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You may have grown up calling manufactured homes mobile homes — and the two terms are sometimes still used interchangeably — but these dwellings have evolved.

They’re more customizable and arguably fancier than previous iterations. Still, it’s a good idea to look beyond the sticker price.

Characteristics of a Manufactured Home

First, to clarify a popular point of confusion, modular homes and manufactured homes are different types of houses.

Both are built partially or entirely in a factory, but modular homes — aka kit homes — must adhere to the same codes that site-built homes do.

Manufactured homes are intended to be permanent dwelling units. Starting in 1976, they began to be built to a code developed by the Department of Housing and Urban Development (HUD) and moved past the name “mobile homes” and the notion of trailers placed atop blocks.

The manufactured home, built on a permanent chassis, is tested to ensure that it can be transported properly before being attached to a foundation, or the underlying chassis may be “skirted” by blocks or siding.

The home may be movable, depending on its age and condition, but few are moved. Moving a manufactured home, if it is new enough to be moved, can cost $20,000 or more.

Pros and Cons of a Manufactured Home

Before buying a manufactured home, the housing choice of about 20 million Americans, take a look at the following advantages and disadvantages to help you in your decision-making.

Pros

•   Cost effective: According to the Joint Center for Housing Studies of Harvard University, manufactured homes cost around 20% to 45% less than comparable site-built homes, excluding the price of land.

•   High quality: Manufactured homes must adhere to the HUD code, which applies to the home’s design, construction, durability, transportability, strength, and energy efficiency. Factories also need to adhere to standards and must inspect each step during construction.

•   Few delays: Because manufactured homes are built indoors in a controlled environment, the weather won’t interfere with the timeline to construct the home.

•   Home warranties: Most manufactured homes have some form of warranty to guarantee the quality of the home, usually for one to five years. The seller has its own warranties for transporting and installing the home.

•   Customizable: Most manufactured home makers allow homebuyers to customize some aspects of the home, such as certain finishes, porches, vaulted ceilings, and fireplaces.
Energy efficient: The HUD code ensures that manufactured homes have a high degree of energy efficiency.

•   Financing: The financing options include loans even if the buyer will not own the land the home will rest on.

•   Appreciation: Manufactured homes may not appreciate at the same rate as other types of homes and may even depreciate. The resale value depends on the location, and the age and condition of the home.

Cons

•   Limited customization: You can customize some parts of a manufactured home, but you may not have the options you want, depending on the builder.

•   Price increases: The average sales price of a manufactured home increased nearly 50% during the pandemic, driven by the demand for affordable housing.

•   Lot rent: Most residents own their homes but rent the land. Those who lease lots face uncertain increases in monthly costs. Park rents have been doubling and tripling.
Financing options may carry higher rates. Whether the home is considered real property or personal property makes a big difference.

A manufactured home built on or after June 15, 1976, and considered real property might qualify for a conventional or government-backed loan. To be considered real property, the home must be at least 400 square feet, permanently attached to a foundation, and on land that you own or plan to buy. The loans usually carry slightly higher interest rates than mortgages for traditional homes.

Financing options for manufactured homes classified as personal property include chattel loans, which come with a higher interest rate and a shorter term than most traditional mortgages. (A chattel mortgage also may be used for tiny house financing.)

FHA Title I loans and personal loans are other options for manufactured homes classified as personal property. Rates for unsecured personal loans will be higher than rates for secured loans like mortgages or chattel loans.

Finding a Manufactured Home

Most manufactured homes are sold through retailers instead of the builders. It’s also possible to purchase manufactured homes through real estate agents and online manufactured home marketplaces.

Think of buying a new manufactured home like going to a store where you can view model homes. You’ll be able to see your options, such as the number of bedrooms, layout, and customizable features. Depending on the retailer, you may even be able to apply for financing and arrange for delivery all in the same day.

Before signing on the dotted line, make sure you read the fine print, such as what warranties come with the home. You may be able to purchase both the land and home through a manufactured home community.

Who Should Get a Manufactured Home?

A manufactured home may be a good fit for a retiree or a first-time homebuyer who is looking for a more cost-effective housing solution than a condo or single-family home — especially if they own the land underneath them.

It also may be suited for those who want a new construction home and to be able to customize parts of the structure.

The Takeaway

A manufactured home may be a good choice for some buyers, and others may want to try to buy a condo, townhouse, or single-family home.

If you’re in the latter group or buying investment property, SoFi can help you get started by providing a rate quote with no obligation.

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

FAQ

What are the advantages of manufactured homes?

The main advantages of manufactured homes are the relatively low cost and the building standards they must meet.

Is a manufactured home considered real property?

A manufactured home is considered real property if you own both the land and the home, and the structure is permanently attached to a foundation.

Can I get a loan to buy a manufactured house?

Yes, though the type usually depends on whether the home is considered real or personal property. Classification as personal property is almost certain to preclude conventional financing. A borrower need not own the land for an FHA Title I loan from an approved lender. The loan may be used to buy a manufactured home, a lot on which to place the home, or a manufactured home and lot in combination. There are maximum loan amounts and terms.

Are manufactured homes safe?

Yes. Manufactured homes built after mid-1976 abide by HUD standards, and the agency significantly updated its manufacturing and safety standards in 2024. Most come with warranties.

Photo credit: iStock/clubfoto

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 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.

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When comparing different types of mortgages, there are some great reasons to consider a loan from the U.S. Department of Veterans Affairs (VA) if you’re eligible for one. Some of the best VA loan benefits include no down payment requirement, no private mortgage insurance, and the potential to get a lower interest rate.

There are, however, some advantages to getting a conventional loan instead even if you qualify for VA financing. Comparing the benefits of a VA loan vs. a conventional mortgage can help you decide which one might be right for you.

Comparing VA Loans vs. Conventional Loans

If you’re a first-time homebuyer, it’s good to know a little about different types of mortgages and how they work. VA loans and conventional loans can both help you to buy a home, but one might be a better fit than another, depending on your financial situation.

Conventional Loan

A conventional loan is a home mortgage loan that’s not backed by the federal government. Examples of government-backed loans include VA loans and Federal Housing Administration (FHA) loans, which are designed to make buying a home more affordable for first-time buyers. Conventional loans can be conforming, meaning they meet standards set by government entities Fannie Mae or Freddie Mac, or non-conforming.

Conventional loans might be what you automatically think of when discussing mortgage loans. You can get a conventional mortgage from a traditional bank or credit union, but you can also find them offered through online lenders. Conventional mortgages typically require a down payment, which is money you pay upfront to reduce the amount you need to borrow.

VA Loan

What is a VA loan? A VA loan is a loan that’s backed by the federal government. The Department of Veterans Affairs operates the VA loan program to help eligible military members and their surviving spouses purchase affordable housing. Borrowers can get a loan through an approved VA lender to buy a home, build a home, or pursue a mortgage refinance.

If a borrower defaults on a VA loan, the government steps in to help the lender recover some of its losses. This is one of several VA loan benefits. With a conventional loan, the lender can’t call on the government to get any of its money back if the borrower fails to pay what’s owed.

Mortgage Requirements for VA Loans vs Conventional Loans

What are the benefits of a VA loan vs. conventional loan? A lot of the main advantages center around what’s needed to qualify and what you’ll pay as a borrower. Here are some of the main mortgage requirements to know when looking at the benefits of VA loan financing side by side with conventional loans.

Credit Score

Lenders can use your credit score to qualify you for a mortgage and your credit history can also influence the rates you pay for a home loan. One of the main benefits of using a VA loan to buy is that the VA program does not have a minimum credit score requirement. That could make a VA loan attractive for borrowers with less-than-perfect credit.

However, VA-approved lenders may set their own minimum credit score requirements for loans. Of course, lenders can do the same for conventional mortgages. Generally speaking, a good credit score for a mortgage is usually 620 or higher, though the better your score the easier it may be to get approved.

Down Payment

Putting money down on a home reduces the amount you need to borrow and if you’re getting a conventional loan, it may help you to avoid private mortgage insurance (PMI). PMI is insurance that covers the lender in the event that you default on your loan and it’s typically required for conventional loans when you put less than 20% down.

The VA, however, doesn’t require a down payment for loans. That’s one of the nicer VA loan benefits for homebuyers, since you don’t have to part with a large chunk of cash all at once. Instead, you could save your money to buy new furniture, make improvements to your new home, or pad your emergency fund so that you’re prepared in case the roof springs a leak or you need to replace your water heater.

Debt-to-Income Ratio

Your debt-to-income ratio or DTI reflects the amount of your income that goes to debt repayment each month. For conventional home mortgage loans, a good DTI is 36% or less, though it’s possible to find lenders that will work with you if your DTI is above that amount.

With VA loans, it’s possible to get approved with a DTI of up to 41%. However, having a higher DTI could make it more difficult to keep up with your mortgage payments. For that reason, it’s a good idea to work out a detailed home buying budget to determine how much you can afford without straining yourself financially.

Private Mortgage Insurance

As mentioned, private mortgage insurance is a feature that can be included in a conventional mortgage if you put less than 20% down. Premiums are added into your monthly mortgage payment and once your equity reaches 20%, you can request to have PMI removed from your loan. Lenders are supposed to drop PMI automatically once your mortgage balance reaches 78% of the home’s original value, assuming you are up to date on your payments.

One of the benefits of a VA home loan is that you don’t have to worry about any of that. There is no PMI for these loans, so you don’t have to factor in any added costs when estimating how much your monthly mortgage payments will be.

Property Eligibility

VA home loans can be used to purchase a variety of home types, including:

•   Single family homes with up to four units

•   Condos in a VA-approved project

•   Manufactured homes

The VA loan program requires a home inspection and an appraisal to make sure that the home is structurally sound and that its value is compatible with the amount that you want to borrow. If a home has any obvious defects, such as a cracked foundation, you may need to get an additional inspection from a certified engineer in order to move ahead with the loan.

VA loans are designed for purchasing primary homes. In other words, you can only get one for a home you plan to live in. Conventional loans, on the other hand, can be used to purchase a primary home, second home, or investment property. While an appraisal is required for a conventional loan, an inspection may be optional if the lender allows.

Borrower Fees

When you get a conventional loan, you’ll typically pay 2% to 5% of the purchase price in closing costs. Closing costs cover things like attorney’s fees, mailing fees, and recording fees. You’ll need to bring a check to closing or wire the amount to your closing attorney to pay those fees, along with your down payment.

A VA lender can also charge closing costs and borrowers must usually pay a VA funding fee as well. This fee is used to cover the costs of the VA loan program and it’s paid just once. The amount you pay for a VA loan funding fee depends on whether you’re a first time homebuyer or repeat buyer and how much money you put down, if any.

Additional Requirements to Consider

Aside from having a good credit score and steady income, there’s one more thing you’ll need to qualify for a VA loan. Borrowers are expected to produce a Certificate of Eligibility (COE) demonstrating that they’re eligible for the VA loan program.

Veterans, service members and surviving spouses can apply for a COE online through the VA website. To get your COE, you must be able to meet minimum duty and service standards. If you’re currently on active duty, you’ll need to get a statement of service from your commander, adjutant, or personnel officer.

If you don’t meet the service requirements for a COE, you may still be able to qualify if you were discharged. Exceptions are also made for the spouses of veterans and for people who served in certain organizations. However, if you’re not able to meet those requirements then you’ll need to consider another home loan option.

Recommended: Cost of Living by State

Pros and Cons of a VA Loan vs a Conventional Loan

The benefits of a VA mortgage loan are undeniable, particularly for first-time buyers who may not have a lot of cash to put toward a down payment. To recap, here are the main VA home loan benefits to know, as well as some of the cons, when comparing them to conventional financing options.

How to Choose the Right Mortgage For You

Weighing the benefits of VA loan financing against conventional loans is important when it comes to choosing the best loan option. If you meet the criteria for a VA loan, then you might consider prequalifying for this type of mortgage first to see what kind of rates and terms you’re eligible for.

On the other hand, if you’re ineligible for a VA loan because you don’t have a COE or you can’t meet a lender’s credit requirements, then a conventional loan might be best. Visit a home loan help center to explore more options.

With any mortgage, it’s helpful to consider:

•   Interest rates and what you might pay

•   Repayment terms

•   Closing costs and other fees

•   Appraisal and inspection requirements

•   Down payment requirements

•   Funding speed

It’s also to your advantage to make yourself as creditworthy as possible before applying for a home loan. Some of the best tips to qualify for a mortgage include paying down existing debts to reduce your debt-to-income ratio, making sure you’re paying all your bills on time, and holding off on applying for other loans or lines of credit.

Recommended: Cost of Living in California

The Takeaway

There are several VA home loan benefits. Getting a VA loan could save money if you’re able to get a lower interest rate and avoid making a large down payment. Conventional loans, on the other hand, are still worth a look, especially if you want to buy a second home or an investment property.

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

FAQ

What is the advantage of a VA loan vs a conventional loan?

VA loans do not require a down payment or private mortgage insurance. Conventional loans may require a 20% down payment to avoid PMI. VA loans may also have lower interest rates for qualified borrowers.

Are VA rates better than conventional?

VA loans can have lower interest rates than conventional loans, which could save you some money as a homebuyer. The interest rates you’re able to qualify for with a VA loan vs. conventional loan can depend largely on your credit scores and credit history.

Why do sellers prefer conventional over VA?

Home sellers may prefer to sell to buyers who have conventional loan funding simply because VA loans tend to have stricter requirements when it comes to the property itself. Buyers must be able to get the home appraised and inspected in order to move ahead with a VA purchase loan.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

^†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.

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

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

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

Can you refinance a HELOC (home equity line of credit)? Yes — in many different ways, in fact. And if your current HELOC’s draw period is coming to a close, leaving you staring down the barrel of the higher-cost repayment period, this may be a good time to learn more about them.

Below, we’ll walk through the various options you have for refinancing a HELOC. Knowing your way around these financial products can help you put the value of your home to work for you — and even, when done correctly, increase your equity.

Let’s take a closer look.

Understanding HELOC Refinancing

First, a quick refresher: A home equity line of credit is a revolving credit line that allows you to borrow money against the equity you’ve built in your home. HELOCs are split into two distinct time frames: a draw period (usually 10 years) and a repayment period (which can last as long as 20).

As its name implies, the draw period is the time during which you can “draw” from the HELOC’s available credit. Many homeowners use a HELOC to fund major home renovation projects that can actually increase their equity in the long term. However, during the draw period, you only have to pay interest, not principal, which means that HELOCs tend to have lower payments during this time frame and higher payments during the repayment period. (New to HELOCs? Learn how HELOCs work before signing on to one.)

Reasons to Consider Refinancing Your HELOC

Many borrowers are drawn to a HELOC refinance when their draw period is coming to an end. That’s because the repayment period, which requires the repayment of both principal and interest, tends to have much higher monthly costs than the draw period — which can be a budgetary stretch for borrowers.

However, there are other worthwhile reasons to consider refinancing a HELOC at any part of its lifecycle, such as:

•   Scoring a lower interest rate, especially if your credit score or other factors have substantially improved

•   Moving from a variable interest rate to a fixed one, which can help make costs more predictable

•   Avoiding balloon payments that are written into some HELOCs, which can require the entire balance to be paid in one lump sum

Just like refinancing any other kind of loan, refinancing your HELOC can help you lower costs in the short term (with lower monthly payments) or long term (with lower interest rates), depending on your financial needs.

Next, we’ll walk you through how to go about doing it.

Steps to Refinance Your HELOC

Let’s start with two of the most straightforward ways to refinance your HELOC: loan modification and getting a new HELOC.

Call Your Lender and Ask About Loan Modification Options

Perhaps the easiest way to “refinance” your HELOC is not to refinance it at all, but rather to contact your current lender to learn what HELOC modification options are available.

Your loan servicer may be able to lower your interest rate or extend the term, both of which can make your monthly payments more manageable. Plus, you won’t have to go through the hassle and paperwork of taking out a new loan with a different financial institution. Most lenders require those seeking loan modification to show proof of financial hardship, although it never hurts to ask even if you don’t meet this qualification.

Shop Around for a New HELOC

Of course, your original lender can always say “no” to a HELOC refinance — and if it does, another option is to take out another HELOC and use it to repay your existing one. This method allows you to extend the draw period, which is helpful for those who are still actively using the line of credit they took out against their home’s value, while also keeping your monthly payments lower for longer.

However, if you’re nearing retirement age or aren’t expecting a major budgetary change that’ll make the higher repayment-period bills any more feasible, you might consider an alternative to refinancing. We’ll go through a few of your best options in just a moment.

Evaluating Your Current HELOC Terms

To ascertain if any refinance is worthwhile, you first need to understand your current HELOC’s terms. That way, you’ll understand how much you stand to pay over time under your current loan’s contract versus how much you might save (or lose) by changing it.

Along with your interest rate, you should also know whether that rate is fixed (unchanging) or variable (liable to change with market conditions). While variable interest rates offer the potential of lower payments if market rates drop, they can also be less predictable than fixed-rate loans.

HELOCs can also have annual fees that will add to your debt total over time. If you’re refinancing to a new HELOC, be sure you understand not just ongoing fees but any origination fees that may add to the overall expense of the transition.

Finally, keep in mind that lengthening your loan’s term may lower your monthly payments, but will almost certainly mean you’ll pay more in interest over time.

Alternatives to HELOC Refinancing

If modifying your current HELOC or taking out a new one won’t work for you — or if you’re simply evaluating all of your options before making a decision — here are some alternatives to HELOC refinancing to consider.

Consider a Home Equity Loan

As you compare a home equity loan vs. a HELOC, you’ll see that both use the equity you’ve built in your property as collateral. A home equity loan is also sometimes known as a “second mortgage,” but technically a HELOC is also a second lien on your home.

Home equity loans offer the stability of a predictable monthly payment at (usually) a fixed interest rate, and because they’re also secured by your equity, they tend to have lower interest rates than unsecured personal loans. However, like HELOCs, they can have upfront origination fees — potentially ones as high as the closing costs you paid when you purchased your home in the first place.

Look Into Cash-Out Refinancing

Cash-out refinancing involves refinancing your original mortgage for a larger sum than you currently owe on that loan. The new cash-out refinancing loan would be large enough to cover whatever you owe on your home and allow you to pay off your HELOC, leaving you with one payment instead of two.

Of course, taking out such a large loan — which may have its own 30-year term — can leave you making mortgage payments for a much longer time and spending more on interest in the long run. Additionally, these loans, too, come with closing costs that can total thousands of dollars.

Look Into Cash-Out Refinancing

Cash-out refinancing involves refinancing your original mortgage for a larger sum than you currently owe on that loan. The new cash-out refinancing loan would be large enough to cover whatever you owe on your home and allow you to pay off your HELOC, leaving you with one payment instead of two.

Of course, taking out such a large loan — which may have its own 30-year term — can leave you making mortgage payments for a much longer time and spending more on interest in the long run. Additionally, these loans, too, come with closing costs that can total thousands of dollars.

Consolidate Your HELOC with Other Debts Using a Personal Loan

Finally, you could also consider using a personal loan to pay off your HELOC along with other debts you may have, such as credit card debt. Using this tactic, you’d take out a personal loan large enough to cover all of your debts, use the funds to pay them off, and then make one monthly payment rather than many.

Personal loans are easy to apply for, flexible, and you can use the money for just about anything — including taking out more than you need to pay off debts, if you have other short-term financial needs. However, they also tend to have higher interest rates and stricter eligibility requirements than other loan types since they’re not secured by collateral.

Potential Pitfalls and How to Avoid Them

While refinancing your HELOC can be a smart money move, there are some common pitfalls worth avoiding, including:

•   Not running the numbers. The only way to truly know if refinancing your HELOC is worthwhile is to run the numbers to understand how much you’ll pay, in both the short and long terms, with either loan. A HELOC payment calculator can help.

•   Not understanding how HELOCs can affect your taxes. Depending on when you took out your HELOC and how much mortgage debt you have, its interest may be tax deductible — savings you won’t want to miss out on.

•   Not using a HELOC to build wealth. If you’re going to borrow money, you might as well put that debt to work for you in the long run. That’s why the funds from HELOCs are best used for projects like home renovations and repairs, that can increase your equity over time.

The Takeaway

Can you refinance a HELOC? Yes — and doing so can help keep you out of hot water if you’re facing down payments you don’t have the budget for. That said, like any refinance, this process can also mean paying more for the loan over the long term. Consider a cash-out refinance or a home equity loan if you’re looking for options to refinance a HELOC.

SoFi now offers home equity loans. Access up to 85%, or $350,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.

FAQ

When is the best time to refinance a HELOC?

Many borrowers opt to refinance a HELOC as their draw period comes to a close and monthly payments increase. That said, refinancing after a significant drop in interest rates or an improvement in your personal financial situation could stand to save you money on the loan overall.

Can I refinance a HELOC with bad credit?

While lenders will likely look at your credit score during the HELOC refinancing process, it’s not the only factor they’ll consider. It may be more challenging to find a lender who will work with you if your score is less than 620, but if you shop around, work on taking good care of your credit score, and keep your other financial factors (like your overall debt level) in good shape, you can increase your odds of qualifying.

How much does it cost to refinance a HELOC?

Just like your original mortgage and HELOC, refinancing a HELOC can come with closing costs of between 2% and 5% of the total loan cost, which can be thousands of dollars. That’s one reason to make sure you understand ahead of time how much you really stand to save by refinancing — and if it’s worth it.

Photo credit: iStock/Miljan Živković

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

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

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because of the paperwork and possible stress involved, here’s some good news:

The HELOC closing process is typically less complicated than what you’ll go through when you’re getting a primary home mortgage. With a HELOC, the transaction is between just you — as the homeowner and borrower — and your lender. Which can give you more control over the pace and potential problems.

Still, it’s a good idea to have an understanding of how the process works. In this guide, we’ll look at the documents you may need, the costs you can expect, and the steps you can take to prepare for a HELOC closing.

Preparing for HELOC Closing

For most borrowers, getting a HELOC takes about two to six weeks from application to closing. Here’s a quick summary of how the process generally works:

Completing Your HELOC Application

After you’ve researched how a HELOC works, as well as the terms various lenders are offering, and you’ve chosen who you want to work with, you can complete your application (online or in person). As part of this step, you’ll be asked to provide information about your income, credit, debt payments, and home equity to help determine your eligibility for a HELOC.

Going Through the Underwriting Process

Once you submit your application and any documentation the lender requires, an underwriter — a financial expert who assesses risk for lenders, insurers, or investment companies — will examine your financials. You will likely be required to have a home appraisal performed to assess your home’s current market value, and the underwriter may contact you with follow-up questions or a request for additional documentation. A HELOC monthly payment calculator can show you what your monthly payments would look like based on how much you borrow and your interest rate and repayment term.

Preparing the Lending Agreement

Upon approval, the lender will finalize the terms of your HELOC and prepare your lending agreement, which should include a detailed explanation of your HELOC, including how long you can withdraw money from the account (during the “draw period”), how long you’ll have to pay back the balance you owe (during the “repayment period”), and your interest rate.

Proceeding to Closing and Funding

At your closing, you (and any co-applicants) will be asked to sign your loan documents and pay your closing costs. If your HELOC is secured by your primary residence, you shouldn’t expect to get your money right away. There is a mandatory three-day “right of rescission” waiting period before you can access the funds in your account. (This right, which is also called the three-day cancellation rule, is required by a federal Truth in Lending Act, and gives borrowers an opportunity to change their mind about certain types of home loans. Technically, a HELOC is a second mortgage, assuming you still have a first mortgage.) Once your funds are available, however, you can tap into your HELOC at any time, up to the approved amount.

Recommended: Calculating Home Equity

Required Documents for HELOC Closing

Before and during your HELOC closing, you should be prepared to provide and/or sign several documents. The HELOC requirements may vary depending on the lender, but the requested paperwork could include:

•   Your photo ID (a driver’s license or passport) and Social Security number

•   Proof that you have appropriate homeowner’s coverage on your property

•   An appraisal report that assesses your home’s current market value

•   A property title search and title insurance that ensures there won’t be any problems with liens or other issues

•   A mortgage or deed of trust that secures the loan against your home

•   A loan agreement that outlines your loan terms, such as the interest rate, repayment schedule, and penalties for late payments

•   A Truth in Lending Disclosure Statement that provides additional information about the costs of your loan

•   A closing disclosure that breaks down the fees, charges, and credits related to closing your loan

These documents are in addition to the paperwork you may be asked to provide during the application and underwriting process. Your lender will let you know ahead of time what and who you should have with you when you come to your closing.

Home Appraisal Process

Lenders typically require a home appraisal to get an accurate valuation of a property before approving different types of home equity loans. For a HELOC, this may be accomplished through a full-home appraisal, a drive-by appraisal (assessing only the exterior of the home and its condition), or with automated valuation tools. The type of appraisal you get may depend on how much you’re borrowing and other factors.

The lender typically orders the appraisal and will try to schedule it for a time that’s convenient for you. When it’s completed, the appraiser will provide the lender with a report that includes the home’s value, market comparisons, and other findings. The borrower usually pays for the appraisal at the closing.

Understanding HELOC Closing Costs

HELOC closing costs — the fees associated with getting your line of credit from a lender — are generally lower than the costs to close on a primary mortgage, cash-out refinance, or home equity line of credit. Still, the fees can add up quickly, and you may want to keep them in mind when you’re calculating the total cost of borrowing.

Typical Fees Involved

Some of the expenses you may encounter at closing include:

•   Application and/or origination fee: $15 to $75

•   Credit report fee: $10 to $100

•   Annual fee: $5 to $250

•   Appraisal fee: $300 to $450

•   Filing/notary fees: $20 to $100

•   Title search fee: $100 to $450 (if required)

Negotiating Closing Costs

Most HELOCS have closing costs or fees, but some lenders may offer to cover a few or all of those expenses. Others may give you the option of rolling your fees into the amount you’ll pay monthly. Remember that if you do this, you’ll add to the interest cost of your HELOC.

If you’re concerned about closing costs, you can always do some online comparison shopping to find out how much different lenders are charging. Or if you find a lender with an offer you like, you could ask if certain costs are negotiable.

HELOC Closing Meeting

Your lender will manage the final details of your closing meeting, including arranging the time and location (whether it’s in person or online) and letting you know what to bring. The lender will also ensure that a notary is on hand as you go through and sign the necessary paperwork.

You should have an opportunity to review your HELOC closing documents prior to the signing, but if you have any last-minute questions, you can cover them at this meeting. Any co-applicants should also be there, and you should bring a Power of Attorney document if someone can’t attend.

You probably won’t need to have an attorney at your HELOC closing, but you may want to have an attorney or financial advisor review the terms of your HELOC before you go. This person can also help you understand how HELOCs can affect your taxes.

Post-Closing Considerations

Once your HELOC is funded, you can borrow from it any time during the draw period (which usually lasts 10 years). You may be able to make interest-only or minimum payments during that time, or you may choose to pay something more toward the principal, in order to keep payments more manageable when you enter the repayment period. (Most HELOCs come with a variable interest rate, which means your interest rate — and monthly payments — could rise over time. In the HELOC vs. home equity loan decision-making process, this is one key difference. Home equity loans often have a fixed rate.)

Depending on your lender, you also may have an opportunity to convert all or a portion of your HELOC balance to fixed-rate loan, which can make payments more predictable and easier to budget for.

Recommended: Home Equity Conversion Mortgage vs. HELOC

Common Issues and How to Avoid Them

As with any type of financing, challenges may arise that delay or complicate the process. You may have control over some of them, while others may be out of your hands. Here are some common issues that could come up:

Problems with Documentation

Life gets busy, and the paperwork required for closing on a HELOC can easily get away from you. The lender’s closing checklist can be a useful tool for staying on track. You also can contact the lender before the closing to be sure everything is ready to go.

Unexpected Issues with Credit

A significant change in your financial situation could affect your loan approval, even in the final stages before closing. It can be a good idea to avoid making major purchases or opening a new credit account until your HELOC is a done deal. And be upfront with your lender about anything that might affect your eligibility, so there aren’t any surprises at the closing.

Delays in Getting the Appraisal

Your home appraisal can be a major factor in keeping your HELOC closing on track. Try to schedule the appraisal appointment as soon as possible, and ask if one of the quicker options (such as a drive-by or automated appraisal) is available.

Misunderstandings About Terms

Don’t wait until the last minute to read through your loan agreement. And compare the lender’s closing disclosure to the most recent loan estimate. If you’re unclear about the interest rate, repayment period, or any other details related to how your HELOC works, be sure to ask your lender ASAP.

Arranging Funds for Closing Costs

Verify the exact amount you’ll need for closing costs — and how you’ll be expected to get those funds to your lender (a wire transfer or cashier’s check, for example) — well in advance of the closing.

The Takeaway

A HELOC can offer a convenient and flexible way to tap into your home equity when you need money for renovations, debt consolidation, a rainy day fund, or other purposes. But it can take a few weeks to open this kind of account, and there’s some paperwork involved.
One way to help minimize problems or delays is to prepare in advance for each stage of the application and closing process. Your lender’s closing checklist can be a useful tool to help you stay on track. And it’s important to familiarize yourself with the terms of your HELOC agreement, so you can address any questions or concerns as soon as possible, and get your money without too much stress.

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

FAQ

How long does the HELOC closing process typically take?

For most borrowers, getting a HELOC takes about two to six weeks from application to closing. If you’re worried about the timeline, you can ask your lender how long it usually takes a HELOC to close and what you can do to speed things up.

Can I back out of a HELOC after signing the closing documents?

Yes. There is a three-day cancellation period for borrowers who use their primary residence to secure a HELOC. If you change your mind during that time, you may be able to back out of the transaction, even if you’ve signed the closing documents.

Do I need an attorney present at my HELOC closing?

You probably won’t need to have an attorney at your HELOC closing. But you may want to have an attorney or financial advisor review the terms of your HELOC before you go to your closing.

Photo credit: iStock/andresr

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

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

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Can you pay off a HELOC early? Yes, it’s possible. But depending on your financial institution, there may be fees involved in clearing out what you owe on your home equity line of credit, so it’s important to understand how much you can truly save before you start making extra payments.

HELOC Repayment Structure Explained

A home equity line of credit is broken into two periods: the draw and the repayment period.

Draw period: In this portion of your HELOC, you can make interest-only payments on whatever amount you draw. It usually lasts between five and 10 years, during which time you can pay off some or all of the balance and replenish your available credit. Then you can draw again as needed and only accrue interest on your outstanding principal.

Repayment period: Once the draw period closes, you can’t pull funds from your HELOC anymore. Repayment begins on both principal and interest. Oftentimes, you’ll have a 10 to 20-year term to repay the full balance. The rate usually starts as variable, but you may be able to roll the balance into a fixed-rate home equity loan.

In some cases, however, there’s a balloon payment: Your entire balance, including principal and interest, comes due at one time unless you refinance.

Benefits of Paying Off a HELOC Early

There are some potential benefits to take advantage of when you pay off a HELOC early.

Interest savings: Interest accrues throughout the life of a HELOC and can increase even more over time if you have a variable rate. Paying off a HELOC early could save you money in the long run. (Different types of home equity loans accrue interest in different ways, so make sure you understand how a HELOC, for example, differs from a home equity loan.)

Improved equity position: A HELOC is considered a second mortgage, which means it has precedence in getting paid off right after your original mortgage. Paying off your HELOC means that when you calculate home equity, your equity number will be greater. And it may also smooth the path to a sale of your home. (Some lenders may require you to pay off your HELOC before you can sell your home.)

Financial freedom: Getting rid of your HELOC payment also frees up more of your budget to work toward other financial goals, like retirement savings, or putting money toward a special trip or other large expense.

Recommended: Home Equity Loan Calculator

Potential Drawbacks of Early HELOC Payoff

Can you pay a HELOC off early without any drawbacks? It depends. Here’s what to consider before making a decision.

Prepayment Penalties

Some financial institutions charge a HELOC early payoff penalty if you close your account within a certain timeframe, often within the first five years of repayment. Instead of charging a flat fee, banks usually charge a percentage of your loan balance, usually 2%.

The average HELOC balance in 2023 was $42,139; paying off that balance with a 2% early penalty would cost $843.

But not all lenders charge this fee. If you’re considering a HELOC and may pay it off ahead of schedule, prioritize quotes that don’t include any kind of HELOC early payoff penalty.

Loss of Tax Deduction

In some instances, you may be eligible for HELOC-related tax deductions. Any interest paid on a HELOC or home equity loan between 2018 and 2025 may be tax deductible if the funds are used to buy, build, or substantially improve your home. Additionally, the property must be your main or second home. Paying off your HELOC means losing that deduction, but you can only take this deduction if you itemize (and many people don’t). Consult a tax advisor so you’re not surprised by the numbers when it comes tax time.

Recommended: HECM vs. HELOC

Strategies for Early HELOC Payoff

Now let’s look at how can you pay off a HELOC early. There are a few strategies to choose from.

Lump sum payments: Making large payments on top of your regularly scheduled payments can help you chip away at your balance and interest accrual. However, check into can you pay off a HELOC during the draw period, because some lenders may limit you to interest-only payments during this time. Also, clearly communicate to your lender that the additional payments should be credited to principal only; otherwise the lender may apply the funds to interest.

Accelerated payment schedules: Consistently make extra payments toward your principal to lower your balance at a faster pace over time. Use a HELOC monthly payment calculator to experiment with how your monthly payment would look using different payoff dates.

Refinancing options: It’s possible to refinance your HELOC into another line of credit in order to change the terms, such as the available credit line or draw period. To pay off your balance early, however, you can apply to transfer it into a home equity loan, which could have a fixed interest rate and payoff schedule.

Impact on Your Credit and Financial Profile

You can close a HELOC early without hurting your credit in the short-term because accounts in good standing stay on your credit report for as long as 10 years. Once that period expires, the average age of your credit history may drop, which could temporarily affect your score. Incorporating other types of no-fee credit could help mitigate any future damage, especially if you’re confident you won’t carry a balance.

Evaluating Your Financial Situation Before Early Payoff

Take a look at your entire financial picture before deciding to pay off your HELOC early. Do you have a solid emergency savings account? Are you contributing to your retirement account? If you have other high-interest debt, consider whether you should pay that off as you decide where the HELOC balance falls on your priority list.

Another factor is how long you plan to stay in your house. If you want to move soon, find out if you need to pay off the HELOC in full before listing your home, or if you can repay the balance with the proceeds from the sale.

The Takeaway

Paying off a HELOC early can save you in interest payments over time. However, it’s important to understand the details of your financing agreement to avoid any unwanted prepayment penalty fees. If you’re actively searching for a HELOC, make sure that’s part of your comparison process so you have more control over when you pay off your balance without worrying about extra costs.

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

FAQ

Can I pay off my HELOC during the draw period?

Most lenders only require interest payments during the draw period, but you can usually make principal payments as well. That will lower the amount of interest being accrued while also replenishing your available credit.

How do I calculate potential savings from early HELOC payoff?

Use a HELOC calculator to find out how much interest you would save by paying off your balance ahead of schedule. If your lender charges an early payment fee, factor that cost into your potential savings to see if it’s worth it.

Will paying off my HELOC early affect my credit score?

As long as your account is in good standing, a HELOC will stay on your credit report for up to 10 years. After that, your average credit account age may drop unless you have other mature accounts to make up for the loss.

Photo credit: iStock/Riska

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

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

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