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An amortizing loan requires monthly payments that go toward the principal and interest for a set period of time. In the early years, payments go mostly toward the loan interest.

Amortizing loans are common in personal finance. If you have a home loan, auto loan, personal loan, or student loan, you likely have an amortizing loan.

Understanding how your amortizing loan works could be helpful if you’re thinking of refinancing, selling a car or house early, or getting rid of mortgage insurance. In this article, we’ll cover what is an amortizing loan, how does a fully amortizing loan work, and types of amortizing loans. We’ll also explain amortization schedules and calculators.

What Is an Amortizing Loan?

An amortizing loan is one in which the borrower makes monthly payments, usually equal, toward the loan principal (amount borrowed) and interest (the financing charge).

An amortization schedule shows borrowers how their payments are spread out over the full term of the loan. This mortgage calculator shows amortization over time for any given home mortgage loan value. (Move your cursor over it to see the breakdown of principal, interest, and remaining loan balance over time.)

Typically, early payments are largely directed at the interest, and later payments go toward the principal. Borrowers who make additional payments on the principal, especially early in the loan, can shave time off their repayment schedule and save on total interest paid.

Recommended: How to Pay Off a 30-Year Mortgage in 15 Years

How Does a Fully Amortizing Loan Work?

Borrowers who make payments on a fully amortizing loan consistently and on time can expect their loan to be paid off in the number of months or years originally discussed when taking out the loan.

Mortgage servicers use a complicated calculation to determine how much interest and principal you will pay at each stage of the loan in order to fully pay it off as scheduled.

While it’s not important for borrowers to understand the intricacies of the math, it is important to know that early payments largely cover the calculated interest and that payments closer to the end of the loan term will go more toward the principal.

Most lenders will provide an amortization schedule so you can track how the ratio of interest to principal changes over time.

Types of Amortizing Loans

Installment loans are typically considered amortizing loans. If you make a monthly installment payment to pay down a fixed amount of debt by a certain time period, you likely have an amortizing loan.

Mortgages

Most home loans — fixed-rate or adjustable-rate mortgages — are fully amortizing loans.

If you have a fixed-rate mortgage, you will make fixed monthly payments, whose principal and interest composition will change over the life of the loan. (Note that payments can fluctuate slightly based on homeowners insurance, changing property taxes, and the presence of mortgage insurance.)

With an adjustable-rate mortgage (ARM), you don’t have a complete amortization schedule to review upfront. Principal and interest amounts change at the end of the loan’s fixed-rate introductory period and every time the rate adjusts — once a year in the case of a 5/1 ARM. But the monthly payments are calculated to pay off the loan at the end of the term, which is usually 30 years.

Non-amortizing mortgages include interest-only loans and balloon mortgages: The principal does not get paid until the loan is due. Most lenders don’t offer non-amortizing mortgages.

Recommended: Guide to the Mortgage Loan Process

Auto Loans

A car loan is another type of amortizing loan. Terms are shorter than those of mortgages (which are commonly 30-year loans). With a mortgage, the loan is backed by the house; with an auto loan, the car that you are financing acts as the collateral.

Personal Loans

Borrowers take out personal loans for a variety of reasons: debt consolidation, emergency payments, or home improvements.

And for some, a dream wedding or vacation.

Because these are installment loans, they are considered amortizing loans.

Student Loans

Because student loans are not revolving — you borrowed a lump sum that you’re now making regular payments on — student loans are installment loans, and amortizing loans.

How does student loan amortization work? As with mortgages and auto loans, student borrowers pay more in interest at the start of the loan repayment term; in fact, some borrowers are only paying interest when they start repayment. Over the life of the loan, the balance will shift, and borrowers’ payments will largely be directed to the outstanding principal balance.

What Is an Amortization Schedule?

Lenders may provide borrowers with an amortization schedule, often in the closing paperwork for a house or car but also usually online in the loan account platform. The schedule, displayed as a table, demonstrates how your monthly payments are split between interest and principal over the life of your loan.

An amortization schedule typically shows you:

•   Month: Each month over the life of a loan appears as a table row. A 30-year mortgage will have 360 rows. These tables can get long!

•   Payment details: You’ll typically see how much your monthly payment is, but more specifically, the interest payment and the principal payment. This helps you to track how each changes over time.

•   Balance: This column shows what your remaining balance will look like after each monthly payment.

Your amortization schedule will include information about the amount borrowed, the terms of the loan, and the interest rate.

Your lender may also provide a helpful column that demonstrates how additional payments on your principal balance can affect your remaining payments.

Recommended: Historical 30-Year Fixed-Rate Mortgage Trends

How to Use an Amortization Calculator

Because amortization calculations can be difficult to understand, you may find it helpful to use an online amortization calculator, especially for a home or auto loan. Such calculators can help you visualize:

•   How much money you’ll spend in interest over the life of a loan

•   When you’ll hit important milestones, like 20% paid off for a home loan (that’s when you can typically ask to drop private mortgage insurance)

•   How different interest rates and loan terms can affect your payments (important if considering a refinance or a cash-out refinance)

•   How additional principal-only payments can affect your loan

What You Need to Know About Your Amortizing Loan

Since amortizing loans usually require fixed monthly payments over the life of the loan, you may feel like it’s something you don’t need to think about. You can simply put the loan on autopay for years and never give it a second thought. But there are several reasons you might want to think twice about your amortizing loan:

Refinancing

If you’re looking for a faster payoff or better interest rate, you may want to refinance your mortgage, auto loan, or student loans. Comparing your current amortization schedule with a proposed schedule with your new rate and terms can help you see if refinancing will actually save you money in the long run.

Short-Term Purchases

If you’re planning to buy a home but know you won’t live in it for long, it’s a good idea to review an amortization schedule (even if it’s an online estimate!) before making an offer.

Since you pay significantly more toward interest than principal at the beginning of most long-term loans, you won’t immediately build significant equity — and if you sell just a couple of years later, you may owe more than you make from the sale.

Recommended: How Rising Inflation Affects Mortgage Interest Rates

Mortgage Insurance

Borrowers usually must purchase private mortgage insurance (PMI) if they do not put 20% down on a conventional loan. Once you have reached 20% equity, you can ask to have the mortgage insurance removed, reducing your monthly payment. (PMI is typically terminated automatically when a borrower has gained 22% equity — when they reach a 78% loan-to-value ratio — and payments are current, or when the loan term has hit its midpoint.)

By using an amortization schedule, you can track when you’ll hit 20%. You may even want to make additional principal payments to reach that date earlier, thus saving you money over the life of the loan.

The Takeaway

With an amortizing loan, borrowers make regular payments consisting of principal and interest over a set number of years. In the early years, borrowers pay more toward the interest, but the balance shifts toward the principal over time. Home loans are amortizing, so it’s important to understand the payments and secure the best possible rate before signing on to your mortgage.

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

FAQ

What is amortization in a loan?

Amortization refers to a loan with regular monthly payments over the duration of that loan. Typically, the vast majority of initial payments goes toward the interest of the loan, with a small amount (if any) going toward the principal balance. Over time, payments are more significantly directed toward the principal balance.

What are amortized loan examples?

Amortized loans are common in everyday life. Examples of fully amortizing loans are mortgages, auto loans, personal loans, and student loans.

Can you pay off an amortized loan early?

You can pay off an amortized loan early. For a mortgage, it may be possible to schedule automatic principal-only payments in your lender’s platform; you may also be able to make manual one-time principal-only payments or request a full payoff quote. With shorter-term loans, like personal loans and auto loans, it is possible to pay off the loan early to save money on interest — but it might be better for your credit score to keep the loans open.

Photo credit: iStock/nd3000

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.

SOHL-Q125-027

Mortgage bankers originate, sell, and service residential mortgages for consumers on behalf of the lender they work for. They also may provide escrow services. A mortgage banker plays a central role as people navigate the complexities of applying for a mortgage.

Mortgage bankers are often the first and last point of contact. Getting an interest rate and terms that work for your financial situation, as well as saves you money, is incredibly valuable.

What Is a Mortgage Banker?

An individual or an institution that originates, sells, or services a home mortgage loan can be considered a mortgage banker.

Individual mortgage bankers work for a single lending institution and help applicants sort through the different mortgage types. Mortgage bankers are also called mortgage lenders or mortgage loan officers when referred to in this way.

Customers who want help understanding mortgages or who have questions about mortgages can be assisted by mortgage bankers.

Mortgage bankers can get homebuyers on the right road with mortgage preapproval. They serve as the primary point of contact for buyers’ lending needs.

A mortgage banker can also be an institution, such as a bank, credit union, or other direct mortgage lender. When talking about a mortgage banker that services a loan, for example, it’s in reference to the institution.

A mortgage loan originator employed by a credit union, bank, or a subsidiary of a bank does not have to obtain a loan originator license. Nonbank mortgage loan originators must be licensed in the states where they do business and must be registered with the Nationwide Multistate Licensing System & Registry.

The licensing requirements were put in place after the mortgage meltdown of 2008 to protect consumers from predatory lending and to prevent fraud.

Recommended: Home Loan Help Center

Services Offered by a Mortgage Banker

At their core, mortgage bankers have the ability to create or sell a new mortgage loan. They also have the ability to service it once the loan closes. Here are the details of the mortgage banker’s role:

Originate Loans

Mortgage bankers originate loans, meaning they take an application and create a new mortgage for a residential home. Conforming loans are usually sold to Fannie Mae or Freddie Mac.

Sell Loans

Mortgage bankers sell loans so they can engage in more lending. If it’s a conventional loan, conforming loan, the sale typically goes to the government-backed enterprises, Fannie Mae or Freddie Mac. This increases lenders’ liquidity so they can originate more loans to more customers instead of carrying the amount of the loan on their books.

Service Loans

Once the mortgage has closed, the lender needs to be paid every month. This is what mortgage servicers do: They take on the day-to-day task of making sure your payment gets to all parties that need to be paid. Servicing loans is usually in reference to the mortgage banker as an institution, not the individual mortgage loan officer.

How Do Mortgage Bankers Make Money?

Individual mortgage bankers may make money from a salary, commission, or a combination.

Institutional mortgage bankers make money from origination fees, mortgage points, mortgage servicing, mortgage-backed securities, and the yield spread premium. The yield spread premium is how much money they make based on what they charge a customer relative to how much it costs to obtain that financing.

Differences Between a Mortgage Banker and a Loan Officer

Mortgage banker and loan officer, or loan originator: These terms are often used interchangeably.

However, while a mortgage banker can refer to both individuals and institutions, a loan officer is always an individual.

Differences Between a Mortgage Banker and a Mortgage Broker

In your research to get the best mortgage, you may have also come across mortgage brokers. Though applying for a mortgage will have the same requirements whether you go through a mortgage broker or a mortgage banker, a mortgage banker is different from a mortgage broker in who they work for and how they obtain your mortgage.

A mortgage banker works for a single lending institution that makes loans directly to consumers. The lending decision and underwriting are typically made at the bank level, which can streamline the process.

A mortgage broker works with many different lenders. This is helpful if you want to shop around and don’t have time to do the legwork or need to find a specialty loan not offered by all lenders.

Recommended: Mortgage Calculator

When Is It Better to Have a Mortgage Banker Than a Broker?

Your best bet for finding a home loan with terms most favorable to your financial situation is to shop around for a mortgage. A mortgage banker is closer to the lending process than a mortgage broker, but a broker has access to a greater number of lenders.

Be sure you’re comparing apples to apples on the mortgages offered to you by studying the loan estimate you’re given by each lender after applying. You should take into account both the interest rate and fees being charged for the loan.

The Takeaway

A mortgage banker can play a major role in getting you to the closing table with the right loan. By any name — mortgage banker, loan officer, loan originator — the person who guides you through the loan process is a key part of the home-buying journey.

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 does a mortgage banker do?

A mortgage banker can originate, sell, and service loans for customers.

Is a mortgage banker similar to a mortgage broker?

Not really. A mortgage banker works for a single lender and makes loans directly to you. Mortgage brokers do not lend money but instead find a lender to work with their buyer.

How do you choose a mortgage banker?

Compare rates and terms from different lenders by getting prequalified for a mortgage. As you communicate with the mortgage banker at various lenders, consider the speed and clarity of communications and how knowledgeable the person seems to be and how much attention they pay to your needs.

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

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

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

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

SOHL-Q125-031

If you’re thinking about tapping the equity in your home, you’re looking at either a home equity or a home equity line of credit, better known as a HELOC. Both may allow you to borrow a large sum at a relatively low interest rate and with lower fees than a mortgage refinance.

Either a home equity loan or a HELOC is a second mortgage, so you’re betting the house: Your home can be foreclosed on if you cannot make payments. But for homeowners who have a secure income, good credit, and a substantial amount of equity, either one can be an excellent way to fund big expenses like renovations and debt consolidation.

When looking at a HELOC vs. a home equity loan side by side, there are differences that mean one type of loan may make more sense than the other to you. Let’s take a deep dive into the two to help you decide.

What’s the Difference Between a HELOC and Home Equity Loan?

A HELOC is a revolving line of credit. You can take out money as you need it, up to your approved limit, during the draw period, which is typically 10 years. You may be able to make interest-only payments on the amount you withdraw during that time.

After the draw period comes the repayment period, usually 20 years, when you must repay any principal balance with interest.

Most HELOCs have a variable interest rate. Some have a low introductory rate, and some require minimum withdrawal amounts.

A home equity loan is another type of second mortgage that uses your home as collateral, but in this case, the funds are disbursed all at once and repayment (with interest) starts immediately. It is usually a fixed-rate loan of five to 30 years, and monthly payments remain the same until the loan is paid off.

The main differences between the two are how the money is disbursed, how it is repaid, and how the interest rate works.

Key Differences

Comparing HELOCs and Home Equity Loans

Homeowners usually will need to have 15% to 20% equity in their home — the home’s market value minus what is owed on any mortgage — to apply for a home equity line of credit or home equity loan.

If you’ve been diligently paying off your home loan and you meet this threshold, then how much home equity can you tap? Most lenders will require your combined loan-to-value ratio — combined loan balance / appraised home value — to be 90% or less, although some will allow you to borrow 100% of your home’s value.

Here’s what to look for when comparing a HELOC with a home equity loan.

Interest Rate

The interest rate for a home equity loan is typically fixed, while the interest rate for a HELOC is usually variable.

HELOC rates tend to be a little higher than home equity loan rates (but keep in mind that you pay interest only on what you borrow from the credit line). Some lenders offer a low HELOC teaser rate for six months to a year before converting to a variable rate.

Keep in mind that Federal Reserve decisions affect the rates for both products. The prime rate, the rate given to low-risk borrowers for prime loans, is based on the federal funds rate set by the Fed.

Even as home equity loan rates rise, though, the rate for these secured loans will be lower than that of almost all unsecured personal loans and credit cards.

Recommended: What to Learn From Historical Mortgage Rate Fluctuations

Costs

Closing costs are essentially the same for a HELOC and a home equity loan — 2% to 5% of the total loan amount — but many lenders offer to reduce or waive them.

Lenders may have already baked their costs into your rate quote.

You’ll want to shop for the best deal, comparing rates, upfront costs, closing costs, and fees. Bear in mind that advertised rates are often reserved for well-qualified borrowers, so read the fine print.

Requirements

To qualify for a HELOC or home equity loan, lenders will look at your employment and credit history, income, and the appraised value of your home. In other words, you must:

•   Have enough equity in your home

•   Have enough income to cover the monthly payment on the home equity loan

•   Have a good credit score (typically 680 or over, though many lenders prefer 700-plus)

•   Have a debt-to-income ratio of 50%, though some lenders like this ratio to be closer to 36%

Repayment

When it comes to repayment, HELOCs and home equity loans are very different.

With a home equity loan, the entire loan amount is deposited into your account at once. This also means you’ll start paying on the loan immediately. You can use a mortgage repayment calculator to see what your monthly payment might be depending on how much you borrow and your interest rate.

With a HELOC, you use funds as you need them, up to the limit, during the draw period. Your payment may be just the interest charge for the amount borrowed. (A HELOC interest-only calculator can show you what your payments might be during this time.) The revolving credit line means you can withdraw money, repay it, and repeat before the repayment period, when the draw period ends and principal and interest payments begin.

Money Disbursement

Funds for a home equity loan are disbursed immediately. Sums from a HELOC are withdrawn as needed.

Payments

Payments on a home equity loan begin immediately. Payments on a HELOC aren’t required until you start borrowing money from your credit line.

Recommended: Turn Your Home Equity Into Cash

HELOC vs. Home Equity Loan: Pros and Cons

HELOC Pros and Cons

Pros:

•   Access up to 90% of your home equity and sometimes more

•   Flexible use

•   Only borrow what you need

•   Lower interest rate than most unsecured loans or credit cards

•   Some have low introductory APR offers

•   Loan interest may be tax deductible if the borrowed money was used to buy, build, or substantially improve your primary home; consult a tax advisor for more information.

Cons:

•   May have a slightly higher interest rate than a home equity loan

•   Variable interest rate means your rate and monthly payment can change throughout the repayment period

•   Home is at risk of foreclosure if you’re unable to make payments

•   The repayment period could bring sticker shock

•   Paying off a loan balance early could trigger a prepayment penalty, and closing a credit line within a predetermined period — usually three years — could negate the waiving of closing costs

•   In a small number of cases, a balloon payment could be required at the end of the draw period

•   May include annual or inactivity fees

Home Equity Loan Pros and Cons

Pros:

•   Access up to 85% of your home equity and sometimes more

•   Funds disbursed at once

•   Fixed interest rate

•   Predictable monthly payments

•   Lower interest rate than unsecured loans

•   Loan interest may be tax deductible if the borrowed money was used to buy, build, or substantially improve your primary home; consult a tax advisor for more information.

Cons:

•   Home is at risk of foreclosure if you’re unable to make payments

•   No flexibility in the amount of money you get

•   Limited to fixed installment payments

Which Is Better, HELOC or Home Equity Loan?

The better loan is the one that fits your life circumstances. A home equity line or loan can be used to buy a second home or investment property, pay medical bills, pay off higher-interest credit card debt, fund home improvements, and pay for other big-ticket items.

When a HELOC Is a Better Fit

HELOCs are more flexible than home equity loans. If you’re unsure how much money you need, don’t need to borrow immediately, or want flexible repayment options, you might want to think about applying for a HELOC over a home equity loan.

When a Home Equity Loan Is a Better Fit

A home equity loan is great for people who know how much they need to borrow and want the regularity of an installment loan with a fixed interest rate and fixed payments.

The Takeaway

Your decision on a home equity loan vs. a HELOC can depend on what you’re planning to use the money for. If you need a certain amount of money all at once, a home equity loan may be a good fit. If you want the flexibility to take out money as you need it, a HELOC may work better.

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

Which is faster, a HELOC or home equity loan?

They’re tied, on average. It could take two to six weeks to get a HELOC or home equity loan.

HELOC or home equity loan for an investment property?

Investors may like the flexibility of a HELOC. A lump-sum home equity loan, however, could also be advantageous for renovating or buying properties.

HELOC or home equity loan for a home remodel?

If you know exactly how much you’re going to be spending on a home remodel and you’d like predictable payments, you can use a home equity loan. If you want more flexibility or are less certain about your costs, you may like the flexibility of a HELOC.

Can you have both a HELOC and home equity loan?

It is rare to have both a HELOC and a home equity loan. One would be a second mortgage and the other would be a third mortgage (assuming you are still paying off your first mortgage). Few banks are willing to lend money on a third mortgage, and for any that do, the interest rate would be high.

Photo credit: iStock/Hispanolistic

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

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

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

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

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

^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-Q125-003

You may know someone who lost a home to foreclosure, but you might not know all the ins and outs of the process.

When the lender takes back a property after the mortgage has gone unpaid for a specified period of time, that’s a mortgage foreclosure. The process varies by state and by lender, but there are things you can do to avoid it.

Here’s what you need to know about foreclosure and moves you can make if you’re facing it.

What Does Foreclosure Mean?

When a buyer finances a home, the home mortgage loan is secured with the property, meaning the property is used as collateral on the loan. If the homeowner fails to make the agreed-upon payments on the due dates, the lender can take the property back. This is why it’s so important to think about what ifs as you go through the mortgage prequalification and mortgage preapproval process. How would you keep up payments in the event of a job loss? Do you have an emergency fund in place?

Each state has its own laws regarding foreclosure and its own state foreclosure rate. Where you live will determine how properties are foreclosed. There are two main types of mortgage foreclosure.

Recommended: Help Center for Mortgages

Types of Mortgage Foreclosure

In some states, the lender is required to go through the court system to foreclose on a property. This is known as judicial foreclosure. In other states, the lender does not have to go through the court process.

Judicial

With a judicial foreclosure, a lender must get a court order to foreclose on a property. The lender must file a complaint with the court, which is also sent to the homeowner and any other lienholders. Generally, the mortgage note must also be filed with the court.

Some states require loss mitigation efforts before a suit can be filed, meaning the mortgage servicer must work with the borrower to help them avoid foreclosure. Most of these foreclosures are not contested, resulting in a default judgment against the homeowner.

After this, the property may be scheduled for sale (usually a foreclosure sale or sheriff’s auction). The homeowner may appeal the foreclosure judgment.

Nonjudicial

In a nonjudicial foreclosure, deeds of trust can be foreclosed without going through the court system. Lenders must give special notice to the property owner and wait a specified amount of time before auctioning the property off.

Some states allow both judicial and nonjudicial foreclosure, while others may only allow one or the other. Below is a summary of states and what process they follow for mortgage foreclosure.

When Does Mortgage Foreclosure Begin?

Mortgage foreclosure begins with the first missed payment, though a lender’s actions will escalate the more payments a homeowner misses. With the first missed payment, the mortgage lender won’t take the property back, or even issue a notice of default, but will reach out to the borrower to help them get payments back on track.

The lender will also report a nonpayment or late payment to the credit bureaus and issue a late fee.

Typically, lenders won’t issue a notice of default until the borrower defaults on three missed payments, or 90 days past due (this is standard practice, but lenders can issue a notice of default sooner than 90 days). Default is the precursor to foreclosure.

Recommended: Home Loan Help Center

Foreclosure Timeline: How Long Does Mortgage Foreclosure Take?

Once the notice of default arrives after 90 days past due, the time it takes to complete the foreclosure will vary by state. In some states, it can be a matter of months. In others, much longer. In the last quarter of 2024, the average time a property took to complete foreclosure was 762 days.

In jurisdictions where each step of the process requires court approval (judicial foreclosures), court backlogs can delay the foreclosure processes for years.

Why Do Foreclosures Happen?

Foreclosure occurs in a number of situations. Some of the most common:

•   Being underwater. When a homeowner has negative equity in the home, the property is more likely to be foreclosed on. Having an underwater mortgage is the most common reason for foreclosure.

•   Rising interest rates. When a borrower’s loan has an adjustable interest rate, a sudden rise in the amount owed each month can lead down the path to foreclosure. With the 5/1 ARM, for example, the interest rate is fixed for the first five years and then adjusts once a year.

•   Mortgage types. Sometimes even the different kinds of mortgages can contribute to default. With an interest-only mortgage, for instance, after five or 10 years of interest payments, principal and interest kick in, resulting in higher payments.

•   Personal situations. When the payment on a mortgage loan becomes too much or when a life event (hospitalization, death, divorce, layoff) prevents homeowners from making monthly payments, they can slip into default and eventually foreclosure.

If the homeowner doesn’t work with the lender to make a plan for repayment of the missed payments, the mortgage servicer can seek foreclosure.

Can You Avoid Foreclosure?

Homeowners have options if they’re facing foreclosure, and the sooner they contact their mortgage lender or servicer, the more they will have. Some of these include:

•   Reinstatement. If you’re able to pay off the past due amounts and any penalty fees, the lender will stop the foreclosure process.

•   Repayment plan. A repayment plan allows you to tack on a portion of your past-due payments to your regular payment each month. This makes sense if you’ve only missed a small number of payments and will no longer have trouble making a monthly mortgage payment.

•   Forbearance. If you qualify for mortgage forbearance, your lender might pause or lower monthly mortgage payments for a short amount of time. When you start making payments again, you’ll add portions of your missed payments to your regular payment to catch up.

•   Loan modification. With a loan modification, the lender permanently alters the terms of the mortgage contract, so the payment is more manageable. This can include a reduced interest rate, adding missed payments to the loan balance, extending the term of the mortgage, or even canceling part of the mortgage debt.

•   Filing for bankruptcy. Filing for Chapter 13 bankruptcy may allow you to keep certain assets like a house or car. A court must approve your repayment plan. It stays on your credit report for seven years. You might want to consult with a bankruptcy attorney if you’re thinking about going this route.

•   Selling your home. If you have enough equity in your home to pay off the mortgage and pay for the cost of selling your home, you may be able to sell your home to avoid foreclosure.

•   Deed in lieu of foreclosure. A deed in lieu of foreclosure is essentially when you hand over the title of your home to the lender instead of going through a foreclosure. It is less damaging to your credit than a foreclosure. (Note: SoFi does not offer a Deed in Lieu at this time.)

•   Short sale. If the lender agrees to a short sale, it is agreeing to allow the home to be sold for less than what is owed. The deficit is taxable if the mortgage terms hold the borrower liable for the full amount of the loan.

Recommended: A Guide to Mortgage Relief Programs

Consequences of Foreclosure

Foreclosure has a huge impact on your credit. It will stay on your credit report for seven years after the first missed payment, and the multiple delinquent payments are a further knock against your credit scores, making it hard to go shopping for another mortgage and other loans.

After a foreclosure, it could take two to seven years to get a new conventional or government-backed mortgage.

But there are ways to deal with financial hardship. And a key first step where foreclosure is concerned is to reach out to your mortgage servicer and discuss a plan.

The Takeaway

Facing mortgage foreclosure is one of the toughest things a homeowner can go through. As the financial landscape shifts, knowledge is power. Foreclosure can be avoided if you work with your mortgage servicer and get help managing your debts. With time and a disciplined strategy in place, you can get on a solid financial footing again.

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

Can I stop the foreclosure process?

Possibly. The sooner you contact your mortgage servicer, the more options you will have.

How will foreclosure hurt my credit score?

The lender reports each missed payment, and the further behind a borrower gets, the more delinquent they become. The credit score lowers with each report. A foreclosure stays on a credit report for seven years, which makes it harder to apply for other credit lines and loans.

Am I supposed to pay property taxes when my house is in foreclosure?

It’s true that a missed tax payment can also lead to foreclosure proceedings, but it depends on where you are in the process. If you’re working with your lender to get your missed payments back on track to avoid foreclosure, then your escrow account will be replenished and the mortgage servicer will pay your taxes. If you’re in foreclosure and not able to get your payments back on track, paying your taxes won’t help you get your house back. You’re better off working with your lender to put that money toward missed mortgage payments.

Do I have to move out of my house when it is in foreclosure?

The Federal Trade Commission advises staying in the house as long as possible if you’re facing foreclosure. You may not qualify for certain types of assistance if you move out.

Photo credit: iStock/jhorrocks

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

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

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

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

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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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If you’re looking at lower-cost housing options, buying a manufactured home may have come up on your radar. Buying a new manufactured home or an existing one could be a good way to get into a home more quickly and at a lower cost than purchasing a site-built home.

Manufactured homes shed their mobile home and trailer rep in 1976. Since then, manufacturers have touted their quick turnaround times and high-quality materials.

If you’ve ever wondered how to buy a manufactured home, what financing options are available, and whether the titling of a home as real property or personal property makes a difference, read on.

What Is a Manufactured Home?

A manufactured home is built in a factory on a permanent steel chassis.

They often come in one, two, or three sections: single-, double-, or triple-wide. They must be able to fit on the highways, so the sections are limited to 16-foot widths in most states.

Manufactured homes are not modular homes; nor are they considered mobile homes anymore. Manufactured homes are built entirely in a factory, whereas the components of a modular home are taken to the land and put together on-site. The two types of housing also follow different building codes.

Mobile homes are considered those built before June 15, 1976, when the U.S. Department of Housing and Urban Development (HUD) implemented construction and safety standards for these structures. After that date, manufactured homes were required to follow the HUD Code. A manufactured home will have a “HUD tag,” a red metal certification label, on the exterior.

Why Should You Buy a Manufactured Home?

Manufactured homes are less expensive than site-built homes or modular homes, which must meet the same state and local building codes that stick-built homes do.

The average sale price of new manufactured homes nationwide was $86,600 for a single-wide and $156,300 for a double-wide as of late 2024, according to the Census Bureau’s Manufactured Housing Survey.

They have quicker build times than site-built homes, too.

Manufactured homes sold as part of a land package may hold their value much like a standard home, depending on upkeep and the local real estate market.

Speaking of land, if you’re a homebuyer and plan to lease the lot under you, beware of rising lot rents. Then again, if you’re looking for investment property, the ability to raise the lot rent could be a big draw.

Process of Buying a Manufactured Home

Buying a manufactured home is different from buying a site-built home. There are a lot of variables that you’ll need to know about.

Getting Financing for a Manufactured Home

Financing a manufactured home generally depends on whether the home will be attached to the land (real property) or consists of just the home (personal property, or chattel).

Financing Just the Home

It is possible to finance the manufactured home apart from the land. In this case, you’ll need to get a personal loan, a chattel mortgage, or dealer financing. A personal loan is unsecured (unlike a mortgage which is secured by your home), but its interest rates may be higher.

Another option is a government-insured home loan like an FHA Title I loan (which has loan limits). These loans are backed by the Federal Housing Administration and available from approved lenders.

Financing the Home and Land

If you’re buying a manufactured home that’s permanently attached to a foundation on its own land, some lenders will finance the purchase with a conventional home loan.

An FHA Title I loan can also be used for just a developed lot or for a home-lot combo. FHA Title II loans are for buying a manufactured home and land whose price is above the Title I loan amount. Title II loans adhere to FHA loan limits, which are based on a percentage of the Federal Housing Finance Agency’s national conforming loan limits for conventional loans.

VA loans, backed by the U.S. Department of Veterans Affairs, are available to eligible borrowers to buy a manufactured home that is permanently attached to the land.

And an option for low- to moderate-income buyers is a USDA loan if the home is in an eligible rural area identified by the U.S. Department of Agriculture.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

Recommended: What Is a Chattel Mortgage?

Searching for a Manufactured Home

In your search for a manufactured home, you’ll want to consider:

Manufacturer. Many companies build and sell manufactured homes. Keep your search broad at first, and ask friends and family for referrals. You may also want to keep a spreadsheet comparing the prices, incentives, and inclusions each company provides. Be mindful, however, that while some manufacturers are able to provide comprehensive services, the quality of their homes may be lower than that of another manufacturer that does not provide every service.

Model and layout. Tour models and figure out what you really need. Are there enough bedrooms? Do you prefer a separate kitchen and living room, or is an open layout more your style? Is there adequate storage?

Customization. There are a lot of options when it comes to selecting custom design elements. Would you like patio doors? A fireplace? Separate vanities? The manufactured home builder will have a list of upgrades that you’re able to select from.

Exterior additions. When your home is placed, some exterior elements can make it feel like a site-built home. Porches, garages, and decks are a few examples.

Site. Do some research on what it takes to place a manufactured home on a lot. Do you want a lot in the country with a view? Are you able to pay for the cost to bring utilities to raw land? Would you prefer to lease land? Where you want to place your home will help you select the right one. Your decisions will affect the total cost of a manufactured home.

Buying Land for a Manufactured Home

Buying land comes in three forms:

•   Cash. You can buy land with any savings you have on hand.

•   Land loan. It is possible to finance land separately from your home, which is also the case with some tiny houses. You’ll have closing costs on both loans if you choose to finance separately.

•   Home and land. The easiest route is a manufactured home-and-land loan. Getting loan approval before searching for land or a manufactured home will allow you to see exactly how much you qualify for.

Site Prep

After buying land, it will need to be prepared for your manufactured home. This may include:

•   Soil condition tests

•   Making a plan for where the manufactured home is to sit

•   Clearing the area

•   Grading for proper drainage

•   Checking the holding capacity for ground anchors

•   Sewer hookup or septic tank installation

•   Well drilling or water connection

•   Driveway

Recommended: Typical Personal Loan Requirements

Delivery and Installation of Your Manufactured Home

After your land has been prepared and the home has been built, it can be transported to the site and installed. Your manufacturer will likely coordinate delivery and may be able to help you find contractors to install the manufactured home.

Getting Insurance

Homeowners insurance for manufactured homes usually covers the structure, personal belongings, and any other structures on the property. Some insurers require that a manufactured home be placed on a concrete or block foundation.

The coverage might also include liability insurance, which helps protect your finances if you’re responsible for damage or injury to someone else. A standard policy may not cover earthquakes or floods.

To figure out how much homeowners insurance you need, start by getting enough dwelling coverage to fully replace your home if it needed to be rebuilt. The replacement cost may be higher or lower than the home’s value.

Cost of a Manufactured Home

The cost of a manufactured home will vary by size, quality, customizations, and manufacturer. Not including the cost of acquiring and developing land, a new model may range from $80,000 to over $200,000.

There’s that mention of land again. As the Consumer Financial Protection Bureau says, “Manufactured housing is the largest source of unsubsidized affordable housing in the United States, but financing a manufactured home can be costly, especially for borrowers who do not own the underlying land.”

To ease the housing shortage, the Biden administration’s 2024 “Housing Supply Action Plan” aimed to deploy new financing mechanisms for manufactured homes and accessory dwelling units (ADUs). The plan also prodded the Department of Transportation to modify its grant programs to favor cities that adopt zoning rules allowing dense housing and transit-oriented development.

Many states did update their regulations on manufactured housing in 2024 to expand the areas of land available for siting manufactured homes. So if you are considering purchasing a manufactured home, it’s smart to look into state and city regulations that apply to your town before making a decision, as they may have been updated recently.

The Takeaway

Buying a manufactured home is usually more affordable than a site-built or modular home, but it’s helpful to understand all the financing angles and the long-term stability that owning the land underneath you can bring.

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 do most manufactured homes last?

Manufactured homes that are regularly maintained can last for 30 to 55 years, according to HUD.

How do I pay for a manufactured home?

Financing a manufactured home largely depends on whether the home is permanently attached to the land or not. A home that is not may be financed with a personal loan, an FHA loan, a chattel mortgage, or a dealer loan.

How do I cut down on costs for a manufactured home?

The cost of a manufactured home itself could be relatively low. The biggest expenses you’ll likely encounter will be purchasing land and preparing it. If you can find a lot that already has utilities, it may help.

How is a converted shipping container classified?

Shipping containers that are converted into housing units can be accepted as manufactured homes if they are provided with a permanent chassis, are transported to the site on their own running gear, and otherwise comply with the HUD Code for manufactured homes.

Photo credit: iStock/Marje

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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