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With a purchase-money mortgage, the seller finances part or all of the property for the buyer, who usually does not qualify for traditional financing.

Keep reading to learn about the benefits and drawbacks of a purchase-money mortgage.

What Is a Purchase-Money Mortgage?

A purchase-money mortgage is also known as owner financing. The seller extends credit to the buyer to purchase the property. This can be a portion of the sales price or the full price.

In other words, the buyer borrows from the seller instead of from a traditional lender. The seller ultimately determines the interest rate, down payment, and closing costs. Both parties sign a promissory note.

They record a deed of trust or mortgage with the county. The seller usually retains title until the financed amount is paid off.

A purchase-money mortgage is a nontraditional financing method that may be needed when the buyer cannot obtain one of the other different mortgage types for purchasing the property.

The promise to pay is secured by the property, so if the buyer stops paying, the seller can foreclose and get the property back.

Recommended: How to Buy a Foreclosed Home the Simple Way

Purchase-Money Mortgage Example

Not all buyers have financial situations that make it easy for them to get a conventional mortgage. Even diligent shopping for a mortgage may not help them get the home loan they need.

If a buyer has a profitable business, for example, but doesn’t have two years of tax returns to prove steady cash flow, most mortgage lenders won’t take on the risk.

Enter a purchase-money mortgage. With the right property, seller, and situation, a buyer could finance the home with a purchase-money mortgage. The seller would offer terms to the buyer — usually a higher interest rate and a short repayment term, with a balloon mortgage payment at the end — and the buyer would enter into the agreement. The seller would hold title until the loan payoff.

Buyers and sellers who work with seller financing often intend for the purchase-money mortgage to be refinanced into a traditional mortgage with a lower mortgage payment at a later date.

Types of Purchase-Money Mortgages

Purchase-money mortgages can come in several forms.

Land Contract

A land contract (also called a contract for deed) is simply a mortgage from the seller. The buyer takes possession of the property immediately and pays the seller in installments.

Land contracts are often for five years or less, ending with a balloon payment.

Lease-Purchase Agreement

In a lease-purchase agreement, the buyer agrees to rent the property for a specified amount of time and then enter into a contract to purchase the property at a price that’s the current market value or a bit higher.

For this and a lease-option agreement, the seller typically requires a substantial upfront fee, an above-market lease rate, or both. Part of the monthly rent payment goes toward the purchase price.

Lease-Option Agreement

A lease-option agreement is similar to a lease-purchase agreement in that the buyer agrees to first rent the property for a specified amount of time. But with this agreement, the buyer has the option to purchase the property instead of making a commitment to purchase it.

Benefits of Purchase-Money Mortgages for Buyers

•   Buyers, including first-time homebuyers, may be able to obtain housing sooner than if they were to wait to qualify for a traditional mortgage through a lender.

•   The down payment may be more flexible for a purchase-money mortgage.

•   Requirements may be more flexible.

•   No or low closing costs.

Benefits of Purchase-Money Mortgages for Sellers

•   The seller may be able to get the full list price from a buyer who needs the seller’s help to obtain a mortgage.

•   The seller may be able to make some money by acting as the lender, including asking for a down payment and a higher interest rate.

•   Taxes may be lower as the amount is financed over time.

Recommended: How to Navigate the Mortgage Preapproval Process

Weighing the Pros and Cons of Seller Financing

If you have the option of financing with a purchase-money mortgage, you will want to look at all the angles. It may also be useful to use a mortgage calculator tool to help you determine what a potential payment on a purchase-money mortgage might be.

The Takeaway

If you’re able to secure financing from a seller, a purchase-money mortgage may be a good fit — if you have an exit plan in a few years. It’s smart for both buyers and sellers to know the risks and rewards of a purchase-money mortgage.

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.

FAQ

Who holds the title in a purchase-money mortgage?

The seller controls the legal title; the buyer gains equitable title by making payments.

Can a bank issue a purchase-money mortgage?

Yes, but it is not common. A buyer might pay for a house with a bank mortgage, cash, and a property seller mortgage. When the bank is aware of the amount financed by the seller, both the mortgage issued by the third-party lender and the seller financing are considered purchase-money mortgages.

Does a purchase-money mortgage require an appraisal?

Not if the seller does not require one. With owner financing, the seller sets the terms, which may not include an appraisal.

Photo credit: iStock/MicroStockHub

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.

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.

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

SOHL-Q324-039

Looking to buy a manufactured home, a boat, or a piece of equipment for your business? You may need a chattel mortgage.

Chattel mortgages are used to finance movable assets separately from the land they occupy. They come with a higher cost than a traditional mortgage, so manufactured home dwellers who qualify for a standard mortgage will save money by choosing that route.

Here’s what you need to know about how chattel loans work and when you might want to look for alternative financing.

What Is a Chattel Mortgage?

First of all, a chattel mortgage is used for personal property, not real property. Real property includes land and property that cannot be easily removed from the land.

When a chattel mortgage is used for a large, movable asset like a manufactured home — called a mobile home before June 15, 1976 — or a piece of equipment (the “chattel”), the asset is held as collateral on the loan. If the borrower defaults on the loan, the lender can recoup costs by selling the asset.

A chattel loan may have a lower interest rate than an unsecured personal loan but a higher rate than a traditional mortgage.

Note: SoFi does not offer chattel mortgages at this time. However, SoFi does offer conventional loan options.

How Does a Chattel Mortgage Work?

Chattel mortgages are used in two main instances: when an asset can be moved or when the land the asset sits on, or will, is leased. (In fewer cases, a chattel loan may be used when a borrower doesn’t want to encumber their owned land with a loan, as when land is owned jointly in a trust.)

Applying for a chattel loan is similar to applying for other types of loans, such as home equity loans and personal loans. The lender will look at your creditworthiness and ability to repay the loan before making a decision.

Chattel loans are typically small, with relatively short terms, but usually require no appraisal, title policy, survey, or doc stamps (the documentary stamp triggers a tax in certain states).

Recommended: First-Time Homebuyer Guide

What Are Chattel Loans Used For?

Here are some of the most common applications for chattel loans.

Manufactured Homes

Manufactured homes are built in a factory on a permanent chassis and can be transported in one or more sections. Formerly known as mobile homes, they’re designed to be used with or without a permanent foundation, but must be elevated and secured to resist flooding, floatation, collapse, or lateral movement.

Many are titled as personal property. Manufactured housing that is titled as personal property or chattel is only eligible for chattel financing.

When a manufactured home is titled as chattel, you’re also going to pay vehicle taxes to the Department of Motor Vehicles instead of property taxes.

Many consumers may encounter a chattel loan at the sales office of a manufactured home builder. They’re convenient with quick closing times, but come with a higher interest rate and a shorter term than most traditional mortgages.

This makes the financing cost of the manufactured home high, even if the payment is low thanks to the lower cost of a manufactured home compared with a site-built home. Around 42% of loans for manufactured homes are chattel loans, according to the Consumer Finance Protection Bureau.

When you own a manufactured home and rent the land it occupies, such as in a mobile home park, you will need a chattel mortgage, except when an FHA Title I loan is used.

Tiny Houses

A chattel mortgage may be used for tiny house financing when the tiny house is not affixed to a permanent foundation and/or when the land is leased.

Tiny houses are usually too small to meet building codes for a residential home, so even if the home is on a foundation and on owned land, a traditional mortgage is almost always out of the question. Even if Fannie Mae or FHA allows the property, the lender won’t.

Tiny houses on foundations are usually classified as accessory dwelling units.

Vehicles

A chattel loan may finance assets that are not permanently affixed to the property, such as vehicles. Dump trucks and construction vehicles may qualify.

Equipment

A chattel loan can be used to purchase large equipment for a business, such as a forklift or a tractor. Even livestock can be purchased with a chattel loan.

How Much Does a Chattel Mortgage Cost?

Chattel mortgages are more expensive than many other different mortgage types. The Urban Institute concluded that chattel loans were substantially more expensive than non-chattel loans. Owners of manufactured homes would spend thousands more per year in interest compared with a traditional mortgage.

These types of mortgages are not being purchased by Fannie Mae or Freddie Mac on the secondary mortgage market. When a conventional mortgage is purchased by one of these entities, the loan originator obtains more liquidity and can provide more loans to more people. This drives the cost of the mortgage down.

A chattel mortgage, on the other hand, must stay on the books of the lender, making the loan riskier and more expensive.
If you qualify, you might want to consider refinancing your chattel mortgage into a traditional mortgage.

Recommended: Home Loan Help Center

Chattel Mortgage vs Traditional Mortgage

To qualify for a conventional or government-backed mortgage instead of a chattel mortgage, you must own the land your home sits on, the home must be permanently affixed to a foundation, and it must have at least 400 square feet of living space (600 for Fannie Mae’s conventional loan for manufactured homes).

Mobile homes built before June 15, 1976, will not qualify for a mortgage loan. A personal loan is about the only option.

You must also meet all other requirements set forth by the lender to qualify for a traditional mortgage. A mortgage calculator tool can help with this.

For some types of assets, a chattel mortgage may be a good option to consider. Take a look at the major differences.

Pros and Cons of a Chattel Mortgage

A chattel mortgage is more expensive than a traditional mortgage, so anyone who can qualify for a traditional mortgage may wish to pursue that option first. It’s not all bad news for chattel mortgages, though, especially for other types of property where a chattel loan is desirable.

Consumer Protection and Chattel Mortgages

Chattel mortgages on manufactured homes are a special concern to the Consumer Financial Protection Bureau because that type of housing:

•   Serves an important role in low-income housing

•   Is typically taken on by financially vulnerable people

•   Has fewer consumer protections

Manufactured home sellers often have an on-site lender where borrowers can walk away with a chattel loan the same day as the home purchase. In certain scenarios, though, better financing options might be available.

The Takeaway

Buying a manufactured home or a piece of heavy equipment? A chattel loan could be the answer. If, though, you are buying a manufactured home and own the land, a traditional mortgage makes more sense than a chattel mortgage.

FAQ

Where can I get a chattel loan?

Lenders specializing in chattel or manufactured housing loans will offer this type of loan.

How much does a chattel mortgage cost?

The interest rate of a chattel mortgage could be several percentage points higher than that of a standard mortgage loan.

What happens at the end of a chattel mortgage?

When a chattel mortgage is paid off, the borrower receives legal title to the property or asset borrowed against. It’s also possible for landowners with permanently affixed manufactured homes to refinance into a traditional mortgage to end their chattel loans.

Is a chattel mortgage tax deductible?

A chattel mortgage qualifies for the same tax deductions that a traditional mortgage does. This includes a deduction on mortgage interest paid throughout the tax year.

Photo credit: iStock/MicroStockHub

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.

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.

SOHL-Q324-037

Guide. Supporter. Educator. A mortgage loan originator wears many hats while finding a residential loan that will work for a borrower and steering the prospective homeowner or refinancer through the whole application process.

The person or entity is the original point of contact for borrowers. Their role is regulated to prevent the kind of mortgage fraud that occurred during the housing crisis and financial meltdown of 2008.

Here’s what you should know about what they do, how they’re regulated, and how they can help you get the right loan to the closing table.

What Is a Mortgage Loan Originator?

A mortgage loan originator (MLO) evaluates and recommends approval of residential loan applications on behalf of customers. Some work directly for a mortgage lender; others, called mortgage brokers, are MLOs who offer options from several lenders.

MLOs might be paid a salary plus commission, but commission only is far more common. They must be licensed in the states where they do business or under the umbrella of the bank, bank subsidiary, or credit union that employs them.

MLOs work to find a mortgage for each borrower’s unique situation. They must be excellent communicators since they guide people through the mortgage process.

They educate the borrower about different kinds of mortgages, the application process, and how mortgages work, and ensure legal compliance and completeness to close the loan.

Since MLOs often work on commission, it’s usually in their best interests to find a compatible loan for the borrower that will make it to the closing table. They don’t get paid if the loan falls through. To get your business, it’s also in their best interests to offer the most competitive terms possible.

What Is the Difference Between a Mortgage Loan Originator and a Mortgage Loan Officer?

The upshot: Regulators and some others refer to mortgage loan officers employed by financial institutions as “mortgage loan originators.”

A mortgage loan originator is anyone who negotiates or takes a residential mortgage application for a client with the expectation that they will be paid for their services.

What Does a Mortgage Loan Originator Do?

MLOs are responsible for taking a loan from application to closing. They may also negotiate terms of a residential mortgage on behalf of a client.

Responsibilities of a mortgage loan originator may include:

•   Processing the customer’s application

•   Explaining the different types of mortgages available to a borrower

•   Asking for documents on the applicant’s background and financial information

•   Keeping track of documents

•   Submitting documents to underwriting

•   Relaying messages from underwriting

•   Scheduling a home appraisal

•   Addressing any home appraisal issues with the client

•   Asking for more documents as closing gets nearer

•   Scheduling the close

•   Answering questions the borrower may have

•   Ensuring compliance with applicable laws

•   Developing relationships with real estate agents, builders, and individual clients

How to Become a Mortgage Loan Originator

Becoming a mortgage loan originator typically requires a bachelor’s degree and on-the-job training. Nonbank originators also need to be licensed.

Licensing

MLOs who are employed by banks, bank subsidiaries, or credit unions do not have to obtain a loan originator license. All others must be licensed in the states they do business in and register with the Nationwide Multistate Licensing System & Registry (NMLS).

General state license requirements include:

•   At least 20 hours of pre-licensing education

•   Authorization to provide a credit report and criminal record

•   General character standards and demonstrated financial responsibility

•   Passing the NMLS written test

•   Sponsorship by a company already registered with the NMLS

Licensing became required in 2008 following the housing collapse. It increases consumer protection and reduces mortgage fraud.

Average Salary

The median pay for mortgage loan officers in 2023 was $69,990 per year, according to the Bureau of Labor Statistics.

But because mortgage loan originators typically work solely on commission, earnings can vary widely based on the area, the number of closed loans, and the amount of the closed loans. The commission averages 1% of the loan amount.

Do I Need a Mortgage Loan Originator?

A mortgage loan originator is needed when you need a new mortgage. Few mortgages are assumable by a buyer, so homebuyers will most likely need a new mortgage for their purchase or refinance and will need a mortgage loan originator.

You will most likely need a new mortgage for your purchase or refinance and will need a mortgage loan originator.

How Do You Find a Good Mortgage Loan Originator?

A good mortgage loan originator may be able to secure a loan that works for your situation and aptly guide you through the process. Want to know how to find a good loan originator? Here are a few tips.

Shop Around for a Mortgage

One of your most powerful tools for finding a good mortgage loan originator is to shop around for a mortgage. Meet the people who will work with you on your mortgage and get loan estimates for the specific type of mortgage you’re looking for.

•   Ask for quotes from your bank or credit union. Your existing relationship with a bank may be valuable to them and they may offer good terms.

•   Get recommendations from family or friends. From people who have been there and done that, you may find an originator that has great rates and is incredible to work with.

•   Conduct an internet search. You’ll find plenty of mortgage loan originators listed on the internet with a bounty of reviews. Try calling a few and you may find a loan officer with competitive rates.

Compare a Direct Lender With a Mortgage Broker

When you’re looking for a good mortgage loan originator, you’ll come across two main ways to find a mortgage for your home: mortgage brokers and direct lenders.

•   Direct lenders are the providers of the mortgage. When you go to a lender and apply for a loan, you’re working directly with the lender, which makes a decision without a middleman.

•   Mortgage brokers work for borrowers to find the best loans and terms for their individual situations. They may be able to point clients to a lender they would not have known about otherwise and save them money in the process. Lender commissions to brokers may span 0.50% to 2.75% of the loan amount, but lenders typically add the costs to the borrower’s loan. It’s a good idea to check credentials with the NMLS.

Both can help get you a mortgage that may work for your situation, but you may find that you prefer one over the other when you’re looking for a good loan mortgage originator.

If you apply for a mortgage with several, it’s smart to compare the loan terms being offered in the loan estimate that you will receive.

Have an Idea of What Type of Mortgage You’re Looking For

Some lenders may specialize in a certain type of mortgage, so if you know what you’re looking for, you may be able to find a good loan originator more easily.

If you’re looking for a renovation loan, for example, you might want to seek out a lender specializing in that type of loan.

Be Wary of Deals and Offers You See in Ads

Some lenders might advertise low payments or low interest rates, but those may not be what you’d end up getting. By law, lenders are required to disclose the loan terms to you on a standard form called a loan estimate after you’ve applied for a mortgage.

Using this form can help you compare loans fairly as it will list the mortgage APR, term, points, and all fees you’ll need to pay to engage the services of a particular lender.

Know What Questions to Ask

If you interview mortgage originators, certain questions can help you determine if you’ll be a match or not. Don’t know what to ask? Take a look at these mortgage questions.

The Takeaway

Finding a good mortgage originator is worth the time it takes to explore your options and interview potential candidates. After all, getting the right mortgage, as an initial borrower or a refinancer, can mean significant savings — not just at origination but over the life of the loan.

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.

FAQ

What questions will a mortgage loan originator ask?

A mortgage loan originator who is helping you prepare a home mortgage loan application will want to understand your income (how much you earn and how reliable your income stream is), your credit and work history, and your debts. Be prepared to answer questions about your salary, whether you are a W-2 employee or a freelancer, and how much you owe on any student loans, car payment, or other debts.

Is a mortgage loan originator the same as an underwriter?

No, a mortgage loan originator (MLO) is not the same as an underwriter. An MLO, sometimes also called a mortgage loan officer, is a person or business that helps you apply for a mortgage loan. An underwriter is the person who reviews your loan application and decides whether or not to approve it and at what interest rate.

Photo credit: iStock/David Gyung

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.

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.

SOHL-Q324-036

When you purchase a home, you must pay closing costs, which are the fees the lender charges to recoup loan processing costs. These can add up to a hefty sum, typically 3% to 6% of your mortgage amount.

Typically, you can take out a personal loan to cover those closing costs and help you across the finish line of a property purchase. You can often tap other funding sources as well. Take a closer look at the pros and cons of using a personal loan for closing costs, plus the alternatives, so you can decide what’s best for your needs.

What Are Closing Costs?

Closing costs are processing fees that you pay to your lender, either as the buyer or seller in a real estate transaction:

•   Buyers: Buyers typically pay between 3% and 6% of the total loan amount in closing costs. Buyers must pay this amount out of pocket, so it’s important for them to have a plan for how they’ll access the money before they get to the closing table.

•   Sellers: If sellers contribute to closing costs (say, to negotiate a home sale), those fees usually get taken out from the sale proceeds.

Here’s an example: If you plan to buy a home with a $300,000 loan, as the buyer, you’ll need to bring between $9,000 and $18,000 to the closing table. If you were the seller, you’d see that amount taken out of the costs you’d pocket from the sale.

Fees Associated with Closing Costs

Closing cost fees may include:

•   Application fee: Lenders sometimes charge a one-time fee for borrowers to submit a loan application.

•   Credit report fee: A credit report or credit check fee covers the cost to dig into your credit report, which shows your credit history. Your lender uses the information it uncovers to decide whether to approve your loan and how much they’ll lend you.

•   Origination fee: You pay this fee to the lender to process the loan application.

•   Appraisal fee: A fee paid to a professional to appraise the home based on an evaluation to determine its fair market value.

•   Title search: A title search looks into public records to determine who actually owns the property and who has liens on the property (for example, an unpaid contractor’s lien for work done on the home).

•   Title insurance: Title insurance protects you from financial loss and legal expenses in case the home has a bad title.

•   Underwriting fee: Underwriting is the process of reviewing your finances to determine the risk of offering you a mortgage, and the fees cover this process.

•   Property survey fee: Property survey fees cover the cost of checking the boundaries and easements of a property. This process shows exactly where the property’s perimeter is and what the property includes.

•   Attorney fee: You will probably need to hire a lawyer to review the terms in your purchase contract and handle your closing.

•   Discount points: Discount points are a way to balance your upfront costs and your monthly payment. If you use points to pay more upfront, you’ll likely have a lower interest rate, meaning that you could pay less monthly and over your loan term.

•   Homeowners insurance premiums: Homeowners insurance provides financial protection if your home undergoes a disaster or accident. You must typically show your lender that you have paid homeowners insurance.

•   Mortgage insurance: If you have a down payment of less than 20%, you will often have to pay mortgage insurance, a fee per month that protects your lender if you were to default. You’ll also have to pay a version of mortgage insurance on Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loans. You may have to pay these insurance fees with your closing costs in addition to your monthly payments, particularly for the FHA and USDA loans.

•   Property tax: Homeowners pay property tax to state, county, and local authorities for schools, roads, and other municipal services. You may have to pay a portion of your property tax at closing.

•   Homeowners association (HOA) fees: If you plan to move to a neighborhood that has an HOA, or an organization that makes and enforces rules for a neighborhood, you may owe HOA fees at closing. The seller may pay these on a prorated basis.

•   Per-diem interest: Per-diem interest refers to the interest a lender charges for the days between a closing date and the first day of your billing period.

•   Transfer tax: State or local governments often charge real estate transfer taxes, meaning that they charge when properties transfer ownership.

•   Recording fee: State and local governments charge recording fees to legally record your deed, mortgage, and other home loan documents.

Note that this isn’t an exhaustive list of closing costs — you may be on the hook for other fees as well.

Can You Use a Personal Loan for Closing Costs?

First, it’s important to understand how a personal loan works. It is usually funded by a bank, credit union, or online lender. You can typically use the money however you want — there aren’t as many restrictions on personal loans compared to, say, student loans. After you receive a personal loan, you pay it back with regular, fixed payments (with interest) over a specified term.

As mentioned above, you can use the cash as you see fit. So, yes, you can use a personal loan for closing costs. However, you can’t use it for a down payment, and you must tell your lender that you’ll go this route and borrow to pay the closing costs. The lender will include it in your debt-to-income (DTI) ratio, which is the amount of debt you have relative to your income.

Applying for a personal loan can involve prequalifying with several lenders and comparing them, gathering required documents (ID, proof of address and income, Social Security number, and education history), filling out the loan application, and receiving your funds after approval. You may be able to get a personal loan in one to three days.

As you shop around for funds, you’ll likely want to consider what credit score you need for a personal loan at a given interest rate. Also consider the length of the loan term; this can typically range from one to seven years.

Recommended: Guide to Personal Loans

Pros of Taking Out a Personal Loan for Closing Costs

Here are some of the key benefits of taking out a personal loan for closing costs.

•   Collateral not required: Personal loans are often unsecured loans, meaning that you don’t have to put an asset up in order to receive the loan. Therefore, if you fail to repay the loan, your lender will not claim the asset to repay your debts.

•   Quick approval: It usually doesn’t take long to get a personal loan once you’ve been approved. After you submit your application and materials, it might take just a day to get the personal loan, though it could take longer.

•   Flexible repayment options: You can tap into flexible repayment plans, including no prepayment penalty, meaning that the lender won’t penalize you for paying off the loan early.

Cons of Taking Out a Personal Loan for Closing Costs

Next, consider the downsides of using a personal loan to cover closing costs.

•   DTI increase: Lenders will look at your overall debt under a microscope, so taking on a personal loan may factor into your overall debt. It may signal to the lender that you aren’t in a good financial position since an additional loan could raise your DTI ratio. It might keep you from being approved for a mortgage or could result in a higher mortgage interest rate.

•   Additional loan payment: You might find it tricky to repay a personal loan in addition to a mortgage payment. Consider whether you can comfortably make both payments every month.

•   High interest rates: There is the potential for high interest rates if you have poor credit. This can make it more challenging to afford a personal loan.

Recommended: Personal Loan Requirements

Alternatives to a Personal Loan for Closing Costs

You may have options vs. getting a personal loan for closing costs. Consider how else you might handle those fees.

•   Roll them into your mortgage: You may be able to add your closing costs to your mortgage, but this means you’ll increase the principal balance of your loan. This will increase both the principal and the interest you’ll pay over your loan term and also translates to higher monthly payments.

•   Ask for a waiver: Your lender may be willing to waive certain fees. For example, they may reduce certain processing fees. There’s no guarantee, but it can be worth asking. That might help you out with your final closing cost amount.

•   Ask the seller to pay: As mentioned previously, sellers may pay for some of the closing costs if they’re eager to ensure that the property sale doesn’t fall through.

•   Tap into assistance programs: Many state and local governments offer down payment and closing cost assistance programs for moderate- to low-income home buyers. Look into your state’s housing finance agency, your city or county website, the U.S. Department of Housing and Urban Development (HUD), or check with your lender to learn more about your options.

•   Use gift money: Do you have a generous grandparent or parent who wants to help you cover your closing costs? Your state may have rules and regulations attached with gift money (especially ensuring that it’s an actual gift). Check with your lender to learn more.

The Takeaway

You can typically use a personal loan to pay for closing costs, the fees that can cost 3% to 6% of your home loan amount when you purchase a property. While this can be a convenient source of funding that is typically unsecured (meaning no collateral is required), it can raise your DTI and add to your monthly financial burden. It’s wise to carefully consider all the pros and cons, as well as alternative funding sources, when deciding whether to use a personal loan for closing costs.

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.

FAQ

Is it smart to finance closing costs?

Whether it’s smart to finance closing costs depends on your personal situation. For example, for some people who can handle the additional monthly payment, it may be a convenient move. On the other hand, getting a personal loan may increase your DTI, so your mortgage lender might charge you a higher interest rate or deny you the loan altogether.

Can I put closing costs on a credit card?

While you’ll usually use a cashier’s check, certified check, or wire transfer to pay for closing costs, you can put some closing costs on a credit card, such as attorney, appraisal, and survey fees. Check with your lender to learn more about which fees you can put on a credit card. (Also note that using your credit card in this way can raise your credit utilization rate and potentially lower your credit score.)

What is not an acceptable source of funds for closing?

Closing costs are typically paid by a cashier’s or certified check or by wire transfer. Funds for these could be acquired by such sources as a government program or a personal loan. Less frequently, credit cards, debit cards, and personal checks may be accepted for some closing costs.

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Not counting the reams of time you probably will spend looking for a house, both virtually and IRL, it takes and average of 30 to 60 days to get from an accepted offer on a house to the closing if you’re financing the purchase.

Here’s the scoop on how long it takes to buy a house and get the keys in your hand.

How Long Does It Take to Buy a House In 2024?

Once you’ve homed in on a home you love, the mortgage process — from application to closing — takes an average of 30 to 60 days.

So yes, a life-changing event can happen within a month or two.

But closing times vary. A cash buyer might be able to close on a house within days. An applicant with an iffy credit history and unpredictable income may need 90 days or longer.

Before You Start Looking for Your Next Home

It’s a good idea to get your head in the game before the hunt begins.

Organize Your Finances

If you’re asking yourself “How much of a mortgage can I afford?” you can get an estimate easily.

A home affordability calculator will give you a feel for a home price limit and monthly payments. Getting prequalified will also give you a quick ballpark estimate.

Pulling a down payment together to buy a house in many parts of the country isn’t as hard as many people think. The average down payment on a house is less than 20% (though putting less than 20% down on a conventional loan usually triggers mortgage insurance).

Conventional loans may call for just 3% down for first-time homebuyers; FHA loans, as little as 3.5% down; and VA and USDA loans, nothing down. (With government loans, mortgage insurance or fees come along for the ride.)

Low- and moderate-income borrowers can sometimes get down payment assistance through a state or local agency.

Figure Out Where You Want to Live

You might know exactly what neighborhood, school zone, and vibe you want. Then your search can zero in on that area.

But looking at the cost of living by state can be eye-opening.

And narrowing things down, you might want to check out market trends by city and neighborhood.

Determine Your Must-Haves

Do you want to buy a house that has been completely updated, or will a dowdy abode or fixer-upper do? The cost of any renovations or repairs must be factored in, of course, and may be funded with a home improvement loan.

If only new construction will do, that can mean a tract home, spec home, or custom home.

What size range can you live with? Maybe you need more space, or maybe you’re financially downsizing.

Is a low-maintenance condo or townhouse more your style, or do you need a single-family home with room for a swimming pool or garden?

Five Steps to Buy a House

Ready? This timeline assumes you’re about to start seriously shopping for a house.

Step 1: Get Mortgage Preapproval (Minutes to Days)

Unlike prequalification, mortgage preapproval means one or more lenders have vetted your finances, usually with a hard credit inquiry. Once your offer on a home is accepted, if your chosen lender is one of these, it has a big head start on your final approval.

An online application might take about 20 minutes to complete if you have all of the documentation in hand, including two years of W-2s and/or 1099s, two years of tax returns, recent pay stubs, a list of fixed debts, and two months’ worth of account statements.

Lenders will look at your credit scores and credit history.

They will look at income, debts (including student loans), assets, proof of employment, rental history, divorce, bankruptcy, and gift funds for a down payment.

Depending on the lender, preapproval could be nearly instantaneous or it could take days.

If you’re shopping for a mortgage, know that multiple credit inquiries by lenders are counted as a single inquiry for 14 days and sometimes more, so try to put in your preapproval requests with various lenders within the same week.

What Is a Pre-approval Letter?

A preapproval letter from a lender states that you’ve been tentatively approved to borrow up to a specific amount. It lets sellers know that you are likely to be able to get financing. The letter will have an expiration date of 30 to 90 days.

What Is a Verified Approval Letter?

This is the term used by some lenders for a preapproval letter, to make clear the difference between prequalification and preapproval. A hard credit inquiry will have been performed, and an underwriter will have examined your preapproval application and additional documents.

Step 2: Make an Offer on a House (a Day to a Few Days)

Once you find a house you want to call your own, it might take up to five days to make an offer and come to an agreement with the seller on price and contingencies in the purchase contract. A closing date will be in the purchase agreement.

Usually when you make an offer, you will provide an earnest money deposit to the escrow company, ​​typically 1% to 2% of the purchase price.

Step 3: Secure the Mortgage (30 to 60 Days on Average)

Now you can make a full mortgage application with as many lenders as you wish, and not just lenders that preapproved you.

It’s smart to look at more than rates — one of the different types of mortgage loans might be a better fit than the others.

You’ll need to choose a mortgage term as well. Thirty years is the most common.

Once you apply, you will receive official loan estimates, allowing you to compare mortgage APRs (annual percentage rates) and more. Choose a lender. Check at the top of Page 1 of the loan estimate to see whether your rate is locked, and until when.

Step 4: Prepare for Closing

Appraisal and Title Search

Your lender will order an appraisal of the home. A property valuation that comes back lower than the purchase price could hinder loan approval.

The appraisal may be performed from 14 to 45 days before closing.

A title search of the property also will be ordered, resulting in a preliminary title report.

Underwriting

This is mostly a waiting period for the buyer. Credit reports are ordered, and the application information is verified.

Mortgage underwriting focuses on the three C’s:

•   Capacity (will your income and debt load allow you to make the mortgage payments each month?)

•   Credit

•   Collateral (did the appraisal show that the home price and value are aligned?)

Your mortgage loan officer may come back to you with questions. Once you receive final loan approval, a mortgage contingency can be lifted.

Home Inspection

A home inspection is optional but widely recommended.

Closing Disclosure and Cash to Close

Your lender is required to send you a closing disclosure at least three business days before the closing. It should match your loan estimate or come close.

You’ll need to send a wire transfer for cash to close one to two business days before closing. The closing disclosure will tell you how much money you need to wire. If you don’t wire the money, you’ll need to prepare to take a certified check or cashier’s check to the closing table.

Cash to close is closing costs (unless you chose a no-closing-cost mortgage) plus your down payment minus your earnest money deposit and any seller credits.

An option: Prepare to take a certified check or cashier’s check to the closing table.

Final Walk-Through

Your real estate agent will schedule a final walk-through within 24 hours of closing. This is a chance to be sure the home is in the condition you agreed to under the purchase terms.

Step 5: Close on Your Loan (an Hour or Two)

The lender will send your closing documents to the closing attorney or title company.

You’ll sign a river of documents in person or remotely.

The deed will be recorded with the appropriate county to transfer title to the new owner, you. Then you’ll receive the house keys.

The Takeaway

How long does it take to buy a house? An uncomplicated mortgage and closing process could take about 30 to 60 days from the time your offer is accepted. That’s a quick close on a new beginning.

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.

FAQ

How many months does it take to buy a house?

If you are financing your purchase with a home loan, and you have a steady income and good credit, you could get from an accepted offer to the closing table in one to two months. If you have a complex financial profile, or if negotiations with the seller become complicated, expect to add time to the process.

How long does it take to get preapproved for a mortgage?

The evaluation process for a mortgage preapproval can take around 10 days. If your financial picture is clearly documented and in good shape, it could take less time. You’ll need to fill out an application with your chosen lender and agree to a credit check, plus provide information about your income and assets.

How fast can you buy a house?

A cash buyer could purchase a home in a matter of days. If you require a home loan, expect the homebuying process to take one to two months from the point that you have an accepted offer.

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.

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