SoFi

Government-backed mortgages can be easier for potential homebuyers to qualify for as these loans are insured by the federal government, which brings down the risk for lenders. There are three main types of government-backed mortgages that can help consumers — and especially first-time homebuyers — reach their goal of homeownership.

Let’s take a closer look at these different types of government-backed mortgages and how these government-backed insured mortgages work.

What Is a Government-Backed Mortgage?

Essentially, a government-backed mortgage is a mortgage loan that a federal government agency insures. These types of mortgages are typically easier to qualify for than conventional home loans, as the lender takes on less risk due to the government insurance that forms the safety net underpinning the loan.

Of course, consumers can also apply for non-government-backed mortgages, so it’s important to do your research before applying for home loans to see which mortgages best suit your financial needs.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

How Do Government-Backed Mortgages Work?

Let’s take a closer look at how government-backed home loans work. To start, they are insured by one of three different federal agencies.

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

•   Federal Housing Administration (FHA loans)

•   U.S. Department of Agriculture (USDA loans)

•   U.S. Department of Veterans Affairs (VA loans)

The way this works is that if the borrower defaults on the loan, the government repays the lender instead. This greatly reduces the risk that the lender faces, which means they can in turn extend more favorable interest rates to borrowers who may not normally qualify for low interest rates. Many government-backed loans also don’t require a down payment.

Most of these loans are not issued by the government. Consumers still have to apply with private lenders and it’s a bit hit or miss which (if any) types of government-backed loans a private lender might offer.

A government-backed loan works differently than a conventional loan. To start, conventional loans don’t have any government backing and therefore have stricter eligibility requirements. Typically, government-backed loans also have different mortgage insurance requirements than conventional loans and may charge more upfront fees.

Borrowers who choose a government-backed loan also have to meet different eligibility requirements than borrowers who choose a conventional loan. For example, only members of the military or select family members can qualify for a VA loan.

Different Types of Government-Backed Mortgages

There are three different types of government-backed mortgages: FHA, VA, and USDA loans. Each type of mortgage is designed to meet the unique needs of different borrowers. Some consumers may qualify for all three loan types or they may meet the requirements and qualify for just one type of mortgage-backed loan. In some cases, a borrower may not qualify for any of these loans.

•   FHA loans This loan type is backed by the Federal Housing Administration and it tends to be much easier to qualify for than USDA and VA loans. FHA loans are popular with first-time homebuyers. Having a credit score of at least 580 is a must and a down payment of 3.5% is necessary. Those with a credit score in the 500 to 579 range can still qualify, but only if they make at least a 10% down payment. The main disadvantage of FHA loans is they require mortgage insurance initially. If the borrower makes a downpayment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to escape this insurance.

•   USDA loans Low- or moderate-income borrowers looking to buy a home in a rural area or select suburban areas may qualify for the USDA’s Rural Development Guaranteed Housing Loan Program. There are a few different types of USDA loans and which one a borrower can qualify for depends on their credit score and income. There are no down payment requirements with USDA loans, but there are mortgage insurance requirements. There is no way to remove mortgage insurance from the loan, however the insurance payments are typically lower than those for conventional or FHA loans.

•   VA loans VA loans are only available to active-duty service members, veterans, reservists, National Guard members, and certain surviving spouses. There are no credit score requirements for VA loans or down payment requirements, although some lenders may have their own credit score requirements. There are no mortgage insurance requirements for VA loans, but there are some extra closing costs that can equate to 1.4% to 3.6% of the loan amount.

Pros and Cons of Government-Backed Mortgages

There are some unique advantages and disadvantages associated with government-backed mortgages:

Pros

•   Can be easier to qualify for than conventional loans

•   Lower down payment requirements (or no down payment at all)

•   Lower credit score requirement (or no requirement at all)

•   Potentially lower interest rates

Cons

•   VA and USDA loans can be hard to qualify for

•   You may need to pay mortgage insurance for the life of the loan

•   Not all lenders offer government-backed mortgages

Examples of Government-Backed Mortgages

There are three types of government-backed mortgage. They are USDA loans, VA loans, and FHA loans. Here is how a USDA loan might work: Let’s say you are home-shopping in an area with a population under 20,000. If you have an average or only slightly above-average salary for the area and a credit score of 640 or higher, you might qualify for a USDA loan. (So, for example, if the median annual income in the area is $62,000, you could qualify with a salary of $71,300 or less.) If you borrowed $100,000, you would have a $1,000 mortgage insurance cost upfront, and you would pay about $29 per month for mortgage insurance after that.

If your military service history makes you eligible for a VA loan, you would likely need a credit score of at least 580 to go with a VA loan. You wouldn’t need a down payment or mortgage insurance, but you would pay an upfront funding fee of between 0.5% and 3.6% of the loan amount unless exempt. Your purchase would need to be a primary home, but unlike with the VA loan, there are no restrictions on where that home could be located or what your annual income might be.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Is a Government-Backed Mortgage Worth It?

Whether or not a government-backed mortgage is worth it depends entirely on the borrower’s other home loan options. It’s generally a good idea to shop around with different lenders for the best possible deal. Spend some time comparing potential interest rates, fees, and mortgage insurance requirements to see which loan will cost the most in the long run. First-time homebuyers often find government-backed mortgages especially attractive, in part because it can be difficult to come up with a down payment for a first home.

The Takeaway

Government-backed mortgages can be a great option for borrowers, especially those who don’t qualify for a conventional mortgage. While these government-backed mortgage loans can be hard to qualify for if the borrower doesn’t meet unique requirements (like being a military member or buying a home in a rural area), they can have more relaxed credit score and down payment requirements than those of conventional mortgages.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What are government-backed mortgages?

Government-backed mortgages are mortgage loans insured by a select federal government agency. There are USDA, FHA, and VA loans available to eligible borrowers. Because these loans are insured by the federal government, the private lenders who issue them take on much less risk and can work with borrowers who wouldn’t traditionally qualify for a home loan.

What are the benefits of a government-backed mortgage?

Often, government-backed mortgages are much easier to qualify for than conventional mortgages. They typically have lower credit scores and downpayment requirements. Because these loans are insured by the federal government, lenders can work with “riskier” borrowers to whom they may not normally offer a conventional home loan.

What are the three types of government-backed loans?

The three main types of government-backed loans are FHA, VA, and USDA loans. The Federal Housing Administration offers FHA loans, the U.S. Department of Agriculture backs USDA loans, and the Department of Veterans Affairs is responsible for VA loans.

---

Photo credit: iStock/Prostock-Studio

*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 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.

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.

SOHL0323018

Read more

More and more young people are on the fence about going to a traditional four-year college. One popular decision-making strategy is to create a list of pros and cons of going to college. To get you started, we’re going deep into the benefits and downsides of attending college.

Keep reading to learn how college is correlated to more positive outcomes for grads, from lower unemployment to better health, as well as the financial risks.

On the Fence About Going to College?

Feeling torn about college can be a natural result of low motivation to continue schooling, a good job situation, or nontraditional career goals. Most people of all educational backgrounds would agree that college is not for everyone.

If you have a great job lined up now, waiting to attend school might make sense. On the other hand, if you need a degree to fulfill your goal of becoming a wildlife biologist, you may have little choice but to sign up for classes. The key is to be honest with yourself and clear about the consequences of your decision.

Here, we’re taking an in-depth look at the pros and cons of going to college.

Pros of Going to College

Going to college offers numerous benefits, from expanding career opportunities to personal growth. Below is a look at the pros of going to college.

Higher Earning Potential

One of the major reasons to attend college is salary potential. Let’s take a look at the median weekly earnings across various degree levels, according to the Bureau of Labor Statistics:

•   Doctoral degree: $2,109

•   Professional degree: $2,206

•   Master’s degree: $1,737

•   Bachelor’s degree: $1,493

•   Associate degree: $1,058

•   Some college, no degree: $992

•   High school diploma: $905

•   Less than a high school diploma: $721

According to these figures, a worker with a bachelor’s degree makes $30,576 more per year than a high school grad.

Access to More Jobs

Candidates with a college degree have access to a wider variety of jobs. Prior to the 1980s, two-thirds of jobs required at most a high school diploma. But by 2031, 72% of all workers will need some college under their belts, according to the Georgetown University Center on Education and the Workforce.

Value of Learning

When you head into a college classroom, you learn more than just the job skills required in the white collar workforce. You also learn critical thinking, time management and organization, money management, writing and speaking, teamwork, and project management.

Those who don’t attend college may not have the opportunity to develop specific skills that employers are looking for.

Networking

College offers opportunities to network on campus, through classes, at career fairs, through student organizations, and more. Career development offices at colleges and universities also help students network and connect with career and internship opportunities.

Lower Unemployment

Individuals who earn a bachelor’s degree are half as likely to be jobless compared to high school grads. And during times of economic upheaval, college graduates fare better.

As of May 2024, the unemployment rate for those with a bachelor’s degree was 2.1%, compared to 5.9% for those with no high school diploma.

The national unemployment rate is currently (November 2024) 4.2%, according to the Bureau of Labor Statistics.

Lower Poverty

A total of 11.1% of the U.S. adult population reported earnings at or below the poverty level in 2023, according to the U.S. Census Bureau. Digging through the data shows that adults with a bachelor’s degree or higher experience the lowest levels of poverty.

Adults who reported being at or below the poverty line obtained the following levels of education:

•   Less than a high school diploma: 25.1%

•   High school degree or equivalent: 13.1%

•   Some college or associate’s degree: 8.5%

•   Bachelor’s degree or higher: 4%

Healthier

Studies show that college graduates tend to have better health outcomes than those without a degree. They are more likely to have access to health insurance, engage in preventative care, and adopt healthier lifestyles. Higher education often correlates with increased health awareness, better job benefits, and overall improved well-being.

Better Educated Children

Studies suggest that parents who place a priority on educational attainment and model achievement for their kids (including going to college) typically have children who also value education. This leads to better-educated children.

More Likely To Save for Retirement

Most companies no longer offer pension plans to workers, so individuals must create their own retirement savings plan or join one offered by an employer. College graduates are more likely to contribute to a retirement plan like a 401(k). Even when high school graduates have access to similar plans, college grads contribute 26% more to their retirement plans than their high school graduate counterparts.

Recommended: “College vs University“

Cons of Going to College

The cost of college, the availability of high-paying jobs that don’t require a degree, and underemployment all contribute to reasons not to attend college. Here is a look at the cons of going to college:

Cost of College

The average cost of attendance (tuition, fees, and room and board) for an undergraduate education increased 169% between 1980 and 2020, according to the Georgetown University Center on Education and the Workforce.

These costs may encourage you to begin thinking about alternatives to college, particularly if you or your family will struggle to come up with the money to pay for college. Student loans may also be a challenge to pay back later on.

Recommended: Private Student Loans vs Parent Plus Loans

Cost of Tuition

Tuition is typically the most expensive part of attending college. According to the College Board, the average tuition cost for first-time, full-time undergraduate students in 2024-25 was:

•   Public four-year institutions: $11,610

•   Private nonprofit four-year institutions: $30,780

•   Private for-profit four-year institutions: $43,350

However, it’s important to remember that many students pay far less than the sticker price to attend college. The cost of attendance displayed on a college website may not be the amount it will cost you to attend.

Opportunity Cost of Time Spent Not Working

When you attend college, your available hours to work are reduced by classes and studying. You may spend up to two years in a classroom for an associate degree, or lose four years to obtain a bachelor’s degree. You’ll also lose out on income you could have been earning.

High-Paying No-Degree Jobs

Some high-paying jobs don’t require a college degree. Often, individuals can make up for a lack of degree by showcasing on-the-job experience. Here is a list of jobs that don’t require a degree:

•   Patrol officer

•   Home health aide

•   Personal care aide

•   Wind turbine technician

•   Recreation and fitness worker

•   Massage therapist

•   Landscaper and groundskeeper

•   Medical assistant

•   Computer support specialist

Underemployed College Graduates

Underemployment refers to recent college graduates (ages 22 to 27) with a bachelor’s degree or higher who are working in a job that doesn’t require a bachelor’s degree. In June 2024, about 40.5% of recent U.S. college graduates were underemployed in the United States.

Dropping Out

Less than half of college students graduate on time, and 32.9% of students drop out of college each year. The problem with dropping out is that you might get saddled with student loan debt but not have the degree to show for it.

Some of the risk factors for dropping out include part-time enrollment in college, full-time employment while attending school, gap years and leaves of absence, and students who are not dependent on their parents.

Earning Potential of Different Majors for College Graduates

The major you choose can affect your income. However, it’s important to remember that majoring in history doesn’t prevent you from going to work for an insurance company. Still, according to the Georgetown University Center on Education and the Workforce, your major does matters.

Top-paying college majors earn $3.4 million more over a lifetime than the lowest-paying tier of majors. The highest earners belong to STEM fields (science, technology, engineering, math), health, and business. These jobs typically earn $65,000 or more annually over the course of a career, with an entry-level salary of $37,000.

Is College Right for You?

Let’s put some pros and cons of college side-by-side. You may consider adding to them based on your own thoughts and research.

Pros of Attending College	Cons of Attending College
Higher earning potential	High cost
Access to more jobs	Opportunity cost of time spent not working
More learning opportunities	The availability of high-paying, no-degree jobs
Networking opportunities	Underemployed college graduates
High ROI for some degrees	The possibility of dropping out
Lower unemployment
Lower poverty
Health benefits
Better educated children
Higher likelihood of saving for retirement

Recommended: How Many Credits is a Full Time Student

Alternatives to College

A traditional four-year institution isn’t the only type of college you can attend. You can also consider attending a trade school, community college, industry-specific education program, or even learning on-the-job. Let’s go over the details of each of these opportunities, which can be more cost-effective than other educational institutions.

Trade School

A trade school (also called a technical or vocational school) teaches students skills for specific occupations, often for in-demand fields. Students can learn mechanical trades, truck driving, cosmetology, and more, and earn a certificate for their learning efforts. Trade schools often cost less than traditional four-year colleges and universities, so graduates may end up with less student loan debt.

Many trade schools expect students to complete an apprenticeship with an experienced practitioner. Full program training may last between three months and a year.

Recommended: What Trade Jobs Make the Most Money?

Community College

A community college is a tax-funded public college that, like trade school, usually offers a cheaper alternative to a four-year college experience. Community colleges usually offer one- or two-year associate degrees, certificates, or workforce training. Community college degrees often transfer to four-year institutions, allowing students to move over to a flagship state university.

Community colleges may offer flexible class schedules, often allowing students to work or take care of family at the same time. About 41% of students are enrolled in community colleges.

Industry-Specific Education Programs

Sector-based training, where people are trained for jobs in high-demand fields, is on the rise. This training may focus on health care, information technology, advanced manufacturing, or transportation and logistics. Employers offer the training to middle-skilled candidates, mutually benefiting workers and companies that need to fill jobs.

Learning on the Job

Employers will sometimes hire uncredentialed candidates with the understanding that individuals will secure certifications within a certain timeframe. Such training is typically paid for by the company. Workers benefit by getting paid while they’re in school and receiving free education.

The Takeaway

While a bachelor’s degree is associated with numerous benefits, from lower unemployment to better health, remember that correlation is not causation. If you’re ambitious and creative with good people skills, you may do just as well without an expensive four-year college degree.

Alternatives include community college, trade school, and learning on the job. It’s true that some careers require a bachelor’s degree, but many high-paying jobs do not. Be honest about your motives, and carefully consider the pros and cons of your decision.

When it comes to paying for college, students can rely on cash savings, scholarships, grants, and federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What are the biggest reasons for not going to college?

There are a wide variety of college pros and cons, but the biggest reasons involve not being able to afford it, not being ready for the opportunity, and already having a job. If you’re deeply worried about the cost but still want to go to college, there are tuition-free colleges you may want to consider.

What are the most important reasons to attend college?

One of the most important reasons to attend college is to be able to achieve a career goal that you have set for yourself. Even if you don’t know exactly what you want your major to be, you may pursue higher education to discover that goal. Another important reason to attend college involves acquiring skills that help your overall development, both personal and professional.

How does college compare to trade school as far as cost and benefit go?

The average tuition cost of a trade school is much lower than a four-year college or university. Trade school costs an average of $15,000, but typically ranges between $12,000 and $20,000 in total.

---

Photo credit: iStock/FG Trade

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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.

SOISL-Q424-052

Read more

Saving up enough money for a down payment on your first home is a major life goal. But sometimes it feels like the goalpost is always moving. How much do you need to save for a down payment, exactly? Friends say they put down 10%. Your parents talk about a 20% benchmark. And some programs allow borrowers to put down just 3%.

Bottom line: There are traditional numbers that many people stand by, but these days, the old guidelines don’t always apply. And that’s a good thing, given that at the end of 2023, the median home listing price in the U.S. was $384,683, according to Zillow. Twenty percent of that —almost $70,000 — is a substantial chunk of change for most people.

This article will demystify how different down payment amounts can impact your mortgage choices and help you better identify the home mortgage loan that bests fit your financial scenario to put you on the road to owning your own home.

Why Does a 20% Down Payment Seem like the Magic Number?

If you’re thinking about buying your first home, you’ve likely heard that a 20% down payment has traditionally been the standard. Generally speaking, putting down this much on your new home helps lenders view you as a less risky borrower, which may ultimately help you get a better deal on your loan terms.

In addition, having this significant chunk of equity in the home allows for value fluctuations and the borrower is less likely to find themselves underwater or upside down on their mortgage in a declining market.

Plus, with a 20% down payment, you won’t have to buy private mortgage insurance (PMI). PMI protects the lender in case of loan default but it can cost anywhere from 0.140% to 2.33% of your total loan amount annually depending upon many factors. (Don’t confuse PMI with MIP, which is the Mortgage Insurance Premium required by the Federal Housing Administration on its FHA loans.)

And then there’s the most obvious perk of a 20% down payment: Putting more money down up front means that you’ll owe less, which normally equates to lower monthly mortgage payments and less interest charged over the life of the loan.

But let’s face it: Even if you’re making a decent — heck, a pretty awesome — salary, saving up 20% of the total cost of a home can be difficult, especially if you’re paying rent, juggling student loans, and trying to reach other long-term goals, including saving for retirement. That’s likely why many buyers put down less than 20%. In the 2023 National Association of Realtors® Profile of Home Buyers and Sellers report, first-time homebuyers financed an average of 92% of their home’s cost and repeat buyers financed 81% of the purchase price.

There may be some very valid reasons why it would be beneficial for you to put down less than 20% on your dream house. Again, it will depend on your exact financial circumstances and long term goals, but it could be worth considering the following:


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

Preserving Your Nest Egg

Putting 20% down on a home might force you to rely heavily on funds you’ve worked hard to save, and liquidating these funds, even for an investment like a home, may not always be in your best interest.

Allocating a big chunk of change to a house before you’ve covered your other important life expenses — such as an emergency fund equal to at least three months of expenses — may not be the most prudent option for you in the long run. (You’ll also want to make sure you keep in reserve funds for closing costs and any moving expenses and furnishing expenses associated with purchasing a home.)

And then there’s retirement savings: You may be able to borrow money to pay for school, to buy a new car, and to buy a home, but you definitely can’t borrow money to pay for your retirement. So you may want to consider alternatives before you dip too deeply into your retirement savings.

While you can withdraw qualified funds up to $10,000 from a traditional or Roth IRA without penalty to buy your first home, there are still taxes to consider. With a traditional IRA, you have to pay taxes on the amount you withdraw, but with a Roth IRA, no taxes will be due if you’ve had the account for at least five years. Taking the $10,000 could help you in the long run, especially if you expect income boosts as you make strides in your career.

If you are considering putting other financial goals on hold in order to buy your home, it might make sense to take a step back and look at your overall financial profile. This could help you see what makes the most sense for your circumstances. Our in-depth first-time homebuyer guide extensively covers such topics.

Protecting Your Other Big Financial Goals

By putting less money down on your home, you’ll likely be able to make more headway on other short-term financial goals, such as paying off student loans and credit cards, as well as your long-term goals, such as saving up for retirement.

You may also be able to invest more, which could help you grow your hard-earned cash. If you have other important financial goals that need achieving, you may want to consider waiting until you’ve reached them before buying a home, or you could choose to put less money down so that you don’t have to abandon your other financial objectives.

Exploring Your Down Payment Options

If you’re considering putting down less than 20%, it is a good idea to try plugging different down payment amounts into a home affordability calculator to see how they affect your monthly payments. Also take a look at your monthly income vs. your ongoing monthly expenses — which could include car payments, insurance premiums, credit card bills, and any other debts.

Mortgage lenders, whether banks or mortgage brokers, are required to figure out a borrower’s ability to repay the loan before making it. So you can also get prequalified for a home loan in order to see what type of interest rate and borrowing power a lender might feel you qualify for based on your income, expenses, and estimated down payment.


💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1

The Right Down Payment Percentage is Personal

Everyone’s financial picture looks different, so if you find yourself in a situation where you can’t afford to put down a full 20% but still want to purchase a home, there are numerous options. If you’ve done your homework and gotten prequalified, you know how your down payment might affect your loan terms. You can also look into whether or not you are eligible for a VA loan, backed by the U.S. Department of Veterans Affairs, which allows for 100% financing? Or perhaps you qualify as a first-time homebuyer, which may allow for as little as 3% down? (You might be surprised to learn that if you haven’t owned a primary residence in the last three years, you are considered a first-time homebuyer.)

An FHA loan could also be an option. Borrowers with FICO® credit scores of 580 or more may qualify for a down payment of 3.5%. You will have to pay the FHA mortgage insurance premium (MIP), mentioned above, but it could be worth it, especially if putting down a smaller down payment allows you to get in the housing market instead of paying high rent, or own in a place where home prices seem to be on an upward trajectory.

The Takeaway

When searching for the perfect home, you’ll want to shop around in order to find your best fit — there’s no one size fits all. The same is true of your down payment percentage. But rest assured, although a 20% down payment might be tradition, it’s hardly a loan requirement, and there are many home loans that will allow you to put down less than 20% — and many financial circumstances in which a lower down payment amount is the right choice.

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

SoFi Mortgages: simple, smart, and so affordable.

---

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

^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.
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.

SOHL0124026

Read more