Home Ownership Archives | Page 27 of 114

Jul

2024

How Soon Can You Pull Equity Out of Your Home?

By Rebecca Lake | Growing Wealth, Home Ownership, mortgage | Comments Off

Borrowing against home equity can put cash in your hands when needed. But how soon can you pull equity out of your home after purchasing it?

You might be surprised to learn that there’s no minimum waiting period to access your home equity. You’ll need to meet a lender’s other conditions and requirements to qualify for a loan against your equity, but you can decide when it makes sense to borrow against your home.

What Is Home Equity?

How is home equity explained? Equity is the difference between your home’s value and the remaining amount due on the mortgage. In simpler terms, equity represents the portion of the home that you own.

Home equity accumulates as your mortgage balance goes down and your property’s value goes up. As of March 2024, the average equity value among 48 million U.S. homeowners with mortgages was $206,000, according to the ICE Mortgage Monitor.

It’s possible to have negative equity in a home. That scenario can occur when you owe more on the mortgage than the home is worth. This is also referred to as being upside down or underwater on the mortgage. That’s important to know if you’re calculating how home equity counts in your net worth.

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

Ways to Access Home Equity

There are several options for borrowing against your equity. The most common are a home equity loan, a home equity line of credit, and a cash-out refinance.

Home Equity Loan

A home equity loan allows you to withdraw your equity in a lump sum. Home equity loans typically have fixed interest rates and your repayment term may last up to 30 years. A home equity loan is a type of second mortgage that doesn’t affect the terms of the loan you took out to purchase the property. Your home serves as collateral for the loan. If you default on the payments, the lender could initiate a foreclosure proceeding against you.

Home equity loans offer flexibility since you use the money any way you like. Some of the most common uses for home equity loans include:

• Home repairs and maintenance

• Home improvements

• Debt consolidation

• Medical bills

• Large purchases

Interest on a home equity loan may be tax-deductible if the proceeds are used to “buy, build, or substantially improve the residence,” according to IRS tax rules. This rule applies through the end of 2025.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a revolving line of credit that you can draw against as needed. HELOCs tend to have variable interest rates, though some lenders offer a fixed-rate option.4 When you take out a HELOC, you have a draw period in which you can access your line of credit and a repayment period when you pay it back. You pay interest only on the portion of your credit line that you use.

HELOCs can be used for the same purposes as a home equity loan. A HELOC may offer a lower interest rate than a home equity loan, depending on the overall rate environment. However, your payment isn’t always predictable if you have a variable interest rate.

Cash-Out Refinance

Cash-out refinancing replaces your existing mortgage loan with a new one while allowing you to withdraw some of your equity in cash at closing. A cash-out refinance loan isn’t a second mortgage; it takes the place of your original purchase loan. The balance due is higher to account for the amount of equity you withdraw in cash.

A cash-out refinance loan may have a fixed rate or an adjustable rate. Fixed-rate loans typically have repayment terms extending from 10 to 30 years. If you choose an adjustable-rate mortgage (ARM), you might be able to select a 3/1, 5/1, 7/1, or 10/1 ARM.

The first number represents how long you have to enjoy a fixed rate on the loan; the second number is how often the rate adjusts on an annual basis. So, a 10/1 ARM would have a fixed rate for the first 10 years. Then the rate would either increase or decrease once a year annually for the remainder of the loan term.

Requirements to Tap Home Equity

Qualification requirements for a home equity loan, HELOC, or cash-out refinance loan vary by lender. In most instances, you’ll need to have:

• A credit score of 660 or better

• At least 20% equity, though some lenders may go as low as 15%

• A debt-to-income (DTI) ratio below 43%

Essentially, lenders want to make sure that you have sufficient income to make the payments on a home equity loan and that you’re likely to pay on time.

Lenders use your combined loan-to-value (CLTV) ratio to measure your equity. Your loan-to-value (LTV) ratio measures your home’s mortgage value against the property’s appraised value. The current loan balance divided by the appraised value equals your LTV.8 Combined LTV uses the balance of all loans, including first and second mortgages, to measure equity. This number can tell you how much of your equity you can borrow. Most lenders look for a CLTV in the 80% to 85% range, though it’s possible to find lenders that allow 100% financing.

Recommended: Understanding Mortgage Basics

Factors That Impact Timing

How soon can you get a home equity loan? Technically, right away. But the more important question to ask is whether it makes sense to access your equity sooner or later.

If you’ve just purchased a home, you may not have much equity built up yet. You may need to wait a few months for some equity to build up before borrowing against it. Your choice of lender could also make a difference. If a lender requires a home equity waiting period, you might have to wait until it ends to borrow.

Here are some questions to ask when deciding if the time is right to withdraw equity:

• What will you use the money for?

• How much do you need to borrow?

• Which borrowing option makes the most sense?

• How much can you afford in additional monthly mortgage payments?

Risks of Borrowing Too Soon

Just because you can get a home equity loan or HELOC right away doesn’t mean you should. There are some risk factors to consider if you’re thinking about an equity withdrawal.

• Having less equity in the home can mean a higher LTV, which could make it harder to qualify.

• Should your home’s value drop after borrowing, you could end up underwater on the mortgage.

• If you only recently bought the home, you may not have a firm idea of your maintenance and utility costs, which could make it difficult to estimate how much you can afford in additional mortgage payments.

• Your credit score may need time to recover so you can qualify for the best rates if you just signed off on a purchase mortgage loan.

Using a home equity loan or HELOC calculator can help you estimate what your payments might be. You can then add that to your existing mortgage payment to get an idea of what you’ll pay overall and what’s affordable for your budget.

Alternative Options

If you need to borrow money for home repairs, home improvements, or any other purpose, your equity isn’t the only option. You might consider these alternatives instead.

• Personal loan. A personal loan allows you to borrow a lump sum and repay it with interest over time. Personal loans are typically unsecured, meaning you don’t need collateral and your home isn’t at risk if you’re unable to pay for any reason.

• Credit card. Credit cards can be a convenient way to pay for large purchases, home improvements, or emergency expenses. Choosing a card with a 0% introductory APR on purchases can give you time to pay them off interest-free.

• 401(k) loan. If you have a retirement plan at work, you might be able to borrow against it. However, that’s usually not ideal since any money you take out won’t benefit from compounding interest, which could shortchange your retirement.

• Home equity conversion mortgage (HECM). Eligible seniors 62 and older can get a home equity conversion mortgage to withdraw equity. You can also use an HECM for purchase loan to buy a home. A home equity conversion mortgage requires no payments as long as the homeowner lives in the property, with the balance due when they sell the home or die. Compare an HECM vs. reverse mortgage to see if you’re eligible.

You might also ask friends and family for a loan or sell things you don’t need to raise funds. Taking on a side hustle or part-time job could also bring in extra income so you don’t need to borrow.

The Takeaway

Withdrawing equity from your home can give you access to cash when you need it. In addition to getting the timing right, it’s also important to shop around and find your ideal lender. Comparing rates, terms, credit score requirements, and CLTV requirements can help you find the best loan for your needs.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

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

FAQ

How long after purchasing a home can you pull out equity?

There’s generally no set period for how soon you can take equity out of your home after purchasing it. Your ability to borrow can depend on your credit scores, debt-to-income ratio, and how much equity you’ve accumulated in the home.

Are there fees to tap home equity?

Home equity loans, HELOCs, and cash-out refinance loans can all have closing costs just like a purchase loan. Some of the fees you’ll pay can include appraisal fees, inspection fees if an inspection is required, attorney’s fees, and recording fees. You’ll need to pay certain fees out of pocket but your lender may allow you to roll other closing costs into the loan.

How fast can I get a home equity loan?

It’s possible to get a home equity loan as soon as you purchase your home. You’ll need to meet a lender’s minimum requirements to qualify for home equity financing. Getting approved may be challenging if you have a low credit score or only a small amount of equity in the home.

Photo credit: iStock/DjelicS

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SOHL-Q224-1917700-V1

Jul

2024

Guide to Balloon Mortgages

By Jamie Cattanach | Home Ownership, mortgage | Comments Off

A balloon mortgage is where you make low monthly payments for a short period of time, and then pay off the entire loan balance at the end of the term. Balloon mortgage terms are typically five to seven years, but can be as little as two years. The payments leading up to the final payment, which is known as the balloon payment, can be interest-only or a combination of principal and interest.

Note: SoFi does not offer balloon mortgages at this time.

The idea of low initial payments sounds enticing to many homebuyers, so let’s take a look at what exactly a balloon mortgage is and how it works, including pros and cons.

What Is a Balloon Mortgage?

A balloon mortgage is a mortgage with a shorter-than-normal term — maybe five or seven years as opposed to 15 or 30 — with relatively low monthly payments but a large lump sum due at the end of the term.

Typically, people who take out a balloon mortgage plan on selling the home or refinancing before the balloon payment is due. Some may expect to receive a large sum of money that can be used to pay off the loan.

Do Balloon Mortgages Still Exist?

Balloon mortgages do exist, although they are less common today than they were before the 2007-2008 financial crisis, which found many homeowners owing more on their loan than their property was worth. Balloon mortgages are not considered “qualified mortgages” — meaning they have an unusually high risk profile. Because they are higher risk, balloon mortgages may be offered only by smaller lenders.

Balloon mortgages are sometimes used for business loans, in which the founder wishes to have money to spend on launching the business and plans to repay it once the business is up and running and making a profit.

How Do Balloon Mortgages Work?

In technical terms, a balloon mortgage is one that hasn’t undergone full mortgage amortization. Although the payments are based on a 30-year term, the actual term is much shorter, which means a lot of money is left over at the end (hence the lump payment due).

Types of Balloon Mortgages

There are two ways a lender might calculate payments on a balloon mortgage:

Amortization Over a Longer Loan Term

In this scenario, the fixed loan payments may be based on a 30-year loan term even though the actual term is just 15 years. The borrower would make the relatively affordable lower payments for 15 years and then the loan balance would be due in a mortgage balloon payment.

Interest-Only Payments

Here, the borrower would pay only the interest on the loan for an initial period, and then the principal balance would be due in a balloon payment.

Balloon Mortgage Example

Below you can see how the two types of balloon mortgages might play out for a borrower who has a balloon mortgage for $300,000.

10-Year Balloon Loan at 6.50% With 30-Year Amortization

Year	Monthly payment
1	$1,896
2	$1,896
3	$1,896
4	$1,896
5	$1,896
6	$1,896
7	$1,896
8	$1,896
9	$1,896
10	$1,896
Mortgage balloon payment	$254,328

5-Year Balloon Mortgage With Interest-Only Payments at 6.50%

Year	Monthly payment
1	$1,625
2	$1,625
3	$1,625
4	$1,625
5	$1,625
6	$1,625
7	$1,625
8	$1,625
9	$1,625
10	$1,625
Mortgage balloon payment	$297,150

Why Would Anyone Want a Balloon Mortgage?

Being suddenly faced with a lump sum mortgage payment due might sound like a nightmare to most of us. So when would such a financial product actually be an attractive option?

It’s worth noting that balloon mortgages sometimes carry lower interest rates than 30-year fixed-interest mortgages, and in some cases, they can be easier to qualify for. That can make them tempting to those in the following situations:

• The borrower plans to sell the house and move before the balloon sum is due. This way, the lump sum is paid off with proceeds from selling the house — and in the meantime, the borrower benefits from the lower interest rate. This assumes, of course, that the home holds its value or increases in value in a relatively short time period.

• The borrower plans to refinance the loan once the balloon sum is due. This is a common scenario, and may give a borrower the opportunity to benefit from the lower interest rate of the balloon mortgage in the short term while buying time to build credit and shop for a better loan in the long term.

• The borrower expects to have the money to pay the balloon sum by the time it’s due. Maybe they have another property they plan to sell or are banking on an inheritance or some other savings plan — and they might save money in the long run on interest compared with taking out a traditional 30-year mortgage.

That said, there are obviously risks to this approach that may outweigh the benefits.

Pros and Cons of Balloon Mortgages

What are the specific advantages and disadvantages of balloon mortgages?

Pros of a Balloon Mortgage

• Possible lower interest rate. Balloon mortgages may carry a lower interest rate than mortgages with longer terms, depending on the lender’s criteria and the borrower’s creditworthiness.

• Possible lower monthly payment. Lower interest rates can translate to lower monthly payments, making the mortgage more affordable and easier to fit into the monthly budget (at least in the short term).

• May pay off the loan quicker. If a borrower is able to come up with the lump sum payment at the time it’s due, a balloon mortgage may allow a purchaser to pay off the house more quickly.

• Possibly easier to qualify for. Because of their lower payment, balloon mortgages may be easier for some consumers to qualify for.

Cons of a Balloon Mortgage

• Interest-only payments. In some cases, the monthly payments made during the term of a balloon mortgage may be interest-only — which means borrowers aren’t building equity in their homes during that time.

• Buyers may be unable to sell their house or refinance in time. To avoid the lump sum payment, borrowers must sell or refinance. If rates have risen or they can’t sell, they may face mortgage foreclosure.

• Buyer may pay more in fees. Even if successful, refinancing can incur fees that may mitigate some of the savings earned by taking out the balloon loan in the first place.

• Refinancing may increase monthly payment. After refinancing, monthly mortgage payments are often higher, especially if the balloon mortgage was interest-only.

• Risky for the borrower. Other unforeseen circumstances can wreak havoc on a balloon borrower’s plans, leaving them with a huge lump sum payment they can’t afford.

Other Types of Mortgages to Consider

Although balloon loans can be relatively easy to qualify for and do have some benefits, they can also be risky. We know what they say about best-laid plans — and even those with bulletproof plans sometimes encounter unforeseen circumstances.

What if the money that was set aside for the balloon payment has to be spent on a medical emergency or another surprise expense? What if the sale of the property or the annual bonuses fall through? What if, when it’s time to refinance, rates are actually higher or the borrower’s credit history is less favorable? What if property values have dropped precipitously and refinancing options are hard to come by?

Fortunately, there are plenty of other types of mortgages that can meet borrowers’ needs without creating an unduly risky scenario.

Fixed-Rate Mortgages

A fixed-rate mortgage, or FRM, is one in which the interest rate is fixed. The borrower pays the same interest rate over the entire term of the loan, usually 15 or 30 years.

The fixed interest rate also means the monthly payment amount is fixed, making this a popular type of mortgage for those who want to plan ahead to ensure that their mortgage payment will fit their budget.

FRMs protect buyers from rising interest rates; no matter what happens with the market, they can rest assured their rates will stay the same.

On the other hand, FRMs can preclude borrowers from benefiting when interest rates drop — which leads us to another popular type of mortgage.

Adjustable-Rate Mortgages

An adjustable-rate mortgage, or ARM, has an interest rate that fluctuates over the term of the loan based on the market. These loans generally begin with a relatively short period when the interest rate is fixed — known as the fixed-rate period — before switching to the variable interest rate.

ARMs are attractive for a variety of reasons. For one thing, the interest rate during the introductory fixed-rate period is often lower than it is in FRMs, meaning the borrower can enjoy smaller payments at the beginning of the mortgage.

ARMs may also allow borrowers to benefit when market rates drop. Though, if market rates increase, so can the borrower’s monthly payment. Some ARMs include clauses limiting the annual and life-of-loan adjustments and creating rate caps, which can help protect buyers, but it’s still not the same kind of peace of mind available from FRMs.

More Ways to Find the Right Mortgage for Your Needs

Any mortgage — indeed, any loan — carries some degree of risk. But there are ways to mitigate the inherent hazards involved with owing a large debt. For one thing, figuring out how much house you can afford is an important first step to help ensure that you don’t overspend and end up with an unaffordable mortgage.

Once you’ve got a home-buying budget locked in, researching types of mortgage loans is a great next step. And finally, shopping around at different lenders for the best mortgage terms available can also help you save money in the long run.

Government-insured loans can help borrowers qualify with low-interest rates and down payments — as little as 3.5% for FHA loans (backed by the Federal Housing Administration) and even 0% for U.S. Department of Agriculture (USDA) loans in approved rural areas. But conventional loans, or those offered from private lenders, can also offer competitive terms and incentives.

The Takeaway

A borrower with a balloon mortgage makes low payments for, say, 5 or 7 years before a very large “balloon” payment is due to pay off the mortgage. Financing your home purchase this way can be riskier than other loan types, even though the upfront costs are enticingly low. Fortunately, there are other ways to borrow money for a home purchase that involve less risk.

FAQ

What is considered a balloon mortgage?

A balloon mortgage is one in which the borrower makes relatively low payments for an initial period of time (5, 7, or 15 years) before one very large mortgage “balloon” payment comes due.

Do balloon mortgages still exist?

Balloon mortgages do exist, although they are less commonly used for home purchases than they were in the past. Today they are used more often for commercial loans.

Why would you want a balloon mortgage?

Borrowers are attracted to balloon mortgages because of the period of low monthly payments at the outset of the loan term. They may plan to sell or refinance before the mortgage balloon payment comes due, or may think that they will come into other money — through an inheritance, for example — that will help them afford the balloon payment. However there is always risk involved in these scenarios.

SOHL-Q224-1945592-V1

Jul

2024

What Mortgage Fraud Is—and How to Avoid It

By Sheryl Nance-Nash | Home Ownership, mortgage | Comments Off

Mortgage fraud involves lying or omitting information to fund or insure a mortgage loan. It results in billions of dollars in annual losses nationwide. In the second quarter of 2023, 0.75% of all mortgage applications were estimated to contain fraud, which is about 1 in 134 applications, according to CoreLogic. Rates of fraud were higher for two- to four-family properties than for single-family homes. The top states for mortgage application fraud in 2023 were New York and Florida.

What Is Mortgage Fraud?

The FBI, which investigates mortgage fraud, defines it as “a material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.” A borrower might apply for a loan saying they had received a gift of money to help purchase a home when in reality, the borrower simply used money borrowed from a family member to temporarily inflate their assets during the loan application process.

Sometimes those working in the mortgage industry are the fraudsters: In one recent case, employees of a New Jersey mortgage business misled lenders about the intended use of properties to fraudulently secure lower mortgage interest rates. They often submitted loan applications saying that borrowers would reside in a property when in fact the property was being used as a rental or investment property.

How Does Mortgage Fraud Happen?

Mortgage fraud happens when someone involved in the process of obtaining a loan for a property purchase makes false statements about their financial situation or the planned use of the property. It may involve falsifying documents, lying about the source of income, or even creating an entirely false identity.

Types of Mortgage Fraud

The FBI investigates two distinct areas of mortgage fraud: fraud for profit and mortgage fraud schemes used for housing.

Fraud for Profit

The FBI says that those who commit this type of mortgage fraud are often industry insiders. Current investigations and reporting indicate that a high percentage of mortgage fraud involves collusion by bank officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals in the industry. The FBI points out that fraud for profit is not about getting a home, but manipulating the mortgage process to steal cash and equity from lenders and homeowners.

Fraud for Housing

It’s not only industry insiders who can look to milk the system with mortgage scams. With fraud for housing, the perpetrators are borrowers who take illegal actions in order to acquire or maintain ownership of a house. They could do this by lying about income or presenting false information about assets on their loan application to get a good mortgage rate, for example. One area where fraud is on the increase in recent years is occupancy misrepresentation, in which an investor claims that an investment property is their primary residence in order to get a more favorable mortgage rate.

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

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

What Are the Penalties for Mortgage Fraud?

Mortgage fraud schemes abound, and mortgage fraud is serious. In fact, it’s typically a felony. It’s usually the FBI who investigates mortgage fraud, and conviction for federal mortgage fraud can result in a federal prison sentence of 30 years; state convictions can last a few years. If the crime is a misdemeanor and the amount involved is less than $1,000, there can be a one-year sentence.

A conviction on a single count of federal mortgage fraud can result in a fine of up to $1 million. State fines can range from a few thousand dollars for a misdemeanor to $100,000 or more for a felony. Those found guilty can expect to pay restitution to compensate the victims and to be on probation following jail time.

9 Main Types of Mortgage Fraud

Mortgage fraud comes in many flavors so let’s get a closer look at exactly what is mortgage fraud. Scammers are big on creativity, particularly when it comes to scams targeting seniors. The FBI has a list of common mortgage fraud schemes and scams to watch out for. Here are a few of theirs and others to keep in mind.

1. Property Flipping

There’s nothing innately evil about flipping properties. In fact, adding investment properties to your portfolio can be a way to build wealth if you’re good at it. But then there’s the sinister side of flipping. It goes something like this: A property is purchased below the market price and immediately sold for profit, typically with the help of a shady appraiser who puffs up the value of the property. This is illegal.

2. Equity Skimming

The FBI explains how this works: An investor may use a “straw buyer” (a knowing accomplice), false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. After closing, the straw buyer signs the property over to the investor in a quit-claim deed, which relinquishes all rights to the property and provides no guarantee to title. The investor does not make any mortgage payments and rents out the property until foreclosure takes place several months later.

3. Asset Rental

It’s one thing to borrow something blue on your wedding day, and quite another to borrow or rent the assets of your best friend or loved one to make yourself look better in the eyes of a lender. You “borrow” the asset, maybe a hefty chunk of cash, and after the mortgage closes, you give it back to your partner in crime. Sounds harmless, but it’s a common and serious mortgage scam.

4. Inflated Appraisals

Appraisers have the keys to the kingdom. They state the fair market value of a home. Crooked appraisers can do a couple of things that are illegal: They can undervalue the property so that a buyer gets a “deal,” or more often, they overstate the value of the property. The goal is to help a buyer or seller, or a homeowner planning to refinance or tap home equity.

5. False Identity/Identity Theft

Identity theft is an epidemic. According to the Federal Trade Commission, in 2022, it received over 1.1 million reports of identity theft.

Scammers use financial information like Social Security numbers, stolen pay stubs, even fake employment verification forms to get a fraudulent mortgage on a property they do not own. If you’ve been a victim, report identity theft as soon as possible.

6. Foreclosure Scams

Talk about kicking somebody when they’re down. Predators seek out those who are in foreclosure or at risk of defaulting on their loan and tell them that they can save their home by transferring the deed or putting the property in the name of an investor. It can sound rational when you’re desperate.

The perpetrator cashes in when they sell the property to an investor or straw borrower, creating equity using a fraudulent appraisal and stealing the seller proceeds or fees paid by the homeowners. The homeowners are typically told that they can pay rent for at least a year and repurchase the property when their credit has improved.

But that’s not how the story goes. The crooks don’t make the mortgage payments, and the property will likely wind up going into foreclosure.

7. Air Loan

This may as well be in a movie, because nothing is real with this — it’s probably the most bizarre of the mortgage fraud schemes. The FBI describes an air loan as a nonexistent property loan where there is usually no collateral. Brokers invent borrowers and properties, establish accounts for payments, and maintain custodial accounts for escrow. They may establish an office with a bank of phones used as the fake employer, appraiser, credit agency, and so on, to deceive creditors who attempt to verify information on loan applications.

8. Inaccurate Income

A lie can be what you leave out as much as what you say. Given the nature of how self-employed people file taxes, some do not report their full income on their taxes. When it comes to a “stated income” loan, a borrower claims a certain amount of income, and an underwriter makes a decision based on that figure to give them a loan or not.

If the borrower tells a little white lie about their income, it’s not little at all. It’s mortgage fraud. One way lenders try to ensure the information a borrower provides is accurate is to request a letter of explanation about anything that might be concerning in a borrower’s application. This is also why a lender asks for bank statements for a mortgage application, and may ask for extra documentation if you are self-employed.

9. Repaying Gift Money

You can receive part of a down payment for a home, but the gift is not to be repaid. In fact, when you plan to use gift funds, you’ll need to provide a gift letter that proves the money is not a loan to be repaid. You may also be asked to provide documentation to prove the transfer of the gift into your bank account. This may include asking the donor for a copy of their check or bank account statement.

If that gift is to be repaid, it is mortgage fraud. It can also put your loan qualification at risk, as all loans need to be factored into your debt-to-income ratio.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

Why Is Mortgage Fraud Committed?

Borrowers who know they are not really mortgage-ready — perhaps because of a poor credit history, a low credit score, or a nothing-to-brag-about salary that would likely get them the thumbs down from a lender — may be driven to try to enhance their chances of getting a loan, even by illegal means.

As for industry professionals, be it appraisers, real estate agents, mortgage brokers, or anyone who has a role in the home buying and selling process, they could be motivated by the almighty dollar. If they can look the other way to get the transaction done, or manipulate facts so they get their piece of the action, they may do so. (Home improvement scams are widespread too, so exercise caution when commissioning work on your home as well.)

Avoiding and Preventing Mortgage Fraud

When it comes to buying or selling a house, there are a lot of moving parts and many cooks in the kitchen. It’s a good idea to, above all, be truthful about everything, and if anyone along the way seems to be pushing you in any other direction, you could pay dearly for taking that bad advice.

You can play the game straight, but what about all the others involved in the process? It’s smart to get referrals for companies and real estate and mortgage pros that you’ll be working with, and to check state and local licenses. Visit a home loan help center to familiarize yourself with the ins and outs of getting a mortgage before you start your home search.

Once you’ve found a home you love and begin the buying process, do your homework to ensure your property evaluation, or appraisal, is on target. It might be helpful to look at other homes that are similar to see what they have sold for, and recent tax assessments of nearby homes.

Guard your John Hancock as well. Be careful what you sign, and never sign a blank document or one containing blank lines.

Once you’re a homeowner, never sign over the house deed “temporarily.” This could be a set-up. Someone may be asking you to sign over your house deed as part of a scheme to avoid foreclosure. Know that chances are you’ll lose your house permanently.

Can You Accidentally Commit Mortgage Fraud?

Even if you didn’t set out to perpetrate a mortgage scam, you could commit fraud unwittingly by signing fraudulent documents presented by a clever thief, by guessing at your assets and writing numbers into your application without checking them, or by borrowing money for a down payment without disclosing the loan.

Victims of Mortgage Fraud

What do you do if you’re the victim of mortgage fraud? Your local police department may take a report. Your state attorney general’s office may be another good resource. The FBI, however, is the agency that handles most mortgage fraud investigations. You can go to tips.fbi.gov to report a crime. Other federal agencies also investigate mortgage fraud, but the FBI is likely the best first option.

The Takeaway

Mortgage fraud isn’t rare, and both industry insiders and borrowers can be involved. It’s smart to approach the process of getting a home loan with care. Do your homework to find a loan provider you trust and read everything before you sign.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is considered mortgage fraud?

Intentionally providing false information or omitting information during the mortgage loan application process is considered mortgage fraud.

What are common mortgage fraud tactics?

Mortgage fraud takes many different shapes but common tactics include borrowers falsely inflating assets or income; those involved in the mortgage lending process inventing fake borrowers; or appraisers artificially inflating property values.

What is the typical sentence for mortgage fraud?

The average sentence for mortgage fraud is 14 months, but prison time can extend to 30 years. Fines (of up to $1 million) and the payment of restitution — repaying the money that resulted from the fraud — are also usually part of the sentence.

Photo credit: iStock/fizkes

SOHL-Q224-1945609-V1

Jul

2024

How Much Income Is Needed for a $200,000 Mortgage?

By Timothy Moore | Home Ownership, mortgage | Comments Off

In general, you need an income of at least $64,000 a year to afford a $200,000 mortgage. If you’re carrying significant debt, however, like student loans or high-interest credit cards, you may need to buy something slightly less expensive on such a salary.

Several factors impact how much house you can afford and what lenders are willing to give you on your salary, including your credit history, your down payment, and your debt-to-income ratio. We’ll break down these and other factors as we explore the income needed for a $200,000 mortgage.

Income Needed for a $200,000 Mortgage

Mortgage lenders typically don’t list strict income requirements for a home loan, though they will want to know that you can afford closing costs, which typically range from 3% to 6% of the loan principal. For simplicity’s sake, assuming no money down, you would need $6,000 to $12,000 for a $200K mortgage in a bank account.

Mortgage lenders will, however, analyze your annual income to ensure you’re able to keep up with your estimated monthly mortgage payments. In addition, lenders will consider other factors, such as your:

• Debts

• Employment

• Down payment

• Credit history

Even if a lender would approve you for a $200,000 mortgage, it’s a good idea to decide for yourself if you can actually afford it. Many experts recommend using the 28/36 rule. This means that housing costs should account for no more than 28% of your income, and you should spend no more than 36% of your income on all debts combined.

Assuming you have minimal debt, that means you can afford to spend 28% of your gross monthly income on a mortgage. (That’s how we get our rough estimate of a $64,000 salary for a $200,000 home.) However, if you have major debt elsewhere — car loan, student loans, personal loans, and credit cards, for instance — you may need to keep your mortgage debt lower so you don’t exceed 36% of your total income.

Use a home affordability calculator if you’re not sure where to start.

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

How Much Do You Need to Make to Get a $200K Mortgage?

In general, we recommend making at least $64,000 a year if you have a $200K mortgage. However, several factors can impact this, including:

• What other debts you have

• How much you have saved for a down payment

• The type of mortgage loan you’re applying for

What Is a Good Debt-to-Income Ratio?

In keeping with the 28/36 rule, lenders prefer to see a debt-to-income (DTI) ratio of 36% or lower. This is not a hard-and-fast rule, however. A qualified mortgage lender may look for a DTI ratio of 43% or less. In certain cases, Fannie Mae could allow a DTI as high as 50% for specific mortgage loans. To compute your DTI ratio, add all your monthly debts and divide by your gross monthly income, then multiply by 100.

What Determines How Much House You Can Afford?

Several factors impact how much house you can afford, including:

• Your income: The amount of money you make dictates how much you can afford to spend on a monthly mortgage payment, including property taxes, homeowners insurance, and private mortgage insurance (PMI) when required.

• Your debt: Other outstanding debts mean your funds are limited for new loans. If you’ve got to pay down other debts each month, you may want to aim for a less expensive home (and thus a smaller mortgage).

• Your location: A $200,000 home looks a lot different depending on where you live. In places with a low cost of living, you might be able to get a fully renovated home. In coastal and urban areas, $200K doesn’t go as far: You may get a small home or a home in need of major repair. Hoping to get the most bang for your buck? Here are the most affordable places to live in the United States.

• Your credit score: Even if you have the income to afford a hefty mortgage now, a spotty credit history can turn off lenders. They may either offer you an impossibly high interest rate or deny your loan request, depending on how low your score is.

Recommended: Mortgage Calculator

What Mortgage Lenders Look For

When you begin the mortgage preapproval process, lenders will be looking for a few factors to determine if you’re eligible for a loan:

• Stable, predictable income (though it’s not impossible to get a mortgage without regular income)

• Your assets

• Your credit history

• The size of your down payment

• Any existing debts, including credit cards, student loans, personal loans, and car loans

$200,000 Mortgage Breakdown Examples

Several major factors can impact how a mortgage shakes out, including your down payment amount, the interest rate (and whether it’s fixed or adjustable), and the loan term.

You should also factor in homeowners insurance and property taxes. We recommend using a mortgage calculator with taxes and insurance for an accurate picture.

Here are a few examples of how your monthly payments on a $200,000 mortgage can vary:

• A $200,000 loan with $20,000 (9%) down and an interest rate of 7.00% over 30 years, with taxes and insurance, would cost an average of $1,822 a month.

• A $200,000 loan with $20,000 (9%) down and an interest rate of 7.00% over 15 years, with taxes and insurance, would cost an average of $2,229 a month.

• A $200,000 loan with 20% down and an interest rate of 7.00% over 30 years, with taxes and insurance, would cost an average of $1,622 a month.

• A $200,000 loan with 20% down and an interest rate of 7.00% over 15 years, with taxes and insurance, would cost an average of $2,089 a month.

You’ll notice that a 15-year loan results in higher monthly payments; however, because the loan is only 15 years, the homeowner would spend significantly less in interest over the life of the loan and would be debt free much sooner.

How Much Will You Need for a Down Payment?

How much you need for a down payment depends on the type of loan you’re applying for and your other financial goals. Conventional wisdom used to advise putting 20% down on a house, but that’s often unrealistic for today’s homebuyers.

Certain loan types require significantly less down. An FHA loan (from the Federal Housing Administration) requires as little as 3.5% down. A VA loan (from the U.S. Veterans Administration and USDA loans (from the U.S. Department of Agriculture) don’t require any down payment.

Can You Buy a $200K Home With No Money Down?

If you can qualify for specific types of loans, such as a VA loan or USDA loan, it’s possible to buy a $200,000 home with no money down. These loans, however, have strict eligibility requirements that are limited to a small percentage of borrowers.

Can You Buy a $200K Home With a Small Down Payment?

FHA loans are an option for borrowers who can’t come up with 20% or even 10% money down for a home. With a government-backed FHA loan, you can put down as little as 3.5%. In the case of a $200K mortgage, that’s $7,000. Some conventional lenders also allow as little as 3% down for first-time homebuyers.

Is a $200K Mortgage With No Down Payment a Good Idea?

In today’s housing market, it’s hard to come buy a house that is less than $200,000. A $200K home — or one that’s even more expensive — may be your only option. If it is your only option, and you can’t come up with the funds for a down payment, a 0% down mortgage could be a good idea.

However, keep in mind that you’ll have no home equity at the start of the loan, and you’ll likely have to pay PMI until you’ve paid off at least 20% of the home. It also means your monthly payments will be larger.

Recommended: Home Loan Help Center

Can’t Afford a $200K Mortgage With No Down Payment?

When you don’t put any money down when buying a home, monthly payments will be higher. If you find they’re too high for you to afford, you’ll need to make some changes before you can buy a home. Here are some ideas:

Pay Off Debt

Focus on other debts, such as high-interest credit cards and student loans. If you’re able to wipe out debt, you’ll have more money in your monthly budget to spend on housing costs.

Look Into First-Time Homebuyer Programs

First-time homebuyer programs can help you out when you’re trying to get your first mortgage. For instance, if you can save up 3.5%, you can qualify for an FHA loan with an affordable interest rate.

Build Up Credit

If you take the time to focus on your credit score (make on-time payments, pay down debts, reduce credit utilization), you may get a lower interest rate on a loan offer. This can help keep your monthly payment down.

Start Budgeting

If all else fails, put the new house on hold and start focusing on growing your savings. You can do this by finding a new income source, but you can also analyze your budget and cut out unnecessary expenses. Try getting rid of some streaming services, dining out less, and finding ways to reduce your utility bills.

Mortgage Tips

We’ve put together several tips for qualifying for a mortgage, but here’s the quick version:

• Make sure you’re good to go before applying: Spend time with your budget to understand what you can afford, focus on paying down debts to reduce your DTI, and check your credit score to ensure it’s strong enough to qualify.

• Understand the language: Knowing the difference between fixed-rate and adjustable-rate mortgages is crucial. Research other terms such as principal, escrow, mortgage refinance, and PMI to make sure you’re armed with all the info you need.

• Shop around: Get prequalified with multiple lenders to ensure you find the right mortgage loan for you.

The Takeaway

The income needed for a $200,000 mortgage is roughly $64,000, but so much of that depends on other factors, including your down payment, your credit score, the type of loan you’re getting, and your other debts.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much income do I need for a $200K mortgage?

We estimate that the average homebuyer needs a $64,000 annual income for a $200,000 mortgage, but several factors can impact this.

Can I afford a $200K house on $50K?

While we recommend a $64K salary for a $200,000 mortgage, you may be able to afford a $200,000 house on $50,000 if you have a large down payment saved up and have minimal other debts.

Can I afford a $200K house on a $60K salary?

At $60,000, you might be able to handle a $200,000 mortgage if your other debts are minimal and you have a good-sized down payment ready to go.

Photo credit: iStock/martin-dm

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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.

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.

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.

SOHL-Q224-1906997-V1

Jul

2024

How Much Income Is Needed for a $325,000 Mortgage?

By Kim Franke-Folstad | Home Ownership, mortgage | Comments Off

If you earn around $100,000 to $150,000 a year, or more, you might be in a position to afford a $325,000 mortgage. But the amount you’ll actually qualify to borrow — even if you’re in that salary range — will likely depend on several variables, including how much debt you have and your credit score.

Read on for a look at how much income may be needed for a $325,000 mortgage, how a borrower’s income fits into the overall mortgage calculation, and how lenders typically decide how much mortgage a homebuyer can manage.

What Factors Do Mortgage Lenders Consider?

Homebuyers tend to think the amount they’ll be approved for when they apply for a mortgage will be based mostly on their household income. But income is just one of several factors lenders look at when deciding how much someone can borrow.

The home mortgage loan you can qualify for depends on how much the lender believes you can reliably pay back. And you can expect the loan company to run your financials through several different calculations to come up with that amount. Here are a few things lenders may look at:

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

Income

Lenders will look at how much you make to help determine if you can afford the monthly payments on the amount you hope to borrow. They’ll also want to know how reliable that income is, so you may be asked how long you’ve had your job (or your business if you’re self-employed). If you’re wondering if your income will be considered high enough to afford a $325,000 loan, you may want to use an online home affordability calculator before you apply for a mortgage.

Creditworthiness

Lenders also will check your credit score and credit reports to ensure you have a history of being financially responsible and that you pay your bills on time.

Down Payment Amount

Lenders like to see a larger down payment because it can show that you’re serious about your investment. The more you put down, the lower their financial risk. But contrary to what many buyers believe, a 20% down payment isn’t always required to get a home loan. You may be able to put down less, depending on the type of mortgage you plan to get.

Debt-to-Income (DTI) Ratio

Lenders may also compare your monthly gross income to your existing monthly debts (credit cards, student loans, car payments, etc.) to assess whether you’ll be able to manage all those payments and aren’t getting in over your head. This calculation is called your debt-to-income ratio.

What Is a Good Debt-to-Income Ratio?

The Consumer Financial Protection Bureau recommends that homeowners work toward maintaining a DTI ratio of 36% or less. And that’s the number mortgage lenders generally look for as well. But some lenders may accept a DTI ratio of up to 43% — or even higher if the borrower can meet other criteria on certain types of loans.

What Other Factors Are Mortgage Lenders Looking For?

Here are a few formulas your lender, and you, may use to determine how much mortgage you might be able to afford on your income.

The 28/36 Rule

The 28/36 rule combines two factors that lenders look at to determine home affordability: income and debt.

The first number sets a limit of 28% of gross income as a homebuyer’s maximum total mortgage payment, including principal, interest, taxes, and insurance. The second number limits the mortgage payment plus any other debts to no more than 36% of gross income.

For example: If your gross annual income is $120,000, that’s roughly $10,000 per month. So with the 28/36 rule, you could aim for a monthly mortgage payment of about $2,800, as long as your total monthly debt (including the house payment, car payments, credit cards, etc.) isn’t more than $3,600.

The 35/45 Model

Another calculation lenders might look at is the 35/45 method, which recommends spending no more than 35% of your gross income on your mortgage and debt, and no more than 45% of your after-tax income on your mortgage and debt.

For example: Let’s say your gross monthly income is $10,000 and your after-tax income is about $8,000. In this scenario, you might spend between $3,500 and $3,600 per month on your debt payments and mortgage combined. This calculation offers a bit more breathing room with your mortgage payment, as long as you aren’t carrying a lot of debt.

The 25% After-Tax Rule

If you’re nervous about making mortgage payments, this method will give you a more conservative number to keep your budget in line. With this calculation, your target is to spend no more than 25% of your after-tax income on your mortgage. So, for example, if you make $8,000 a month after taxes, you might plan to spend $2,000 on your mortgage payments.

Keep in mind that these equations can only give you a rough estimate of how much you can borrow. When you want to be certain about the overall price tag and monthly payments you can afford, it helps to go through the mortgage preapproval process.

What Determines How Much House You Can Afford?

Here’s something else to remember when determining how much income is needed for a $325,000 mortgage: A house payment generally isn’t limited to just principal and interest. And the extra costs that may be tacked on every month can add up fast.

Some of the costs covered by a monthly loan payment can include:

Principal

Principal is the original amount borrowed from the lender to buy the home, minus the down payment. Each month, a portion of your payment will go toward paying down this amount.

Interest

Interest is the money you pay to the lender each month for giving you the loan. The interest rate you pay can be influenced by personal factors (such as the loan length you choose, your credit score, and your income) as well as general economic and market factors.

Homeowners Insurance

The cost of homeowners insurance also may be rolled into your monthly mortgage payment, and your lender or loan servicer will pay the premium when it’s due.

Mortgage Insurance

Depending on the type of loan you have and the amount you put down on your home, you may be required to carry private mortgage insurance (PMI) or some other type of mortgage insurance policy. This insurance is designed to protect the mortgage lender if a borrower can’t make the agreed-upon loan payments.

Property Taxes

A portion of your monthly mortgage payment will also go toward the property taxes you’ll need to pay your local government.

Recommended: Home Loan Help Center

$325,000 Mortgage Breakdown Examples

The monthly payment on a $325,000 mortgage can vary based on several factors, including the length of the loan (usually 15, 20, or 30 years) and the interest rate. A mortgage calculator can help you get an idea of what your payments might look like. Here are some examples of how the payments for a $325,000 mortgage with a 20% down payment might break down.