 $145,090.44
5 $143,211.82 $997.95 $9,961.01 $2,014.43 $141,197.38
10 $131,574.29 $997.95 $9,119.73 $2,855.71 $128,718.58
15 $115,076.63 $997.95 $7,927.12 $4,048.33 $111,028.30
20 $91,689.13 $997.95 $6,236.43 $5,739.01 $85,950.12
30 $11,533.47 $997.95 $441.97 $11,975.44 $0.00

Notice that, for more than the first half of the loan’s lifetime, you’ll pay substantially more interest than principal each year — even though your mortgage payments remain fixed in amount.

Amortization Schedule, 15-year, 7% Fixed

Years Since Purchase Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $150,000 $1,348.24 $10,314.21 $5,864.70 $144,135.30
3 $137,846.65 $1,348.24 $9,435.65 $6,743.26 $131,103.38
5 $123,872.65 $1,348.24 $8,425.46 $7,753.45 $116,119.20
7 $107,805.26 $1,348.24 $7,263.95 $8,914.96 $98,890.30
10 $79,080.41 $1,348.24 $5,187.43 $10,991.48 $68,088.93
12 $56,302.87 $1,348.24 $3,540.84 $12,638.07 $43,664.80
15 $15,581.80 $1,348.24 $597.11 $15,581.80 $0.00

While a shorter loan term may help you build equity in your home more quickly, it comes at the cost of a higher monthly payment.

How to Get a $150,000 Mortgage

To apply for a $150,000 mortgage, you can search for providers online or go into a local brick-and-mortar bank or credit union you trust. You’ll need to provide a variety of information to qualify for the loan, including your employment history, income level, credit score, debt level, and more.

The higher your credit score, lower your debt, and more robust your cash flow, the more likely you are to qualify for a $150,000 mortgage — and, ideally, one at the lowest possible interest rate. That said, mortgage interest rates are also subject to market influences and fluctuations, and sometimes rates are simply higher than others overall.
💡 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.

The Takeaway

A $150,000 mortgage can actually cost far more than $150,000. Depending on your interest rate and your loan term, you may spend more than you borrowed in principal in the first place on interest, and you’ll likely pay a higher proportional amount of interest per monthly payment for about the first half of your loan’s lifetime.

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

How much is $150K mortgage a month?

A 30-year, $150,000 mortgage at a 7% fixed interest rate will be about $998 per month (not including property taxes or mortgage interest), while a 15-year mortgage at the same rate would cost about $1,348 monthly. The exact monthly payment you owe on a $150,000 mortgage will vary depending on factors like your interest rate and what other fees, like mortgage insurance, are rolled into the bill.

How much income is required for a $150,000 mortgage?

Those who earn about $55,000 or more per year may be more likely to qualify for a $150,000 mortgage than those who earn less. Although your income is an important marker for lenders, it’s far from the only one — and even people who earn a lot of money may not qualify for a mortgage if they have a high debt total or a poor credit score. (Still, the best way to learn whether or not you qualify is to ask your lender.)

How much is a downpayment on a $150,000 mortgage?

To avoid paying mortgage insurance, you’d want to put down 20% of the home’s purchase price, which if you are borrowing $150,000 would be $50,000 for a home priced at $200,000. Some lenders allow you to put down as little as 3.5% of the home’s price. So if you had a $150,000 mortgage and put down 3.5%, your down payment would be $5,440 and the home price would be $155,440. (Keep in mind these figures do not include closing costs.)

Can I afford a $150K house with $70K salary?

Yes, as long as you don’t have a lot of other debt, you can probably afford a $150,000 home if you’re making $70,000 a year. There’s a basic rule of thumb to spend less than a third of your gross income on your housing. With an income of $70,000 per year, you’re making about $5,833.33 per month before taxes — and a third of that figure is $1,925. A $150,000 mortgage might have a monthly payment of as little as $998 per month, even with a 7% interest rate, so it should be affordable for you as long as you don’t have other substantial debts.

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.

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.

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.

SOHL0124067

Source: sofi.com

Apache is functioning normally

A $200,000 mortgage might cost you more than twice that amount over the course of the loan’s lifetime. That’s thanks in part to the way banks amortize, or parse out the balance of interest to principal in each payment. Of course, how much your specific $200,000 mortgage will cost is a more complicated equation, since personal financial factors like your credit score and debt level will affect your interest rate. And your interest rate, in turn, will affect your total mortgage cost.

Read on for a peek into the mortgage payment on $200K, including sample amortization tables, how much your monthly payment might cost, where to find a loan, and more.

Here’s What a $200,000 Mortgage Costs

When you take out a loan of any kind, the lending institution — often a bank — charges you for the service of giving you the money you need up front. When you repay a loan, you’re repaying both principal (the money you borrowed) and interest (the money the loan servicer is charging you).

Interest is expressed as a rate in the form of a percentage. Higher interest means you’re paying more for the loan — and lower interest, of course, means you’ll pay less. The lowest interest rates are reserved for buyers with the best financial profiles, which may include factors like robust and steady income, a good or excellent credit score, and a low level of existing debt (another factor lenders express in the form of a percentage: DTI, or your debt-to-income ratio).

With all that said, let’s say you take out a $200,000 mortgage to pay for a house that costs $275,000. In this example, you’d have made a down payment of $75,000, or just over 27%. Over the course of a 30-year mortgage term, with a fixed interest rate of 6%, you’d pay almost $232,000 in interest — along with the principal repayment, of course, bringing your total amount paid to almost $432,000. You’ll notice that figure is more than double the original $200,000 you borrowed, and this example doesn’t even include additional fees like property tax or homeowners insurance.

However, interest rates are very powerful here, and even a small decrease in interest can have a big effect on the overall loan cost. For example, imagine everything we’ve just described above remains the same, but your interest rate is 4% rather than 6%. In that scenario, your total interest would be about $143,000, representing a savings of around $90,000. (Insert shocked emoji.)

As you can see, finding the most favorable interest rates possible is really worthwhile for homebuyers. If this is your first time in the home market, a home loan help center can educate you about the buying process.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

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

How Much Are Monthly Payments for a $200,000 Mortgage?

Maybe you’re less concerned about how much your $200,000 mortgage will cost you over the long term but are curious about the monthly payment on a $200K mortgage. Again, interest rates have a big effect on monthly mortgage payments, as does the loan’s term (how long you have to repay it). Still, we can offer a few examples.

For a 30-year $200,000 mortgage at a fixed interest rate of 7%, your monthly payments would be about $1,330 (though this figure doesn’t include property taxes or homeowners insurance, which could push your payment hundreds of dollars upward).

For a 15-year $200,000 mortgage with the same interest rate, your monthly payments would be about $1,797 (again, without additional costs included).

You can get more specific figures customized to your circumstances using a mortgage calculator or home affordability calculator online.

Where You Can Get a $200,000 Mortgage

There are ways to get a $200,000 mortgage if you’re sure you’re ready for one. Private banks, credit unions, and lenders who specialize in mortgages are all available to meet your request. You can usually do most of the application online.

One caveat: As we’ve seen above, interest rates can make a huge difference when it comes to the cost of your mortgage over time. Although market factors have a big influence on interest rates, your personal markers also matter, so getting your financial ducks in a row as possible before applying could help you save money in the long run. (So can finding an affordable place to live in the first place.) Additionally, you may want to ask for prequalification quotes from a variety of lenders to see who can give you the best deal.

Recommended: Tips to Qualify for a Mortgage

What to Consider Before Getting a $200,000 Mortgage: Amortization

Remember how we were talking about amortization above? In most cases, lenders amortize loans in such a way that, toward the beginning of the loan, the bulk of your payments are going toward interest. (Although your fixed monthly payments never change, the proportion of how much of that amount goes toward interest versus principal can.)

To understand how this can impact your ability to build equity, we’ve included the following sample amortization schedules for two different types of mortgage loans below. As you’ll see, the remaining principal balance goes down far more slowly than the amount you pay in. For example, in the chart below, although you’d pay a total of almost $16,000 toward your mortgage, the principal only reduces by about $2,000 because nearly $14,000 of your payments go toward interest.

Amortization Schedule, 30-year, 7% Fixed

Years Since Purchase Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $200,000 $1,330.60 $13,935.64 $2,031.62 $197,968.38
3 $195,789.89 $1,330.60 $13,631.29 $2,335.97 $193,453.93
5 $190,949.09 $1,330.60 $13,281.35 $2,685.91 $188,263.18
10 $175,432.38 $1,330.60 $12,159.65 $3,807.61 $171,624.77
15 $153,435.50 $1,330.60 $10,933.39 $5,033.87 $153,435.50
20 $129,388.32 $1,330.60 $8,831.12 $7,136.14 $122,252.17
30 $15,377.96 $1,330.60 $589.30 $15,377.96 $0.00

As you can see, even 20 years into the loan’s 30-year lifespan, you’ll still be paying more toward interest than principal (though the proportion will be much closer to 50/50 than at the beginning of the term).

Next, let’s look at what happens when the home mortgage loan term is reduced to 15 years.

Amortization Schedule, 15-year, 7% Fixed

Years Since Purchase Beginning Balance Monthly Payment Total Interest Paid Total Principal Paid Remaining Balance
1 $200,000 $1,797.66 $13,752.28 $7,819.60 $192,180.40
3 $183,795.53 $1,797.66 $12,580.86 $8,991.02 $174,804.51
5 $165,163.53 $1,797.66 $11,233.95 $10,337.93 $154,825.60
7 $143,740.35 $1,797.66 $9,685.27 $11,886.61 $131,853.74
10 $105,440.55 $1,797.66 $6,916.57 $14,655.31 $90,785.24
12 $75,070.50 $1,797.66 $4,721.12 $16,850.76 $58,219.74
15 $20,775.73 $1,797.66 $796.15 $20,775.73 $0.00

As this chart shows, a mortgage loan with a shorter term can help you build equity more quickly: Notice how principal and interest payments are much closer to equal just five years in, or a third of the way through the loan. Keep in mind that this ability comes at the cost of a higher monthly payment, though, so it may not be possible for all — especially first-time homebuyers who may struggle to meet higher mortgage payments.
💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

How Do I Get a $200,000 Mortgage?

Taking out a $200,000 mortgage is a fairly simple process these days. In most cases, your lender can pre-qualify you online or over the phone. While applying for your official approval will take a few more steps, including providing documentation like income verification and tax returns, you can still be approved in as little as a business day—and ready to take over the keys to your dream home.

To get started, reach out to the lender you’ve chosen to learn more about their process. They may make it simple to start your application online. Just don’t forget that interest adds up, and amortization can make it more difficult to build equity quickly. It’s worth checking in to ensure your lender doesn’t charge an early repayment penalty, and that they make it simple to pay additional principal if you’re able.

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The Takeaway

Because of interest, a $200,000 mortgage might cost more than $200,000 on top of the principal you borrow. It all depends on your loan term as well as your specific rate — which in turn depends on your financial standing.

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

How much does a $200K mortgage cost each month?

With a fixed rate of 7%, a 30-year $200,000 mortgage will cost about $1,330 per month before additional fees, and a 15-year $200,000 mortgage at the same rate will cost closer to $1,800. If your down payment is less than 20% you will likely have to pay for mortgage insurance as well, not to mention property taxes and insurance.

How much income is required to qualify for a $200,000 mortgage?

An income of around $65,000 is in the right ballpark to qualify for a $200,000 mortgage. Income is far from the only important factor lenders consider when qualifying you for a loan, however, and even those who make substantial income may not qualify if they have high levels of debt or other negative factors.

How much is the down payment for a $200,000 mortgage?

Down payment amounts can vary substantially. Some loans allow you to put down as little as 3.5%, which, for a $200,000 home would be $7,000. To avoid having to pay for mortgage insurance, you’d want to put down at least 20%, which is $40,000.

Can I afford a $200K house with a salary of $70K?

What you can and can’t afford is a complex calculation that depends on your lifestyle, where you live, and more. That said, $70,000 is within the feasible range to take out a $200,000 mortgage, particularly if you choose a longer loan term.

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

*SoFi requires Private Mortgage Insurance (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. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and 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.

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