Understanding VA Loan Assumption: A Guide for Veterans and Homebuyers

If you purchased your home with a VA loan but are ready to move on, you may be able to benefit from VA loan assumption. VA loan assumption allows someone else to take over your existing VA loan mortgage — and unlike when you originated your VA loan, the new borrower doesn’t necessarily have to be a military servicemember, veteran, or surviving spouse to qualify. However, your eligibility for this program depends on a few factors, including when you took out your VA loan, and has a few caveats to understand. We’ll explain below.

What Is VA Loan Assumption?

VA loan assumption is a process in which a new borrower can “assume,” or take over, an existing VA mortgage loan. As mentioned above, you don’t have to be eligible to take out a VA loan to be eligible to assume one.

In other words, using VA loan assumption, the homebuyer could take over the existing VA loan rather than securing a brand-new mortgage to buy the home (or buying it in cash). A VA loan has some benefits vs. a conventional loan, and assuming the loan may offer the buyer a lower interest rate (as VA loans often have competitive rates). On the seller side, loan assumption could attract more buyers and help a home sell more quickly.

Eligibility for VA Loan Assumption

Even when a new buyer is taking over a VA assumable loan, the original lender will still want to see proof of the new borrower’s creditworthiness. (After all, repayment of the remainder of the balance will now fall to the new borrower.) Here’s what you need to know about eligibility requirements for VA loan assumption:

For the Assumer

The person taking over the loan still needs to prove their creditworthiness to the lender or VA. The VA doesn’t specify a minimum credit score, but most lenders want to see a score of at least 620.

The assumer’s debt-to-income ratio (DTI) also matters, and should be no higher than 41%. They’ll also need to have sufficient income and be able to pay the VA loan assumption fee, which is 0.5% of the total loan balance — and the difference, if any, between the home’s sale price and the existing loan balance.

For the Seller

Those who took out a VA loan to purchase their home anytime after March 1, 1988, are eligible to sell their home via loan assumption. Be sure to triple-check that your lender will release you from the liability of the loan — otherwise, if the new borrower fails to repay or makes late payments, it could hit your credit score. And once the deal goes through, recheck to be sure your lender has finalized the release. (If you don’t yet have a VA loan but are wondering what is a VA loan and could I get one, briefly: You may be eligible for a VA loan if you are a member of the military, veteran, Reserve or National Guard member, or surviving spouse. You’ll need to get a Certificate of Eligibility from the VA in order to apply for a VA loan.)

Recommended: VA Loan Calculator

Benefits of VA Loan Assumption

As mentioned above, VA loan assumption has benefits on both sides of the table.

For buyers, taking advantage of a VA assumable loan could be very attractive if current mortgage rates are generally higher than the rate on the existing loan. Although creditworthiness still needs to be proven to the lender, if you’re wondering how long does it take to assume a VA loan, rest assured that the underwriting process may be faster since the mortgage is already written.

For sellers, having an assumable loan could expand your pool of potential buyers and help the house sell faster. Transferring a loan may also take less time than going through the process of waiting for the buyer’s new mortgage to pay off your debt.

Risks and Considerations

While there are benefits that can make VA loan assumption worth considering, there are risks and drawbacks to consider, too.

For one thing, while the new borrower doesn’t need to be eligible for a VA loan to take one over, you won’t be able to take out a new VA loan until the loan that’s being assumed is fully paid off. (Normally, you can use a VA loan multiple times to buy a house.) Additionally, you must check with your mortgage lender to ensure you can obtain release of liability for the loan to avoid impacts to your credit score after managing the loan is out of your hands.

On the buyer’s side, assuming a loan may offer better interest rates — but require more cash up front to pay the owner for the equity they’ve stored in the home. Depending on how long the loan has been in place, that total may be higher or lower than a traditional down payment.

VA Loan Assumption Process

If you want to put your home on the market with the option to assume your VA loan, you’ll need to take these steps.

1.    First, reach out to your lender and let them know your intentions. You can also use this opportunity to ask about the release of liability once the loan has been transferred.

2.    In your home sale listing, market the fact that an assumable loan option is available. This may be attractive to many buyers and increase the speed of your sale.

3.    Once you have a prospective buyer, you’ll need to offer full disclosure about the terms of the loan. (If the buyer turns out to be a service member, veteran, or surviving spouse, inquire about a “substitution of entitlement,” which is used when one person who is VA-loan eligible takes over a loan from another.)

4.    At the time of sale, you’ll need to wait for the borrower to be qualified by your lender or the VA to ensure they’re deemed creditworthy enough to take over the loan. Closing will also involve the cash payment to make up the difference to the agreed-upon purchase price.

5.    Once the loan is transferred, ensure you have documentation of your release of liability from the VA or your lender.

VA Funding Fee for Loan Assumption

While VA loans are generally low-cost ways to buy a home, they do come with a funding fee — and assumed loans have one too. However, the fee is only 0.5% in the case of assumed VA loans, which is far lower than the 1.25%-3.3% it might cost to take out such a loan in the first place.

Recommended: VA Loan Buyers Guide

Release of Liability

We’ve said it before, but it bears repeating: As the seller, you’ll want to make sure you have a document stating your liability for the loan has been released once the loan transfer is completed. Otherwise, you may see impacts on your credit score for financial behaviors you have no control over.

Comparison: VA Loan Assumption vs. New VA Loan

Here’s how VA loan assumption vs. new VA loans compare, at a glance.

New VA Loan VA Loan Assumption
Must be eligible military servicemember, veteran or surviving spouse Eligibility not required
Funding fee of 1.25%-3.3% Funding fee of 0.5%
No required down payment Buyer must pay difference between existing equity and loan balance

The Takeaway

Assuming a VA loan can be a valuable way for borrowers to save money on interest (and enjoy a shorter repayment period) while also allowing veterans to market their home for sale in an attractive way.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

Who can assume a VA loan?

Anyone who can prove their creditworthiness to the lender and afford to pay the difference can assume an available VA loan. However, if that party would not be qualified to take out their own VA loan in the first place, the original lender will not be able to take out a new VA loan until the existing one is paid off by the new borrower.

Does the assumer need to be a veteran?

The assumer of a VA loan does not need to be a veteran. However, if they are not a veteran, the original VA loan borrower will not be able to take out a new VA loan for themselves until the original loan has been paid off.

Can any VA loan be assumed?

Any VA loan issued after March 1, 1988 is eligible for assumption.


Photo credit: iStock/SethCortright

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-criteria 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.

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.

Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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How to Buy a House Out of State

If you’re one of the more than 20 million Americans working remotely, you might be tempted to buy a house out of state. Or maybe you just need a change of scenery.

Buying a house long distance can be a challenge, but it’s doable with a plan in place.

Key Points

•   Millions of people are working remotely and may want to purchase a home out of state.

•   To begin, research potential new locations online and engage with local communities through social media platforms like Nextdoor to gain insights about the area.

•   Partner with a reliable real estate agent who knows the local market and can assist with navigating regulations and attending inspections.

•   Consider visiting the location in person if possible.

•   The closing process can now be easily handled online using remote notarization for efficiency.

Why Buy a House in Another State?

There are multiple reasons to consider a house in a different state. Here are some.

Affordability

People may be lured by the cost of living of a state and its quality of life, or trying to escape high costs in the state they are leaving.

More than 350,000 people left California (the country’s third-highest state in cost-of-living rankings) from April 2020 to January 2022 for Arizona, Texas, Florida, Washington, and other states. This trend slowed in 2023, but the state still lost more than 250,000 people.

Job Relocation

Some companies move personnel out of state, and some employees are good with that. A Graebel report exploring the Great Resignation found that 70% of knowledge workers who resigned in the past two years may have stayed if they’d been offered the same role in a different region of the country.

Family Reasons

Some folks choose to buy a house out of state to be closer to parents, children, or grandchildren. And people in their 40s,especially, may have aging parents and financial concerns on their minds.

Retirement

Americans entering retirement may want to buy a home in a state where the weather and lifestyle are more appealing. When it comes to a home, some may want to downsize.

How to Purchase a Home in Another State

Buying a house from out of state may be a challenge, but people do do it.

It can be tough to buy a house if you already have a house and a home mortgage loan. Homeowners have been known to use a home equity loan or bridge loan to fund the down payment on another house.

A personal loan can fund travel and moving costs.

If you’re ready to move on, it might be a good idea to sell and maybe ask for a leaseback. If you’re in a hurry, learn how to sell a house fast.

1. Virtually Explore

It’s easy to research cities, states, and communities online. There’s a listicle for almost everything.

For example, maybe you’re interested in the safest cities in the U.S.

Or the 50 most popular suburbs.

It can also be helpful to explore housing market trends by city.

Areavibes, BestPlaces, and HomeSnacks provide rankings or information. Coldwell Banker introduced Move Meter, to compare locations across the country. Or you could use Google Maps or Google Earth to study an out-of-state home’s proximity to schools, medical centers, law enforcement agencies, parks, and restaurants.

2. Link Up to Social Media

Social media platforms like Facebook Groups and Nextdoor can provide a personal sense of home buying and community. These groups are user-friendly to newcomers, and many group members are happy to answer questions about life in their city or town.

3. Ask Co-Workers, Friends, or Family

If you’re moving out of state for a job, check in with future co-workers for advice about the homes and neighborhoods. If you’re moving near friends or family members, pick their brains. Is this going to be a good spot for you?

Moving is stressful enough. If you’re one of the growing number of people interested in financially downsizing, you may want to just exhale and enjoy when you land.

4. Consider Talking to a Relocation Specialist

Yes, home relocation professionals exist. And they do everything from connecting clients with a real estate agent to finding a long-distance moving company, scouring school districts, securing a storage space, and supervising a contractor’s work if the client is buying or building a house.

Relocation companies can also suggest local service providers and transport pets and vehicles across state lines.
Relocation services are often free of charge because the specialists earn their money from third-party vendors like real estate firms and employers transferring employees.

If you’re not inclined to hire a relocation specialist, here’s some helpful reading before making a big move:

•   How to move across the country

•   How to move to another state

•   The ultimate moving checklist

You can look into the safety record of carriers on the U.S. Department of Transportation website.

5. Find a Reliable Real Estate Agent

A brave few who are interested in buying a house out of state opt to go without an agent.

It’s true that you can buy a house without a Realtor® — but even a local home sale may be challenging without a buyer’s agent in your corner.

Partnering with an experienced real estate agent who is based in the area where you hope to move could be highly beneficial.

Besides familiarity with neighborhoods, schools, and vibe, a buyer’s agent can walk a future homebuyer through local zoning regulations and the permit process.

6. Consider Visiting IRL

It’s not that rare to buy a house sight unseen. That can work out.

But someone looking to buy a house in a new state may want a real visit. You may receive short notice on a viewing date, so it could be helpful to budget for out-of-state travel as part of the buildup to buying a home in another state.

While a real estate agent can act as a proxy for homebuyers, there may be nothing like being onsite during the home inspection of a property you’ve made an offer on.

Then again, if you adore a property and must have it, you might waive some contingencies in the case of multiple offers.

7. Get Preapproved for a Mortgage

It can be easier to find a real estate agent or relocation specialist with a mortgage preapproval letter in hand.

When a lender preapproves a mortgage (a credit check and a review of financial assets is typical), it is tentatively greenlighting a specific home loan amount at a particular interest rate, which is not locked unless the lender offers a lock.

Obtaining preapproval tells home sellers that you’re qualified for a home loan up to a certain amount.

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


8. Handle the Closing Online

Get ready, because closing on a house may take only 20 or 30 days.

In some cases, everyone huddles to sign closing paperwork. Other times, buyers and sellers sign separately.

But most states have approved remote online notarization, when buyers join a video call, present their government-issued IDs to a title company rep and a notary, and sign all paperwork electronically.

The Takeaway

Buying a house out of state requires investigation and probably a good real estate agent. Getting preapproved for a mortgage can ease the path to a new address.

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

SoFi Mortgages: simple, smart, and so affordable.


SoFi 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-criteria 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.

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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woman on laptop in office

How Long Is a Mortgage Preapproval Letter Good For?

A mortgage preapproval letter is usually good for 30 to 90 days, and some lenders will lock the rate for that time.

Having a letter of preapproval from a financial institution can help ensure that you’re ready to snap up a home you love.

Key Points

•   Mortgage preapproval letters are valid for 30 to 90 days, depending on the lender and loan type.

•   Interest rates may be locked during the preapproval period, providing cost stability.

•   Preapproval helps you understand your homebuying budget and shows sellers you are a serious shopper.

•   Updated financial information is required if preapproval expires.

•   Renewing preapproval is usually not hard if your finances are unchanged.

What Is Mortgage Preapproval?

Mortgage preapproval has become an essential part of the home-buying process. Real estate agents often want to see a preapproval letter before showing houses.

Note: A SoFi Verified Preapproval Letter is valid for 90 days.

A letter shows sellers that you are serious about buying their home — even if you’re a first-time homebuyer — and that a mortgage lender is likely to give you a home loan of a specific amount quickly.

The lender will review your credit history, credit score, income, debts, and assets to determine the amount you tentatively qualify for.

Preapproval will help you focus on homes that are in your price range. Knowing how much of a mortgage you can afford is important when you don’t want to waste time reviewing homes outside your range.

Mortgage Preapproval Process

The mortgage process starts informally for many would-be homebuyers.

Some buy into the 28% rule — spend no more than 28% of gross monthly income on a mortgage payment — and play with calculators like this home mortgage calculator with taxes and insurance or the one later in this article.

Seeking mortgage preapproval means you’re getting serious. First, you’ll need to understand the different types of mortgage loans — fixed rate, adjustable rate, conventional, government insured (FHA, VA, USDA), jumbo — and what you can qualify for.

Then you’ll need to apply for a loan from one to several lenders and provide a good deal of documentation. Each lender will perform a hard credit inquiry, and you’ll receive a loan estimate within three business days.

If you’re shopping for a home loan, allowing multiple mortgage companies to check your credit within 14 or 45 days, depending on the credit scoring model being used, will minimize the hit to your credit scores.

How Long Does It Take to Get Preapproved?

It usually takes seven to 10 business days to receive a preapproval letter after submitting all the requested information.

Mortgage Preapproval Letter

Other than stating the specific amount you’re preapproved for, a mortgage preapproval letter may outline stipulations to gain the loan, such as maintaining your employment or not taking on any additional debt.

How Long Does Mortgage Preapproval Last?

Some lenders will make a commitment of 60 or 90 days. That time frame tends to work, since homebuyers typically shop for a home for 10 weeks, according to the National Association of Realtors®.

Other lenders will issue preapproval for only 30 or 45 days.

Recommended: How Mortgage APR Works

Mortgage Prequalification vs. Mortgage Preapproval

Since they sound similar, it’s worth mapping out the difference between prequalification and preapproval.
Prequalification is a key first step, when borrowers tell lenders about their income, assets, and debts. Lenders use that unverified information, and usually a soft credit inquiry, to give a ballpark estimate of how much they might be willing to lend.

The response is quick: You can often get prequalified immediately or within a day or two. Just realize that prequalification does not mean that a lender is guaranteeing a loan.

The mortgage preapproval process is a deeper dive and requires documentation.

To gauge whether you qualify for a mortgage, lenders will scrutinize:

•   Income: Employees will need to provide pay stubs, W-2s, and tax returns from the past two years, as well as documentation of any additional income, such as work bonuses. Self-employed workers often need two years’ worth of records and a year-to-date profit and loss statement, although many lenders and loan programs are flexible.

•   Assets and liabilities: You’ll need to provide proof of savings, investment accounts, and any properties. Lenders view assets as proof that you can afford your down payment and closing costs and still have cash reserves.

Lenders also look at monthly debt obligations to calculate your debt-to-income ratio.

•   Credit score: Your credit score is a three-digit representation of your credit history.

Recommended: What Is Considered a Bad Credit Score?

Once your lender has reviewed the information, it may offer a preapproval letter. Importantly, receiving preapproval from a lender does not obligate you to use them.

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


Estimate Your Mortgage Payment

Before you seek prequalification or preapproval, you might want to get an idea of how much your monthly mortgage payment could be. Use the mortgage calculator below to quickly see the difference in mortgage payments based on down payment, interest rate, and a 15- or 30-year term.

What Should I Do If My Mortgage Preapproval Expires?

Lenders put an expiration date on preapproval letters because they need to have your most up-to-date financial information on hand. The credit, income, debt, and asset items they reviewed for your preapproval typically need to be updated after the letter expires, and your credit may be checked again.

You can minimize the effect of “hard pulls” on your credit score by avoiding seeking a renewal when you’re not actively shopping for a home.

If your finances have mostly stayed the same, your lender is likely to renew your preapproval.

Finalizing Your Mortgage

If you find a house while your mortgage preapproval is still valid, you can choose a lender and move on to finalizing your mortgage application. At this point, in many cases, the lender will check again to see if there have been any changes in your financial situation.

The mortgage underwriter will review all the information, order an appraisal of the chosen property and a title report, and consider your down payment. Then comes the verdict: approved, suspended (more documentation is needed), or denied.

Your mortgage is officially approved when you receive a final commitment letter. A closing date can be scheduled. It generally takes 43 days to close on a house, but it could happen in as little as 20 days.

Buyers may want to minimize changes, like applying for other loans or credit, when a home loan is in underwriting.

The Takeaway

How long is mortgage preapproval good for? Often 30 to 90 days. Getting prequalified is a smart precursor to getting preapproved for a mortgage. Preapproval can give you a competitive edge in a tight home market, and helps you more clearly understand how your home mortgage loan will affect your monthly budget.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How does mortgage preapproval affect my credit score?

The preapproval process involves a hard credit inquiry, which may cause a dip in your credit score. Each hard pull may lower your credit score but typically by less than five points. Multiple hard inquiries are usually counted as one inquiry as long as they are made within the same 14 to 45 days.

What’s the difference between mortgage prequalification and preapproval process?

Prequalification usually takes just minutes and requires you to provide only the most basic financial information in the application process. It also results in only a soft inquiry on your credit score. Preapproval will require more in-depth information, such as pay stubs and tax returns, and involves a hard credit inquiry. Getting preapproved may take a week or 10 days.


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-criteria 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.

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.

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.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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How to Save on Your Electric Bill This Summer

If you feel like your electricity bills get a little higher every summer, it’s not your imagination. For the June-through-September period of 2024, the average U.S. electric bill is projected to be $719, a nearly 8% increase year over year and the highest average in 10 years.

Fortunately, there are some simple things you can do to shrink your bills back down to size. Better yet, they don’t involve sacrificing comfort. While some measures require a small upfront investment, others are completely free. Read on for some of the most effective ways to save on your electric bill this summer.

Review Your Summer Electric Usage

If high electric bills are impacting your bank account this summer, a good first step is to review your electricity use patterns. Many utilities offer dashboards where you can view your daily and monthly usage to learn when you use the most energy. Some utilities even offer a mobile app that allows you to see your electricity usage in monthly, daily, and 15-minute time intervals to help you manage your energy consumption.

Knowing when you tend to use the most electricity — and how this is impacting your bill — can help you become more mindful of your energy usage. It can also give you motivation to make some changes.

Recommended: 8 Ways to Organize Your Bills

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Optimizing Your Air Conditioning System

Air conditioning accounts for about 19% of electricity consumption in U.S. homes, according to the U.S. Energy Information Administration’s most recent statistics. So one of the best ways to save on utility bills is to maximize the efficiency of your air conditioning system.

If you have central air, it’s a good idea to have a professional HVAC specialist perform annual maintenance on your equipment. This can go a long way in ensuring your air conditioner runs at peak efficiency. There are also some simple things you can do yourself to optimize the performance of your air conditioning system:

•  Vacuum air intake vents regularly. This will remove any dust buildup and allow the unit to function at a higher efficiency.

•  Regularly clean or replace air filters. Dirty air filters can restrict airflow, causing air conditioners to work harder and less efficiently.

•  Keep outdoor units clean. If you have a central unit outside, you can optimize performance by keeping your outdoor unit clear of debris and plant growth. The outdoor unit needs space to release heat, so make sure it has at least two feet of clearance on all sides.

•  Use fans to your advantage: Utilizing ceiling fans to circulate air can help you maintain a comfortable temperature while reducing the load on your air conditioner. For the most cooling effect, be sure the fan is turning counterclockwise (if it’s going the other way, you can typically change it by flipping a switch on the fan body).

•  Click up the thermostat: While the most energy efficient temperature is 78°F, that may not be cool enough to keep you comfortable. However, any uptick in your thermostat is helpful. In fact, you’ll save about 3% on your utility bill for every degree you raise the set temperature for your central air.

•  Install a smart thermostat. A smart thermostat can learn your schedule and adjust temperature automatically, ensuring energy is not wasted.

Recommended: How to Split Bills With Roommates

Energy-Efficient Cooling Alternatives

While air conditioning is effective, it is not the only way to keep your home cool. Consider these energy-efficient cooling alternatives to reduce your reliance on AC and lower your electric bill.

Attic Fan

Air from a hot attic can seep into your house and make your air conditioner work harder and more often. Not only does that increase your electricity bill, but it can also shorten the life of your AC system. An attic fan can help by circulating air and pushing stuffy, warmer air out of the house. This, in turn, can keep the entire house cooler. On days when it’s not too hot, it could be all you need.

Geothermal Heating/Cooling

Geothermal systems rely on stable underground temperatures for heating and cooling. They work by circulating liquid through buried tubes, exchanging heat between your home and the ground. It’s an efficient process that uses 25% to 50% less electricity than traditional HVAC systems, according to the Department of Energy. This can lead to a significant savings on utility bills over time.
On the downside, installing a geothermal system involves substantial digging to bury the pipes, which can be costly. Despite the initial expense, however, the long-term energy savings can make it a worthwhile investment.

Recommended: 15 Easy Ways to Save Money

Evaporative Coolers

In dry climates, evaporative coolers (also known as swamp coolers) can be an efficient, cost-effective cooling option. These units work by using a fan to blow air through a water-soaked pad, cooling the air before it enters your home. By cracking windows, hot air can escape, and cool air circulates effectively.

These coolers use less energy and water compared to traditional air conditioning, leading to lower utility bills. However, they are generally only effective in low-humidity climates.

Reducing Heat Gain in Your Home

One of the best ways to use less air conditioning is to reduce the overall heat that comes into your home. If you stop heat from coming inside in the first place, then you don’t have to pay to cool it. This can be one way to lower your energy bill when you’re working from home or if you’re home a lot during the day.

Some strategies include:

•  Ensure you have adequate insulation in the attic and walls. This greatly reduces the flow of heat into your home in the summer.

•  Seal up any cracks. Adding weatherstripping or caulk around doors and windows can help seal up any openings. This prevents the warm exterior air from leaking into your home.

•  Close windows and doors. Whenever it’s warmer outside than inside, it’s wise to close all windows and doors and latch them tightly to reduce heat gain.

•  Cover the windows. Another way to keep the heat outside is to cover windows with shades, blinds, or curtains during the day to block out the sunlight.

Recommended: 14 Reasons Why It’s So Hard to Save Money Today

Smart Appliance Usage and Vampire Energy

Vampire energy refers to electricity that devices consume while not actively in use but in “standby mode.” Common offenders include TVs, desktop computers, printers, device chargers, and kitchen appliances. While each device uses a small amount of power, when added all together, it can make up a significant source of your home’s electricity use.

The simplest way to cut standby power consumption in the summer (and year round) is to unplug devices, or turn off the power strips they are plugged into, when you’re not using them. Another option is to get some smart power strips. These strips help reduce energy waste by automatically turning off power to connected electronics when they are not in use.

When it comes time to replace an old appliance, consider purchasing an Energy Star-certified device. These appliances are designed to minimize phantom loads and improve your home’s efficiency.

The Takeaway

If you’re seeing significantly higher electric bills this summer, know that there are several steps you can take to save on the cost of electricity, even during the hottest months of the year. Some strategies — like cleaning your AC unit or reducing heat gain in your home — require just a small upfront cost, if any. Others (like replacing your heating/cooling system) call for a more significant investment, but can pay off over time by cutting your electricity bills both in the summer and year round.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What temperature should I set my thermostat to save money?

To save energy, as well as money, the U.S. Department of Energy recommends setting the thermostat to between 68°F and 70°F while you’re awake, and then making it a higher temperature (or, if it’s winter, a lower temperature) while you’re sleeping or away from home.

Are ceiling fans effective in lowering electric bills?

Yes, ceiling fans enhance air circulation and create a cooling effect, allowing you to raise the thermostat by about 4°F without sacrificing comfort.

During the summer, be sure your ceiling fan is turning counterclockwise — this creates a downward draft and circulates the cool air around you. If your fan blades are turning clockwise, you can typically reverse it by turning off the fan and flipping the switch on the fan body. You may also be able to do this using your ceiling fan’s remote.

How much can LED bulbs reduce my summer electric costs?

Lighting accounts for around 15% of an average home’s electricity use, so switching out your incandescent bulbs with more energy-efficient LED bulbs can lead to significant savings over time. According to the U.S. Department of Energy, the average household can save about $225 in energy costs per year by using LED lighting.


Photo credit: iStock/pinstock

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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What Is Principal, Interest, Taxes, Insurance (PITI)? A Comprehensive Guide

When your mortgage payment comes due every month, it may look like a single bill. But in reality, you’re likely paying four separate things: principal, interest, taxes, and insurance. PITI is an acronym that bundles these four elements together. But in order to better understand where, exactly, your monthly mortgage money is going, we’re going to take PITI apart and explain each element for you.

Understanding PITI

As discussed above, PITI is the acronym for the four basic components of a monthly mortgage payment. PITI includes:

•  Mortgage principal (the amount you borrowed from the bank)

•  Mortgage interest (the amount the bank charges you for the loan)

•Property taxes (levied by the local government)

•  Homeowners insurance (which covers the cost of repairing or replacing your home under certain covered circumstances)

Importance in Mortgage Payments

Together, these amounts add up to your total monthly mortgage payment — though that amount is not the same as your total monthly home expenses, which also include things like utilities and maintenance. (More on that below.)

Breaking down your PITI and calculating each separate component helps you better understand where your money is going each month. During the home-buying process, it helps you narrow your home search to those that are actually affordable on your budget. And later, knowing what does PITI stand for and what numbers comprise the components of your PITI will help you if you need to request a mortgage interest deduction on your taxes.

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

Questions? Call (844)-763-4466.


Breaking Down PITI Components

Principal and interest are paid to your mortgage lender, and include both the money you borrowed and the money the bank is charging you for the service of offering the loan. Keep in mind that the amount of principal versus interest will change over the lifetime of the loan in a process known as amortization. To get a full picture of how that works, try out a mortgage calculator that includes an amortization chart.

Meanwhile, your property taxes and homeowners insurance will likely flow into an escrow account, where funds will be used to pay those bills as they come due. Property taxes are almost always included in your mortgage payment, and if you owe money on your home, you will be required to carry homeowners insurance. (Even if you don’t, buying a policy is a good idea. After all, if you’re like many Americans, your home is likely the single most valuable asset in your portfolio.)

Finally, there are also other components that may be part of your monthly mortgage payment — though not part of your PITI. These include extras like PMI (private mortgage insurance) or HOA fees. Not every home purchase will come with these payments, but if you make a down payment of less than 20%, some sort of mortgage insurance is usually inevitable.

Recommended: Property Tax and Your Mortgage: Everything You Need to Know

How PITI Affects Home Affordability

PITI in real estate affects home affordability in a pretty straightforward way: Knowing your PITI ahead of time helps you ensure you’re making an offer on a house that’s truly within your budget. Knowing the cost of a home is one thing, but knowing how much the mortgage will actually take out of your account each month is another. One important rule of thumb: Most lenders prefer that your PITI is less than or equal to 28% of your gross (pre-tax) monthly income.

Fortunately, there are some things you can do to lower your interest rate — which lowers your overall PITI. By keeping your debt-to-income ratio (DTI) low and maintaining a good credit score, you can help ensure you get the lowest interest rates possible, which may expand your home-buying power by qualifying you for a lower rate, no matter the purchase price.

Calculating Your PITI

These days, the easiest way to calculate your PITI is by using an online mortgage calculator with taxes. You’ll need to estimate the home’s annual property taxes based on records kept by your county, and add the insurance premium quoted to you into the mix.

Keep in mind, however, that PITI can (and likely will) change over time as both tax rates and your insurance premiums change each year. Although a fixed-rate mortgage keeps your “PI” static, the “T” and “I” may change your overall monthly mortgage payment over the course of its term. To ensure long-term affordability, consider how increases in each of these categories might work with your budget.

PITI vs. Non-PITI Expenses

As discussed above, PITI doesn’t cover the whole range of homeownership expenses. Along with additional extras like homeowners association (HOA) fees and mortgage insurance, owning a home also means paying monthly utilities as well as any regular repair and maintenance costs.

Those costs can add up, especially if you’re not expecting them. One common rule of thumb is to set aside 1% of your home’s value for repairs each year, with exact figures depending on where you live. (In other words, in some expensive states, like Hawaii, California, and New York, repair costs may be even higher.)

Strategies to Manage and Reduce PITI

Keeping your PITI low keeps your housing expenses low, and while some parts of your mortgage may seem set in stone, others are more negotiable.

For example, did you know that you can challenge property tax assessments (that determine the amount of “T” in your PITI)? Once your home is valuated, if you disagree with the findings, you may reach out to your county or local governance to challenge them. Doing so may lower your taxable property value. (Be warned, however, that if the current valuation does not include recent renovations or, say, a new outbuilding, the taxable value could actually rise.)

Additionally, shopping around for insurance can go a long way toward lowering the second “I” in your PITI. Different insurance companies have different proprietary algorithms and therefore different rates for similar coverage. Additionally, you can play with how much coverage you buy — but use caution before skimping on protecting your home.

Finally, if you already have a home mortgage loan but your creditworthiness profile has substantially improved (and market interest rates are lower than they were when you took out the loan in the first place), refinancing may serve to substantially lower the “P” and initial “I” in your PITI. Remember, though, that you’ll pay closing costs again, so factor in that expense before deciding this is the right financial move for your situation.

Recommended: What Is a Home Inspection

The Takeaway

The acronym PITI describes the four most basic elements of a monthly mortgage payment — but they’re far from the only costs associated with homeownership. Still, understanding PITI can help you find a home that’s within a reasonable purchase price range in the short term — and taking strategic steps to reduce your PITI can help you keep your costs low for years to come.

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 does PITI change over the life of the loan?

If you have a fixed-rate mortgage, your principal and interest payments will always amount to the same total — though the ratio of how much of those funds go toward interest versus principal will shift over the lifetime of the loan in a process known as amortization. Your property tax rate and insurance rate may change over time based on the valuation of your home, changes in the local tax code, and insurance premium changes (or a change in insurers). Thus, your monthly housing cost could shift, and even increase, over time, even if the loan is fixed-rate.

Can I pay property taxes and insurance separately from my mortgage?

In most cases, property taxes and homeowners insurance are paid together with the mortgage, and the funds go into an escrow account where they pay their respective bills as they come due. However, it is possible to secure an escrow waiver from your home lender, which would allow you to pay these expenses separately.

How does PITI affect my ability to qualify for a mortgage?

Lenders calculate your PITI before approving your mortgage application — and if your PITI is too high, you might not get approved. Generally speaking, lenders like to see your PITI equal to or less than 28% of your gross monthly income, though some lenders may approve you if your PITI is slightly higher.

What happens if I can’t afford the full PITI payment?

If your financial circumstances change and you can no longer afford to pay your mortgage, your first move should be to contact your lender. They may be able to negotiate or offer a mortgage assistance service. Talking to a U.S. Department of Housing and Urban Development foreclosure avoidance counselor could also help — but simply allowing your loan to fall into default could lead to home foreclosure.


Photo Credits: iStock/

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


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*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.

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.

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

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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