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Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.

If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.

What Is Mortgage Underwriting?

Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.

If you’re wondering what is the underwriting process, here are some of their tasks:

•   Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.

•   Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.

•   Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.

•   Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.

5 Steps of the Mortgage Underwriting Process

The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.

Here are common steps leading to underwriting:

1. Explore Your Budget

Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.

Think, too, about lending questions you’ll have during the mortgage process.

2. Get Preapproved for a Loan

Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).

A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.

3. Find Your Home

Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.

4. Apply for the Loan

You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.

If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.

5. Wait for the Underwriting Verdict

A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.

The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.

Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.

Required Information for Underwriting

Lenders are going to request a lot of documents from mortgage loan applicants.

Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.

Any additional income. Pension, Social Security, alimony, dividends, and the like all count.

Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.

Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.

Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.

Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.

How Long Does Underwriting Take?

Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.

Can You Speed Up the Mortgage Underwriting Process?

Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.

How You Can Improve Your Chance of Being Approved

Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.

Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.

Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.

Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.

The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.

Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.

Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.

With an underwriter extending a hand, a solution may be found that leads to approval.

The Takeaway

Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.

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 long does it take for the mortgage underwriter to make a decision?

Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.

Is underwriting the last step before closing?

Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.

How often do underwriters deny loans?

About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.

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.

SOHL-Q224-1945575-V1

As a homeowner, chances are you’ve worked hard to build equity in your property — and if you’re facing a big purchase or unexpected financial need, it may make sense to convert that wealth into cash. But there are a variety of ways to go about it, each with their own benefits and drawbacks. In this article, we’ll walk you through the differences between a Home Equity Conversion Mortgage (HECM) and a Home Equity Line of Credit (HELOC), so you can determine which, if either, is right for you.

What Is an HECM?

Let’s take a look at HECMs first. An HECM is a type of reverse mortgage that allows homeowners aged 62 or over to take out a lump sum against the value of their home. (There are other types of reverse mortgages on the market that may be available to younger applicants, but these are privately offered and not backed by the Department of Housing and Urban Development, or HUD, as HECMs are. There’s also such a thing as an HECM for purchase, which helps those 62 and over finance a principal home.)

For some seniors, HECMs are especially attractive because the loan and its interest don’t need to be repaid until the last surviving borrower permanently vacates or sells the home (or dies). While there are usually upfront fees involved, for some borrowers, this arrangement can feel like free money.

However, because interest is building over time and not being repaid, HECMs can eat into the equity you’ve built in your home, which may be less than ideal if you’re planning to pass it on to an heir as an asset. Along with receiving a less valuable investment, your heirs will also be on the hook to pay the loan in full upon your death — or otherwise surrender the title to the lender.

What Is a HELOC?

A home equity line of credit, or HELOC, works differently than an HECM. A HELOC is kind of like a secured credit card, except it’s secured with your home’s equity. In fact, in some cases, it may literally come with a card — or a checkbook — attached to the account.

A HELOC allows you to borrow money against the value of your home, but doesn’t require you to take one large lump sum. Instead, you can borrow what you need through the HELOC’s draw period, and then repay it during the repayment period that follows. This arrangement may help some people borrow less overall, which in turn could mean paying less for the loan by way of interest. Some HELOC users borrow and repay money repeatedly during the draw period.

However, a HELOC is still a loan — and it still comes with costs. Some HELOCs allow borrowers to make interest-only payments during the draw period. However, once the principal comes due during the repayment period, the monthly payments will be much larger.

Key Differences

While HECMs and HELOCs are similar in some ways, there are some important differences that set them apart — and which may help you determine which is best suited to your needs.

Borrower Age Requirements

HECMs are only available to homeowners aged 62 and over.

HELOCs, on the other hand, don’t have any borrower age requirements — but they do have minimum equity requirements, and the lender will also check out your credit score and proof of income to qualify you for the loan. (Your credit history and other financial information will be part of the lending qualification decision for both HELOCs and HECMs.)

Collateral Requirements

Both HECMs and HELOCs are secured by your home, and you’ll need to have built up home equity in order to have value to borrow against.

Every lender has different specific requirements, but for a HELOC, you’ll generally need to own at least 15% or 20% of your home’s value. For an HECM, you’ll usually need to own a substantially greater portion of your home: 50% is a general rule of thumb, and some lenders may require you to have even more equity than that.

Repayment Requirements

Finally, as discussed above, there are substantial differences in HECM vs. HELOC repayment policies.

HECMs have upfront costs, but the loan principal and interest don’t come due until after the last surviving borrower sells the property, permanently moves out of the home, or dies.

HELOCs, on the other hand, are split into a draw period and a repayment period. During the draw period, when you can borrow against your home’s value, you may be able to make interest-only payments; both principal and interest will come due in the repayment period. The draw period is often 10 years long, and the repayment period may be another 10 or even 20 years.

Pros of an HECM

So, what are some of the benefits of a reverse mortgage?

•   Money up front with no interest until later. For seniors who are planning to live in their home until they die — and don’t necessarily want to pass the property on to heirs — an HECM can provide an additional income stream that doesn’t require repayment during their lifetime.

•   HECM funds aren’t taxable. Because money you borrow with an HECM isn’t considered income, you don’t owe income taxes on it.

Cons of an HECM

And now, some HECM drawbacks:

•   You’ll decrease your home’s value as a personal investment. Because an HECM is borrowed against your equity and repayments don’t begin until after you move out or die, it will decrease the value of your property as an investment for you and your family.

•   You’ll probably still have to pay upfront fees. Even for those who see HECM funds as “free money,” origination fees and other upfront costs can still add up to a sizable amount.

•   Your home could be foreclosed if you fail to make other payments. Property taxes, homeowners association fees, and homeowners insurance premiums will all still be due regularly, and if you don’t pay them, your HECM lender could take possession of your home.

•   Your heirs may face a challenging decision. If you don’t repay your HECM during your lifetime, your heirs will either have to repay the loan in full or surrender the property to the lender — and they’ll be forced to make that decision fairly soon after your death as the transaction typically needs to happen within one to six months.

Pros of a HELOC

Now, let’s take a look at the best reasons to consider a HELOC in the question of HECM vs. HELOC.

•   Lower interest rates than other forms of credit. Because a HELOC is secured by your home, it may offer lower interest rates than comparable types of loans like unsecured credit cards.

•   Borrow only what you need. HELOCs allow you to flexibly borrow only what you need during the draw period, rather than taking out a lump sum.

•   HELOC interest may be tax-deductible if you are using the funds you borrow to make improvements on your home.

Cons of a HELOC

There are drawbacks to HELOCs, too, to be aware of. For instance:

•   Variable interest. Most HELOCs have variable interest rates, which means your monthly payment can be unpredictable as market conditions change.

•   Decreased equity. Like any loan taken against your home’s value, a HELOC can decrease the amount of equity you own — which in turn decreases the value of your home investment (until the loan is repaid).

•   HELOCs open you up to foreclosure. If you fail to make your HELOC payments, the lender can foreclose on your home (even if you’re still making payments on your primary home mortgage loan).

HELOC vs HECM: Which Option Is Better?

In the end, only you can determine which of these loans makes the most sense for your personal situation — or if it would be better to find another way entirely to meet your financial needs. Both HELOCs and HECMs put your home on the line and decrease the equity you’ve worked hard to build in your property.

For those age 62 and over who are eligible to apply for an HECM — and who don’t plan on leaving the home to heirs — a reverse mortgage could offer access to cash without many costs in the short term.

For those who are looking for a more flexible way to borrow against their home equity, a HELOC may help you convert your home value to cash at a lower interest rate than other types of loans. However, variable-rate interest can make payments unpredictable, and if you choose interest-only payments during the draw period, you may be stuck with much higher bills later on when repayment comes due.

The Takeaway

HELOCs and HECMs can help eligible borrowers use the value they’ve built in their home to their advantage by converting some of it to cash in the short term. However, both are forms of debt, and therefore costs and risks are involved. One major advantage of HELOCs is that anyone with sufficient equity in their home can apply for a HELOC, whereas HECMs are only for those age 62 and over.

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.

FAQ

What are the differences between HELOC and HECM?

An HECM is a type of reverse mortgage. It is a loan available solely to homeowners aged 62 and over. With an HECM, the principal and interest payments don’t become due until the borrower moves out of the home or passes away, which can make them attractive for some seniors (but challenging for those hoping to pass on the home to heirs). A HELOC, on the other hand, is a more flexible line of credit that allows you to borrow money as needed, up to the maximum amount you qualify for, against your home’s equity. Unlike HECMs, HELOCs do not have age eligibility requirements.

What are the downsides of an HECM loan?

HECMs lower the equity you own in your home, and since interest and principal are building up unpaid over time, the value of your ownership can decrease dramatically over the course of the loan’s lifetime. Furthermore, the entire sum of the loan becomes due when the last surviving borrower vacates the home or passes away, which means your heirs will need to pay up — or they will forfeit the property to the lender.

Is there an age requirement for a HELOC?

Unlike HECMs, HELOCs do not have age requirements. However, your lender will still assess your creditworthiness, and there are also minimum equity requirements to ensure you own enough of your home’s value to borrow against.

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

SOHL-Q224-1917378-V1

A reverse mortgage is a popular way for retirees to supplement their retirement income. A home equity conversion mortgage (HECM) is the Federal Housing Administration’s reverse mortgage program, which allows borrowers to withdraw some of the equity in their home. It has stricter eligibility requirements than other reverse mortgages, but it is also the only reverse mortgage insured by the U.S. Government.

Here’s a look at the unique aspects of an HECM compared to a traditional reverse mortgage, the pros and cons, and the all-important fees that come with reverse mortgage financing arrangements.

What Is a Reverse Mortgage?

A reverse mortgage loan is a way to obtain financing using your home as security. In most cases, the home must be your primary residence. You, as the borrower, receive either a lump sum or an amount each month. You accrue interest and pay fees based on the amount you receive, and the amount you owe the lender increases over time. As your loan balance increases, your home equity decreases. You pay back the loan when you sell the house, permanently move away, or pass away.

When someone with a reverse mortgage dies, the heir who has inherited the house settles the loan balance, either by repaying the outstanding loan amount, selling the home and keeping any remaining proceeds after settling the loan, or signing over the deed to the lender.

What Is an HECM?

A home equity conversion mortgage (HECM) is one type of reverse mortgage. It is the most popular type of reverse mortgage, but it is only available to people aged 62 and older. This is the only reverse mortgage insured by the U.S. Government and is only available through a lender approved by the Federal Housing Administration (FHA). (It’s not to be confused with an HECM for purchase, which allows homebuyers aged 62 and older to purchase a home with the loan proceeds from a reverse mortgage.)


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

Key Similarities

HECMs and other types of reverse mortgages share similarities. One is that they are a popular way for seniors to supplement their income if they have significant equity in their home. Another is that borrowers remain responsible for paying the property taxes and homeowners insurance for the life of the loan.

Key Differences

There are always reverse mortgages pros and cons. But there are also key differences when you examine an HECM vs. a reverse mortgage.

•   Age of borrowers: A reverse mortgage is an option for anyone aged 55 or older. An HECM is only available to those aged 62 or older.

•   Payout options: Reverse mortgages typically only offer a lump-sum payout. An HECM has more options, such as a lump sum, monthly payouts, or a credit line.

•   Stricter eligibility requirements: The HECM property must be a primary residence, the homeowner must have a certain amount of equity, and the homeowner must have the ability to pay property taxes and homeowners insurance.

•   FHA-insured: The HECM is the only reverse mortgage insured by the U.S. federal government and is only available through an FHA-approved lender.

•   Mortgage insurance: This may not be required for a proprietary mortgage, but it is for an HECM.

•   Lending limits: For an HECM the lending limit is $1,209,750 for 2025. Lending limits may be higher for other reverse mortgages.

Pros of an HECM

The main advantages of an HECM are that monthly payments are not required because the loan is paid back when the home is sold. Also, lenders do not set a minimum credit score to qualify. The table below lists the pros of an HECM.

Cons of an HECM

In the HECM vs. reverse mortgage equation, the cons of an HECM are mostly related to the strict eligibility requirements listed in the table below.

Comparing Costs and Scenarios

A reverse mortgage does not require a monthly payment, but you will pay origination, servicing, and third-party fees, property taxes, and insurance. These fees are paid back when you sell your home, move, or pass away.

The amount that you can borrow through a reverse mortgage will be less than the full value of your home to cover the cost of insurance and origination fees. Also, the younger you are the less you can borrow because you are expected to live longer, giving the loan more time to grow before the debt is paid. If you’re thinking about a reverse mortgage, it might be wise to also look at a home equity line of credit (HELOC), which is another way to borrow based on the equity you have in your home. HECM vs. HELOC is worth considering as there are costs and benefits in each case.

Insurance Premiums

For an HECM, you will likely pay a mortgage insurance premium (MIP) at closing and an annual MIP for the life of the loan. The MIP charge at closing is based on the home’s appraised value or the HECM loan limit, whichever is less. Insurance fees are typically 2% of your home’s appraised value upfront, and then you will be charged an additional 0.5% of the total loan value annually. There will also be an origination fee of around 3% of the loan value.

The HECM loan limit is $1,209,750 for 2025.

Origination Fee

Your lender will charge an origination fee for processing your HECM loan. According to the U.S. Department of Housing and Urban Development (HUD), the lender can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000 or $2,500, whichever is the greater amount. However, the lender cannot charge more than $6,000.

Here are a few scenarios for an HECM loan with different home values and the associated costs. Note that not all lenders charge the maximum fee, so it pays to shop around.

1.    Home value: $100,000

The home’s value is less than $125,000 so the lender will charge $2,500.

2.    Home value: $175,000

Since the home is valued at more than $125,000 but less than $200,000, the lender will charge a maximum of 2% of the home’s value, or $3,500.

3.    Home value: $350,000

Since the home is valued at greater than $200,000, the lender may charge up to 2% ($4,000) plus 1% for the remaining $150,000 ($1,500), for a total of $5,500.

Servicing Fee

The servicing fee covers the cost of calculating and sending statements and making sure taxes and insurance premiums are up to date. If the interest rate is fixed or annually adjusted, the monthly fee may be around $30. If the interest rate is adjusted monthly, the fee might be slightly higher and around $35. At closing, the lender may set aside the servicing fee and add the cost to your loan balance each month.

Third-Party Fees

Third-party fees are closing costs and include survey and appraisal fees, title and title insurance fees, and credit checks. These are likely to be in the range of $1,000 to $2,000.

Interest Rates for HECMs

Reverse mortgage interest rates are another factor to consider. It’s not easy to find the interest rates for HECMs. However, you can find recent average rates on the HUD website. The interest rate will vary between private and HECM loans, but the latter tend to have lower interest rates because they are backed by the FHA.

Fixed vs. Adjustable Interest Rate

Most lenders offer monthly adjustable interest rates. The lender calculates an adjustable HECM by including an index and setting a margin. The margin does not change after the loan is originated, but the index fluctuates according to the market. Reverse mortgage borrowers can’t typically predict how much interest they will ultimately pay because the term of the loan is uncertain and interest continues to mount over the life of the loan. How much interest will ultimately accrue is somewhat uncertain for both variable and fixed rate reverse mortgages, so it is wise to discuss the pros and cons with a lender and with a financial advisor as well.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

The Takeaway

An HECM is a type of reverse mortgage. It has stricter eligibility requirements compared to other reverse mortgages. To qualify for an HECM, you must be aged 62 or older and should be relatively free of debt.

There are benefits to an HECM. For example, it is FHA-insured and you don’t have to pay tax on the payouts. However, an HECM may affect your eligibility for Supplemental Security Income or Medicaid. Also, the lending limits are lower for an HECM. Seekers of a reverse mortgage or an HECM should be careful not to fall victim to a scam and a fraudulent loan — do your research carefully and only work with a lender that has a good reputation. Consider asking a trusted financial advisor for a recommendation.

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

Is an HECM the same as a reverse mortgage?

An HECM is a type of reverse mortgage. However, it is only available to people aged 62 and older. An HECM is insured by the U.S. federal government and is only available through a Federal Housing Administration (FHA)-approved lender.

What are the main differences between an HECM vs. reverse mortgage?

The main differences between an HECM and a reverse mortgage are that an HECM is only available to those aged 62 or older. An HECM is also FHA-insured. The payout options are often more flexible for an HECM, whereas a private reverse mortgage might only offer a lump sum payout.

Are the qualifications the same for an HECM and reverse mortgage?

No. For an HECM, you must be 62 years old or older, whereas other reverse mortgages are available to those 55 and over. For an HECM, the property must be your primary residence, and the equity requirements might be higher for an HECM than a private reverse mortgage. Also, the lender will want to see that you can pay property taxes and homeowners insurance.

Photo credit: iStock/LordHenriVoton

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.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

SOHL-Q224-1917355-V1

It has long been the norm in real estate transactions for the buyer’s and seller’s agents to be paid with a commission fee — typically 5% to 6% of the house price — that was split between the two agents and paid by the seller. But in early 2024, the National Association of Realtors®, a real estate trade association, agreed to settle a group of lawsuits that challenged this commission structure for violating antitrust laws and contended that commissions were artificially inflated.

NAR will pay out $418 million in damages. But more importantly for homebuyers, the fallout could trigger big changes in how homebuyers work with real estate agents to make their purchase — and maybe even save buyers and sellers a little money. NAR Realtors handle the majority of sales in the U.S., so this settlement could have a significant impact on real estate transactions going forward.

How might real estate agent fees work in this new environment? If you plan to buy or sell a home, it’s important to understand. Let’s take a closer look at how homebuyers and sellers might be affected.

What’s Changing About Real Estate Commissions?

The NAR settlement, which was preliminarily approved by a judge in April 2024, means that as of August 2024, sellers’ agents will no longer be required to offer to share commissions with buyers’ agents. If a commission (paid by the seller) is compensating the seller’s agent but not the buyer’s agent, homebuyers will likely be responsible for paying their own agent.

This isn’t all bad news for buyers. Sellers might reduce home prices if their costs associated with paying a broker are lower. It’s also possible that buyers’ brokers will compete for customers by keeping their fees low. But it’s too soon to say what exactly will happen.

What Does a Buyer’s Real Estate Agent Do?

If you’re a homebuyer, especially a first-time homebuyer, you may be wondering what services you would be paying for when you hire a real estate agent. Agents can perform a variety of services on behalf of their clients. If you’re buying a home, an agent can help you:

•   Narrow your search to the most desirable properties for your budget

•   View the homes in person or virtually

•   Make an offer on a property

•   Navigate the home inspection process

•   Negotiate any contingencies you’d like to include in the home contract

•   Prepare for closing

Who Pays the Agents’ Commissions?

It remains to be seen whether real estate agents will charge by the hour or bill customers a flat rate — or if some agents will continue to work on commission that is perhaps paid by the buyer.

Buyer’s real estate agents might begin to charge a fee (vs. a commission) for showing homes and shepherding clients through the purchase process. For buyers, this would add to the cost of a home purchase. Buyers have long suspected that sellers baked the commission fees into a property’s price, so that, in effect, buyers were already paying the commission. But while buyers could cover those baked-in costs out of their home mortgage loan, new fees paid by the buyer to the agent would come from the buyer’s pocket.

And they aren’t the only fees a buyer has to pay to finalize the purchase of a home. Closing costs can include:

•   Attorney fees

•   Title search and title insurance fees

•   Credit check fees

•   Upfront costs paid to cover homeowners insurance and/or property taxes

•   Home mortgage loan origination fees

•   Mortgage points, if you choose to purchase them

•   Recording fees

Closing costs typically run between 3% and 6% of the home’s purchase price. So if you’re buying a $300,000 home, you might pay anywhere from $6,000 to $15,000 at closing, not including the down payment.

Closing costs are usually the buyer’s responsibility, but it’s not unusual for buyers to persuade sellers to share some expenses that are paid in advance.

All this may lead some buyers to consider shopping for a home without the help of an agent. If you’re thinking of going this route, be prepared to spend lots more time researching potential properties, reaching out to schedule viewings, and vigorously advocating for yourself if you’re in a seller’s market. And be ready to be your own best representative in negotiations.

Recommended: Cost of Living By State

What Does a Seller’s Agent Commission Cover?

Real estate commissions compensate a seller’s agent for the work the agent puts into helping sell the home. What this specifically entails can depend on the agent you’re working with and your needs. But again, this often involves researching listings, preparing comparative analyses, guiding home viewings, and helping to negotiate offers.

Here is how the commission fee has typically worked in the past: Say a home sells for $366,000 (the average home price in Fresno, California) and the commission is 6%, or $21,960.

If the sellers owe $250,000 on the home’s mortgage, they’d be poised to pocket $116,000 in profit. But first they have to subtract $21,960 to cover the commission fee. It’s likely that the commission fees will be lower now that the commission is not shared between the buyer’s and seller’s agents. But exactly what percentage a seller’s commission fee will be is up in the air.

Commissions are paid out once the transaction is complete. This typically happens after the buyer and seller have signed their closing paperwork. The seller will receive a check for any profits due to them from the sale, while the agent receives a check for the commission. Exact amounts of commissions, like home sale prices, vary widely by state.

It’s worth noting that there are still other costs involved in selling a home. You may pay a separate fee for professional staging or photography to get it ready to list, for example.

Recommended: Home Appraisals 101: What You Need to Know

Flat Fee vs Real Estate Commission Fee

There are real estate brokerages that advertise listing services for a flat fee. Usually, the flat fee is very low and may only include a listing with photos on the MLS (the Multiple Listing Service, a list of available properties). Real estate agents who charge a flat fee usually don’t offer to schedule showings or manage the listing in other ways.

Are Real Estate Commissions Negotiable?

More than ever, thanks to the NAR settlement, real estate commission fees may be on the table for negotiations. A seller may be able to ask for a reduced commission if you’re working with an agent to sell multiple properties. The agent may be open to accepting a slightly lower fee per deal if there are multiple deals in play. This, of course, depends on how likely those properties are to sell at your desired price point.

As a buyer, how you might negotiate paying your agent in this new payment structure remains to be seen — and it will be up to you to start that conversation. Remember that you can also still negotiate a house price in other ways, such as by tailoring your offer price and asking the seller for help on closing costs.

Why Even Involve Agents?

You could buy a house without a Realtor® but having a professional’s help can be invaluable, especially if you’re a first-time homebuyer. (Realtors® are real estate agents who are members of the country’s largest trade association, the National Association of Realtors®. They subscribe to a strict code of ethics.)

A real estate agent or Realtor® can help you navigate the ins and outs of the homebuying process so that you can feel confident about your purchase.

Real estate agents are legally obligated to put their clients’ best interests first. They are trained to negotiate price and contingencies, handle legally binding documents, prepare and show properties for sale, and market homes through the MLS.

And if you’re thinking about selling your home on your own, it’s worth considering that homes for sale by owner usually sell for an average of $100,000 less than agent-assisted sales.

The Takeaway

Changes in the way that real estate agents are paid are underway, and while sellers will continue to pay their agents a commission, buyers may increasingly need to pay their agents themselves. Whether buyers come out ahead financially in this changed compensation structure remains to be seen. Bottom line? If you are in the market for a new home, make sure you discuss an agent’s fee structure and payment process before signing on.

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

Is commission and flat rate the same?

No. A flat rate is a specific rate negotiated for a certain service, while a commission-based fee is based on a price, such as the sale price of a home. For a seller, a flat rate typically covers only basic real estate agent services such as listing the property in a database.

What fee do most Realtors charge?

Historically, most real estate agents have worked on commission and would split an amount equal to 5%-6% of a home’s price, which was paid by the seller. Now, seller’s agents may still be paid on commission (albeit a smaller percentage) but buyer’s agents will increasingly be paid by the buyer. This means buyers will need to negotiate a fee with a real estate agent before agreeing to be represented by that agent in their home search. The amount of the fee will vary based on factors such as location, services provided, and time spent.

What is the difference between a flat fee and a fixed fee?

Yes, a flat fee and a fixed fee are the same when it comes to how a real estate agent is paid.

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

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

SOHL-Q224-1945660-V1

If you’re like many Americans, your home is the single most valuable asset in your portfolio. That six-figure investment doesn’t just keep a roof over your head — it can provide a source of wealth and stability for years, and potentially generations, to come.

But sometimes, you need access to that wealth now — preferably in the form of cold, hard cash. And while refinancing can be one way to access your home’s value, you may not want to change your interest rate or other mortgage terms. Fortunately, there are ways to take equity out of your house without refinancing — though many of them do come with their own costs and risks. Below, we’ll dive into all the details so you can make an informed decision.

Can You Pull Equity Out of Your Home Without Refinancing?

The short answer: Yes, there are ways to get equity out of your home without refinancing (though cash-out refinancing is also a way to do so). From home equity loans to a home equity line of credit (HELOC) and reverse mortgages, there are a lot of ways to turn your home’s value into cash money — though they all come with their own pros and cons to consider. Let’s take a closer look.

Ways to Get Equity Out of Your Home Without Refinancing

Here are five ways to get equity out of your home without refinancing.

1. Home Equity Loan

A home equity loan is, as its name suggests, a loan that draws from the value of your home equity — which is the amount of your home’s value that you actually own (i.e., what you have paid back to your mortgage lender). You can take out a home equity loan without refinancing, and if you’ve been building equity for a while, doing so can be a relatively low-cost way to access a large lump sum of money in one fell swoop.

A home equity loan is sometimes known as a “second mortgage,” since it’s secured by the same asset as your original mortgage — your home. And just like your mortgage (and many other types of loans), a home equity loan is usually repaid in regular, fixed installments over a predetermined period of time, or term. This might be 10 or 20 years long.

Of course, home equity loans do come with drawbacks to consider. For one thing, your home will be at risk of foreclosure if you fail to repay the “second” mortgage, just as it is with the first. And although interest rates may be relatively low, closing costs apply, which can amount to thousands of dollars.

2. Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, works in a similar way to a home equity loan — but instead of a lump sum payment, you’ll get access to a flexible line of credit based on your home equity, which you can tap into as needed. You can think of it a little bit like a credit card, except your “credit limit” will be based on the equity you’ve built in your home.

HELOCs may be offered at a fixed or variable interest rate and usually consist of a draw period followed by a repayment period — so you’ll have a certain amount of time to draw from the HELOC and then a certain amount of time to pay it back. Most HELOCs allow borrowers to take out up to 80% or even 85% of their home’s value, minus whatever they owe on their mortgage — in other words, up to 80% of their home equity. Keep in mind that HELOCs may also be subject to origination fees and other upfront costs that can increase their overall expense.

3. Reverse Mortgage

A reverse mortgage is similar to a home equity line of credit. One type, a Home Equity Conversion Mortgage (HECM), is backed by the Federal Housing Administration (FHA) and is specifically for homeowners age 62 and over. Rather than making regular monthly repayments on the loan, the total doesn’t come due until you no longer live in the home.

Since interest and fees are added each month, the loan total goes up over time, while your home equity in turn goes down — and if you (and any coborrowers) die, the reverse mortgage is due immediately. Thus, this option might not be the right choice for those hoping to leave their home to their surviving family members. If the idea of an HECM appeals to you, you can meet with an HECM counselor to learn more.

Home Equity Investment

Otherwise known as Home Equity Agreements (HEAs), a home equity investment allows an investor to essentially buy some of your home’s future equity. This gives you access to cash up front without requiring you to pay back a loan over time — which many would call a win-win situation. Of course, in the long run, if your home appreciates substantially in value, you may end up paying a high rate of return to the investing company — and having less of your home’s value to create long-standing wealth for you and your family. Furthermore, not everyone can qualify for this relatively new financial arrangement.

Personal Loan

You might already know about personal loans — which, yes, can be taken out even by non-homeowners. But if you do own your home, you may be able to put down the deed as collateral, which could reduce the cost of the loan (since a secured loan is less risky to lenders) while also offering you the flexibility to use the borrowed money in just about any way you want.

Pros and Cons of Refinancing to Pull Out Home Equity

Of course, even with all the options described above, refinancing is still an option for those hoping to pull equity out of their homes. Here are some of the drawbacks and benefits of refinancing to pull out home equity, at a glance.

When Is It Worth Refinancing?

If your financial situation and market conditions have changed such that you’d likely qualify for a lower overall interest rate and better loan terms, refinancing a mortgage may be worthwhile — and if you need short-term cash, a cash-out refinance might be an option worth considering. That’s especially true if you plan to use the money for home improvements, in which case you may qualify for additional tax deductions.

The Takeaway

While cash-out refinancing offers a readily available way for many homeowners to access their home’s equity value as cash, there are plenty of other options worth considering. A home equity line of credit (HELOC), secured personal loan, and even a reverse mortgage can all help homeowners put some extra money in their pockets — so long as they know the potential drawbacks of each method.

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.

FAQ

Is it possible to withdraw home equity without refinancing?

Yes! There are many ways to take equity out of your home without refinancing. Some of the most popular options include home equity loans, home equity lines of credit (HELOCs), and reverse mortgages. It’s important to understand that each of these options comes with its own costs and associated risks, however.

What is the best way to take equity out of your home without refinancing?

There’s no one easy answer to this question, because the “best” way depends on your personal financial situation and how much cash you need access to. That said, Home Equity Lines of Credit (HELOCs) offer unparalleled flexibility when it comes to the amount you withdraw, which could save you from paying back money you didn’t need to borrow in the first place. Personal loans secured with your home’s deed may also be a relatively inexpensive and very flexible option.

Is taking equity out of your house a good idea?

Like any debt, taking equity out of your home could be a good decision or a bad one, depending on what you’re planning to use the funds for and how that action will shape your future finances. For instance, if you plan to use your home equity loan to make home improvements that might increase the property’s value substantially, doing so might be a smart investment. On the other hand, taking out a reverse mortgage — which will decrease your home’s equity over time — to go on a lavish vacation might be less advisable.

Photo credit: iStock/boggy22

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

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

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

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

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

^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.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.