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If you’re looking at a $550,000 mortgage, you’ll need some solid numbers to help you afford the home you want. Assuming a 7% interest rate, you’ll need to make around $160,000 per year to afford the roughly $4,800 monthly payment on this loan.

This amount includes an estimate for taxes and insurance by Fannie Mae and a 36% total debt ratio. This number also assumes a higher purchase price of $687,500 with a 20% down payment to get the $550,000 mortgage with no private mortgage insurance (PMI).

We’ll run through a few scenarios to help you understand how different factors affect how much you’ll need to make to meet the requirements for this mortgage. As with any advice, it’s best to talk to a good lender, who can help you along the path of home affordability.

Income Needed for a $550,000 Mortgage

It requires a significant amount of income to pay for housing costs around the country. According to the most recent data from the U.S. Census Bureau obtained from the Federal Reserve Bank of St. Louis, the national median housing price is $420,800 in the first quarter of 2024. If you have no debt, you’ll need to make around $130,000 for the average house.

For a $550,000 mortgage loan, the amount needed is around $160,000. We arrived at this number by calculating the monthly payment on a $550,000 mortgage with a 7% APR, assuming at least a 20% down payment was already made on the purchase price to eliminate the cost of mortgage insurance. This number is just for the mortgage with taxes and insurance and assumes you have no other debt.

But if you’re a normal human being, you probably have a little debt and need to account for that in determining how much money is required to afford your $550,000 mortgage and your debt obligations. Here’s how to do that.

How Much Do You Need to Make to Get a $550K Mortgage?

You need to make a reliable annual income of $160,000 to $200,000 (give or take, depending on your debt level) to get a $550,000 mortgage. A few years ago, it was possible to get a $550,000 loan on a smaller income. Now, given that interest rates have risen, you need to lower your debt, increase your income and savings, and be a salary superstar to afford a $550,000 home.

What Is a Good Debt-to-Income Ratio?

A good debt-to-income ratio is as low as you can get it. Lenders favor levels below 36%, but you may be able to find a lender that allows for a debt-to-income (DTI) ratio around 45%.

What Determines How Much House You Can Afford?

How much house you can afford is determined by a number of factors. To give you a general idea of how they work together, consider the following:

Income

How much you make is the biggest factor in determining how much you can afford. But it’s also the predictability of the income that’s important to a lender. If you’re in business for yourself, but don’t have two years worth of tax returns, it’s hard to prove income, and the lender is less likely to want to lend you money.

Debt

Your debt obligations take away from how much home you can afford. More debt = less money available for a house payment = lower mortgage amount.

Down Payment

If you have a larger down payment, you’ll be able to afford more house. A down payment of 20% is ideal because you can avoid a PMI payment (mortgage insurance for the lender that does nothing for you). However, if you have good credit and a good lender, you may be able to find a loan type that doesn’t require 20% down and still get a good rate. Use a mortgage calculator to see how a down payment affects your home affordability.

Loan Type

The different types of mortgage loans affect how much house you can afford, since your monthly payment will vary. For example, a 15-year mortgage will have a higher monthly payment, which means you’ll have to choose a lower-priced home. You’ll also see your home affordability change when choosing between fixed-rate and adjustable-rate, especially if you compare 5-year ARMs vs. 30-year fixed mortgages.

If you need a loan that exceeds the conforming loan limits for your area, you’re looking at a jumbo loan, which has different requirements (such as a higher credit score and down payment) that will affect home affordability.

Lender and Interest Rate

Even the lender you choose can affect home affordability. This is because lenders offer different rates and have different risk tolerances. For example, if you have a lender that’s willing to underwrite loans with a 45% DTI ratio, you’ll qualify for a larger mortgage than you would with a lender that’s only willing to accept a 36% DTI ratio. That’s one of the many reasons it’s important to shop around for a loan and a lender.

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What Mortgage Lenders Look For

For a $550,000 mortgage, lenders will look at the following factors in making a lending decision about you.

•   Credit score: Your credit score evaluates how risky your behavior with credit is. The higher, the better. If you make your payments on time, every time, you’ll be well on your way to a great credit score.

•   Debt-to-income ratio: Debt has to be factored into the equation. Lenders want to know that you can meet your monthly obligations. If you have lower amounts of debt, you’ll likely be approved for a larger mortgage amount because you can afford the monthly payment.

•   Income: You need to make enough steady income to qualify for the loan.

•   Down payment: A higher down payment reduces the risk to the lender. They may be able to offer better rates and terms to you if you have a significant down payment. However, even if you have a lower down payment amount, you may still qualify for great terms and rates with a lender.

$550,000 Mortgage Breakdown Examples

Everyone’s financial situation is so different. Perhaps one of these examples with different down payments, debt levels, and interest rates can help you see where you may fall. These numbers were taken from Fannie Mae’s mortgage calculator and include an estimate for taxes and insurance.

$550,000, 30-year mortgage with 20% down payment and 7% interest

•   Principal and interest: $3,513

•   Taxes and insurance: $1,100

•   Total monthly payment: $4,613

$550,000, 30-year mortgage with zero down payment, and PMI, at 7% interest

•   Principal and interest: $3,659

•   Taxes and insurance: $917

•   Mortgage insurance: $504

•   Total monthly payment: $5,080

$550,000, 15-year mortgage with 20% down, at 6.5% interest

•   Principal and interest: $4,599

•   Taxes and insurance: $1,100

•   Total monthly payment: $5,699

Pros and Cons of a $550,000 Mortgage

A $550,000 mortgage has some pros and cons you’ll want to consider.

Pros

•   Helps you buy the home you want

•   Falls under the conforming loan limit so you can qualify for a conventional loan

•   You may be able to put down a low down payment amount

•   Allows you to become a homeowner

Cons

•   You may pay a lot in interest costs

•   High monthly payment

•   Taxes, insurance, mortgage insurance, and other costs will be higher

•   More expensive to maintain a $550,000 home

How Much Will You Need for a Down Payment?

Here’s what you’ll need for a down payment for a roughly $550,000 mortgage on a home costing $567,000.

Loan type	Minimum down payment	Amount for a $550,000 loan
Conventional	3% (first-time homebuyers)	$17,010
Federal Housing Administration (FHA)	3.5%	$19,845
U.S. Department of Veterans Affairs (VA)	0%	0%
U. S. Department of Agriculture (USDA)	0%	0%

Keep in mind, if you’re able to put down 20% ($110,000), you won’t need to include PMI in your monthly mortgage calculation, which will help you afford more home.

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Can You Buy a $550K Home With No Money Down?

It is possible to buy a $550,000 home with no money down, especially if you’re able to take advantage of one of the following loan types. These options have 0% down payment requirements for borrowers who qualify.

0% Down Payment Mortgages

•   VA mortgages For qualified veterans and servicemembers, VA mortgages offer excellent rates along with no down payment requirement. Veterans must obtain a certificate of eligibility (COE), which is based on service and duty status.

•   USDA mortgages If you live in a rural area and make a moderate income, you’ll want to look at a USDA mortgage. This type of mortgage doesn’t require a down payment and the interest rate is similar to what you would get with a conventional loan. There are even some options where USDA directly services the loan and provides payment assistance to make it more affordable for the borrower.

Can You Buy a $550K Home With a Small Down Payment?

If you’re looking to keep as much cash in your hands as possible, you might be wondering if you can buy a home with a small down payment. The answer is yes, it is possible to buy a $550,000 home with a small down payment.

•   Conventional mortgages Since a $550,000 mortgage falls under the conforming loan limits, you can qualify for conventional financing, which first-time homebuyers can obtain for as little as 3% down. You will need to pay mortgage insurance (PMI), but if you can afford the monthly payment and it allows you to get into a home, it may be worth it to you.

•   FHA mortgages It’s possible to get an FHA mortgage with as little as 3.5% of the purchase price. You also need to pay mortgage insurance on an FHA loan, and it’s expensive. You’ll want to refinance your mortgage as soon as you’re able just to get rid of it.

The other options for 0% down payment mortgages mentioned previously, VA loans and USDA loans, are also available here.

Is a $550K Mortgage with No Down Payment a Good Idea?

If you desire to move into a home of your own and can afford the higher monthly payment on a $550,000 mortgage with no down payment, don’t let anything hold you back. A 20% down payment is a great idea, but it can be incredibly hard in reality, even in the most affordable states. If you’re in a strong financial position, but don’t have a down payment, talk to a lender to see if you can make it work.

Can’t Afford a $550K Mortgage With No Down Payment?

There are things you can do if you can’t afford a $550,000 mortgage. Take a look at our tips to help you qualify for a mortgage. You can also try the following:

Pay Off Debt

When you pay off debt, you get that much more in your budget to be able to afford a home. Take a look at our home affordability mortgage calculator. You’ll be surprised how much paying off debt can affect your home affordability.

Look into First-Time Homebuyer Programs

Look for first-time homebuyer programs in your area. They’re different from state to state and city to city, but in general, most areas have a program that can help with down payment and closing costs assistance, homebuyer education, and rate buydowns.

Care for Your Credit Score

There are some strategic moves you can make to build your credit history. Try one of these ideas.

•   Check your credit report. You’ll want to know what is in your report and what your score is. You can fix errors, pay off balances, or find out what negative items are impacting your score.

•   Consider opening a credit account. If you’re new to credit, you may need a credit account to build your credit history. Look for secured or student credit cards with low limits. Use it for a few purchases and pay the balance in full every month.

•   Automate your payments. If you’re not using autopay or your bank’s bill pay, get it set up. It’s an easy and stress-free way to build your credit history, which is what most of your credit score consists of.

Start Budgeting

Even if you know what you’re doing when it comes to managing your money, going back to the basics of budgeting can help tremendously. You’ll get laser-focused on the areas you can adjust so you can save money and meet your goals.

Alternatives to Conventional Mortgage Loans

Conventional mortgages aren’t the only ways to finance a home. If you’re looking for nontraditional funding sources, you’ll want to look here:

•   Private lending: A private lender isn’t associated with a bank and offers their own terms and conditions (usually a higher interest rate and a shorter term). Qualifications may also be more flexible.

•   Seller financing: Seller financing is another alternative where the seller acts as the lender. In an arrangement like this, the seller and buyer agree on the details, such as purchase price and payments.

•   Rent-to-own: Similar to seller financing, rent-to-own arrangements are made where the buyer agrees to lease the property before they’re able to buy it.

Mortgage Tips

If you want a great mortgage, you’ll need to do a little homework. A home loan help center is a good place to start, but here are some sample tips:

•   Shop around. Interest rates and terms vary by lender.

•   Compare loan estimates. A loan estimate is a standard form where the lender estimates the fees, interest rates, closing costs, and other terms of the loan you want. By submitting the same information to each lender, you can get a good idea of what each loan would cost during the mortgage preapproval process.

•   Choose a lender who communicates well. A lender who can communicate effectively with you will make the process go much smoother. Ask for recommendations from friends and family and interview prospective lenders.

The Takeaway

To get a $550,000 mortgage, you’ll need enough income, an appropriate DTI ratio, and strong credit. Low- and zero-down-payment mortgages can help you qualify for a mortgage of this size faster, but they do come with a large PMI payment added to your monthly mortgage payment.

If you make it a goal to be able to qualify for a $550,000 mortgage, you’ll need to make the right moves to get there. It won’t be easy, but it will be worth it.

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

How much does a $550,000 mortgage cost over 10 years?

If you borrow $550,000 at a 7% interest rate, you can expect to pay out a total of $766,316 over the decade of payments.

Can I afford a $500K house on a $100K salary?

If your interest rate is good enough, you have a big enough down payment, and you have little or no debt, a $100,000 salary may just be enough to afford a $500,000 house in the eyes of some lenders.

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Photo credit: iStock/Pekic

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

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

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

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

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

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

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A credit card annual fee is the price that some cardholders pay to use a certain credit card. While there are plenty of credit cards on the market that don’t come with an annual fee, the credit cards that charge an annual fee tend to have better cardholder perks that can outweigh the cost of the annual fee if the card is used optimally.

Keep reading for more insight into annual fee credit cards.

What Is a Credit Card Annual Fee?

Annual fees are costs charged by many (but not all) credit card issuers to help finance their service, including cardholder perks, such as travel credits and free checked luggage on flights.

The amount of an annual fee factors into how much a credit card costs overall, and it varies from card to card. Credit card annual fees can start as low as around $39 and go as high as thousands of dollars for luxury credit cards.

Usually how credit cards work is that cards with sky-high annual fees also offer a lot of extra perks to make the credit card worth the money. For instance, the cardholder may gain exclusive access to airport lounges, credits towards rideshares, or be able to tap into competitive introductory reward bonuses.

However, there are cases where an annual fee is charged for credit cards designed for consumers with low credit scores. These credit cards don’t offer great rewards, and instead give consumers with poor credit a chance to build their credit by using credit cards responsibly. Eventually, the goal is for the cardholder to positively impact their credit so they can qualify for credit cards with lower interest rates and better perks.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How Do Credit Card Annual Fees Work?

When you pay the annual fee on a credit card varies depending on your card issuer. Credit card issuers either charge annual fees on either a yearly basis, or they may divide the fee up into smaller monthly installments.

If your fee is charged once a year, then it usually will appear on your first statement after you open your account. You’ll then get charged every 12 months thereafter. In the instance an annual fee is divided into smaller monthly payments, these will get included on the monthly statement the cardholder receives.

You pay your credit card annual fee just like you’d pay any other credit card charges listed on your monthly statement.

Which Credit Cards Typically Have an Annual Fee?

There are three main types of annual fee credit cards you might consider.

Reward Cards

Credit cards that can offer a high-value rewards structure or that have a strong introductory bonus often come with an annual fee. If the card is used strategically, it’s possible to earn enough credit card rewards to cancel out the cost of the annual fee and other cardholder fees. You may earn rewards like cash back, travel points, or discounts on specialty purchases.

Premium Credit Cards

A premium credit card that offers luxe perks like private airport lounge access or a travel concierge is likely to charge an annual fee to use the card. If you’re considering one of these cards, make sure to crunch the numbers to make sure you’ll use enough of the perks to offset the cost of the annual fee.

Secured Credit Cards

A secured credit card is designed to help consumers with bad credit scores build their credit. These cards require a deposit to “secure” the card, and that amount also usually serves as the card’s credit limit. On top of the deposit, secured credit cards often carry an annual fee.

For some, the cost of a secured card may be worth it for the opportunity to build their credit score, which can make it easier to qualify for lending opportunities in the future. Still, make sure it’s within your budget.

Recommended: What Is the Average Credit Card Limit?

How Are Credit Card Annual Fees Charged?

As briefly mentioned above, some credit card issuers charge the annual fee once a year, while others split up the annual fee into smaller monthly installments.

The annual fee shows up on the credit card statement alongside normal credit card charges, and the cardholder pays the annual fee as part of that month’s credit card bill. Remember that even if you have an authorized user on a credit card, it’s still the primary cardholder’s responsibility to make payments, which includes any fees.

Avoiding Credit Card Annual Fees

If you’re trying to avoid credit card fees, it’s entirely possible to avoid paying annual fees. There are plenty of credit cards on the market that don’t charge an annual fee at all.

If someone is interested in a credit card with an annual fee, such as a premium rewards card, they can try to get the first year’s annual fee waived. Some credit card issuers offer to do this from the get-go. However, if someone is an existing cardmember with the issuer and their introductory offer doesn’t include waiving the first year’s fee, they can request a one-time waiver.

Before signing up for a credit card with an annual fee, it’s important to evaluate your spending habits. You want to ensure that you can comfortably afford to cover the annual fee for the credit card. Also investigate whether you’ll earn enough benefits from the card to justify the cost of the annual fee.

The Takeaway

Annual fees are often charged by credit card issuers to cover the cost of their services and perks. Fees can range from around $39 to thousands of dollars for ultra-premium cards, and it can be wise to review them carefully and make sure you are comfortable paying them. It may be possible to avoid these fees by negotiating with your card issuer or qualifying for this reward.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How do you pay the annual fee on your credit card?

If someone has an annual fee credit card, the annual fee will appear on their credit card statement. The fee may appear every 12 months or in smaller increments on a monthly basis. The cardholder then pays this fee as a part of their monthly bill in addition to any other purchases they made with the credit card during that billing cycle.

How can I avoid paying annual fees on my credit card?

Alongside choosing a credit card that doesn’t charge an annual fee (there are plenty of options on the market), a consumer may be able to get the first year of an annual fee waived as a new cardholder incentive. It only makes sense to open a credit card with an annual fee if the account holder’s spending habits line up with the rewards structure of the credit card. That way, they can earn enough cash back, miles, or other perks to outweigh the cost of the annual fee.

Do all credit cards have annual fees?

There are tons of great credit cards on the market that don’t come with annual fees. There’s never a reason to pay an annual fee if someone decides that’s not a good use of their money.

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Photo credit: iStock/Rudzhan Nagiev

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.

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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Contactless credit cards are a method of payment that allows you to simply tap or hold your card on the card reader, as opposed to inserting or swiping it. This kind of card has grown in popularity over the past few years.

Here’s a look at the tech that enables contactless credit card payments, as well as the pros and cons of using this sort of card.

What Is a Contactless Credit Card?

Physically, a contactless credit card looks like a regular credit card, with the bank name and the account number on the front of the card and the ubiquitous magnetic stripe on the back of the card. However, contactless credit cards allow cardholders to “tap and pay” instead of inserting or swiping their card in a merchant payment machine.

This enables a consumer to make a purchase at a retail location without ever having to physically touch a payment device. This was one of the reasons contactless payments soared during the pandemic.

What Does Contactless Payment Mean?

The term contactless payment more broadly refers to a form of payment that involves no touch. You can make a contactless payment using a credit card as well as a debit card, gift card, mobile wallet, or wearable device.

Regardless of the form, contactless payments rely on the same technology to make a payment without needing to swipe, enter a debit or credit card PIN, or sign for a transaction.

How to Know If Your Credit Card Is Contactless

Major credit card providers like MasterCard and Visa offer contactless cards. You can determine if your credit card is contactless-capable by looking for a contactless card symbol on the back of your card. This symbol looks like a wifi symbol flipped on its side, with four curved lines that increase in length from left to right.

Even if your card has this symbol on it, you’ll also want to check that the merchant has contactless readers. You can figure this out by looking for that same symbol on the card reader or asking the merchant directly.

How Contactless Credit Cards Work

Like other credit cards, contactless credit cards have small chips embedded in them. But instead of requiring you to insert the card, this chip emits electromagnetic waves that transfer your payment information when you place the card close to a payment terminal that accepts contactless payments.

You don’t actually even need to tap your contactless credit card to pay — all you have to do is place your card within a few inches of the payment terminal. This will initiate payment.

You might then have to wait a few seconds while the transaction processes. The terminal may give a signal when the transaction is complete, such as by beeping or flashing a green light.

Technology That Enables Contactless Credit Card Payments

Instead of inserting a credit or debit card into a merchant payment terminal, contactless credit cards rely on radio frequency identification technology (RFID) and near-field communication to complete a retail transaction.

The “no touch” concept is driven by a contactless card’s short-range electromagnetic waves, which hold the cardholder’s personal data, including their credit card account number. This information is then transmitted to the merchant’s payment device. Once the device grabs the airborne card information, the transaction can be completed and the purchase confirmed.

Pros and Cons of Contactless Credit Cards

Like most consumer finance tools, contactless credit cards have their upsides and downsides. Here’s a snapshot of the pros and cons to note:

Pros	Cons
Convenient to use	Not always available overseas
Secure	Low transaction limits
Increasingly offered	Not always reliable
Better for merchants

Pros

These are the main upsides of contactless credit cards:

•   Convenient to use: Contactless credit cards are extremely convenient to use once you get the hang of how credit cards work when they have this feature. All a user has to do is wave their contactless credit card in front of the card reader, and the deal is done in a matter of seconds. Plus, you can avoid touching any surfaces in the process.

•   Secure: With data thieves regularly on the prowl, “tap and pay” and “wave and pay” technologies are highly protective of a consumer’s personal data. All of the data is stored on a password-protected, fully-encrypted computer chip embedded inside the card, making it difficult for a financial fraudster to steal a user’s personal information.

•   Increasingly offered: The availability of contactless payments has increased in recent years, and many brand-name companies now offer the option. Companies may even offer discounts and loyalty point details that are immediately added to a consumer’s account at the point of sale.

•   Better for merchants: Companies that offer contactless credit/debit card payments also benefit from “no touch” card technology. Aside from superior operational capability and faster transactions, merchants get a better customer experience and formidable fraud protection from contactless payment technology, with no extra cost. That’s because merchants pay the same transaction processing fee with contactless payments as they do with regular credit card transactions.

Cons

Of course, there are downsides to contactless credit cards as well:

•   Not always available overseas: Contactless payments may not work abroad, given the recent expansion of a new card payment technology. Additionally, consumers may be charged foreign transaction fees when they do use contactless payments overseas, depending on the specific country’s credit card payment laws.

•   Low transaction limits: Contactless card users may find they can’t cover large transactions, like a laptop computer or king-size bed. That’s because merchants may issue those limits until they’re convinced contactless payments (like any new technology) are completely safe, secure and free of any fraud threats. In the meantime, contactless card-using consumers can always use the same credit card to make a big purchase by using “chip and sign” or “chip and swipe” card technologies.

•   Not always reliable: Contactless credit card transactions aren’t always reliable, as sometimes the payment won’t go through even though a reader indicates that it accepts contactless payments. This could cause someone to have to resort to swiping their card instead to complete the transaction.

Recommended: What Is a Charge Card?

Guide to Using a Contactless Credit Card

When using a contactless credit card, the transaction is enabled and completed in three key steps: look, tap, and go.

1.    Look. The consumer checks for a contactless symbol on a merchant’s payment device (this will look like a wifi signal tipped on its side).

2.    Tap. After being prompted by the payment device, the consumer will wave the credit card an inch or so over the payment device, or actually touch (tap) the credit card on the payment terminal. This is why the process is sometimes referred to as credit card tap to pay.

3.    Go. Once the wave or tap is executed, the payment device picks up the transaction, confirms the credit card payment, and completes the transaction.

Be mindful that if you carry multiple contactless credit cards, you may want to keep those cards away from a terminal that accepts contactless payments. This will help ensure the correct credit card is being charged. Instead of holding your wallet or purse over the payment terminal, take out the specific card you’d like to use instead.

Recommended: When Are Credit Card Payments Due?

Are Contactless Credit Cards Safe?

Contactless payment cards basically offer the same anti-fraud protections as any card that relies on a credit card chip.

This is because the chip in contactless credit cards creates a one-time code for each merchant transaction. Once the payment is confirmed and the transaction is approved, the code disappears for good. That makes it virtually impossible for a financial fraudster to steal a consumer’s personal data, as they can’t crack the complicated algorithmic codes financial institutions use with chip-based payment cards.

Additionally, a contactless card is equipped with electromagnetic (RFID) shielding, which helps keep card information from being “skimmed” by data thieves. In turn, this removes another data security threat from the credit card transaction experience.

The Takeaway

Contactless credit cards are emerging as an effective payment technology that’s gathering steam among consumers and retailers alike. Thanks to the tech that enables contactless credit card payment, these credit cards allow you to simply wave or tap the credit card within range of a payment terminal that accepts contactless payments. You can figure out if a payment terminal — and your credit card — offer contactless payment as an option by looking for the contactless payment symbol.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Are there extra charges for using contactless credit cards?

No, there are no extra charges for using contactless credit cards. This is true for the consumer who’s tapping their card as well as for the merchant accepting contactless payments.

What are the risks with contactless credit cards?

While contactless credit cards generally offer enhanced security, there is the risk of a thief skimming cards in your wallet by using a smartphone to read it. However, the thief must be within very close range to do so. Perhaps the easiest way for a thief to get ahold of your information is by stealing your physical credit card, which is a risk with any type of credit card.

Where can I use my contactless credit card?

You can use your credit card at any retailer that has a terminal accepting contactless payments. You can determine if a card reader will take your contactless credit card by looking for the contactless payment symbol.

What happens if I lose my contactless credit card and someone else uses it?

If your card is stolen or lost, contact your credit card issuer immediately. Check your recent credit card transactions for any fraudulent activity, and make sure to report that information to your credit card issuer.

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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.

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Even in a hot real estate market, it’s possible to learn how to buy a house with no money down. The trick is, you need to know where to look. Zero-down home loans aren’t available everywhere and to every borrower, but if you do qualify and can find an area with a zero-down mortgage, homeownership could be much more attainable.

Here’s exactly what you need to know about how to buy a house with no money down.

Can You Buy a House With No Money Down?

You can buy a house with no money down with certain loan programs in certain areas. There are more homeowner resources to help you buy a home than you may realize, and first-time homebuyer qualifications can be more flexible than you know. Here’s where to look for and what to expect on a zero-down mortgage.

Recommended: Learn more about first-time home buyer programs.

How to Buy a House With No Money

Of all the things you need to buy a house, a down payment holds many buyers back. But there are a few avenues you can take to get a mortgage loan and buy a home with no money down.

•   Buy a home with a VA or USDA loan. These loans, from the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture, are no down payment mortgages

•   Receive assistance for your down payment or closing costs from a state or local program or a family member

•   Receive a lender credit

•   Ask for a seller concession

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

USDA Loan

A USDA loan requires no money down and is intended for buyers in rural areas. There are two ways the U.S. Department of Agriculture loans money:

•   Single-family housing direct loans

•   Single-family housing guaranteed program

The direct loans are issued by the USDA and come with a 33-year term for low- and very-low-income households. (Very-low-income applicants may stretch the repayment term to 38 years.) The guaranteed program is run through approved lenders with a 30-year fixed rate for low- to moderate-income households.

VA Loan

A VA loan guaranteed by the U.S. Department of Veterans Affairs is a zero down payment mortgage with low interest rates for qualified veterans, active-duty service members, certain reservists and National Guard members, and surviving spouses. Most borrowers pay a one-time funding fee, which can be rolled into the loan. Lenders can be more flexible with credit scores, mortgage amounts, and debt-to-income ratios.

Down Payment and Closing Cost Assistance Programs

Many city and state agencies offer different mortgage types and down payment assistance to buyers, especially low- to moderate-income homebuyers, first-time homebuyers, veterans, and people buying in federally targeted areas.

The terms vary. Sometimes the assistance for a down payment is in the form of a second mortgage that is repaid over time. Other terms include deferred payments that are only due if the property is sold, loans that are forgivable if the property is occupied by an owner for a specified amount of time, and even grants.

HUD, the U.S. Department of Housing and Urban Development, steers homebuyers to city, state, and nonprofit programs that offer down payment assistance.

Down Payment Gift From a Family Member

A down payment gift from a family member can also help you buy a house with no money down. The main thing to remember about a down payment gift from a family member is that the money must be properly documented with a gift letter. Your lender will likely provide a template to make sure you have all the crucial elements included.

Lender Credits

Lender credits are what you get when you agree to pay a higher interest rate in return for some money that the lender contributes toward your closing costs. The more lender credits you receive, the higher your rate will be. With some lenders, you can cover your closing costs entirely with lender credits. This is a common practice when refinancing a loan.

Seller Concessions

One strategy real estate agents have used is to ask for a credit from the seller, to be contributed toward the buyer’s closing costs. Making an offer above asking price in tandem with the seller concessions makes this option more palatable for sellers in a competitive housing market.

Recommended: Home Loan Help Center

The Takeaway

Learning how to buy houses with no money takes some research, but could be well worth your time. With a VA or USDA loan, down payment assistance, gift money, or lender credits, it is possible to obtain a no money down mortgage. Qualifying first-time buyers can also still catch a break with a conventional mortgage loan — some lenders will let you put just 3% down.

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

Can cash gifts be used as a down payment?

Yes, but certain rules must be followed for the gift to be documented by the lender, usually in the form of a gift letter.

Are there any homebuyer grants?

Sometimes. They’re usually reserved for first-time buyers, veterans, or people buying homes in federally targeted areas. You might start a search for assistance with your state housing finance agency or HUD and then look for city and county programs.

What are down payment assistance programs?

Down payment assistance programs help homebuyers afford down payments and sometimes closing costs as well. This is done in the form of grants and loans and can vary by location.

What credit score do I need to buy a house with no money down?

For a zero down mortgage backed by the USDA or VA, lenders are advised to look at a borrower’s situation case by case. Approved USDA loan lenders usually require a minimum credit score of 640, though the department itself doesn’t have a credit score requirement.

Most VA loan lenders will want to see a credit score above 620, but again, the VA does not have a minimum credit score. Applicants may qualify with a score below 620 when debt, income, and the ability to shoulder future mortgage payments are given a close look.

Down payment assistance programs often require a minimum credit score of 620.

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Photo credit: iStock/Paperkites

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.

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When the interest rate and annual percentage rate (APR) are calculated for a loan — especially a large one — the two can produce very different numbers, so it’s important to know the difference when evaluating what a loan will cost you.

Basically, the interest rate is the cost of borrowing money, and the APR is the total cost, including lender fees and any other charges.

Let’s look at interest rates vs. APRs for loans, and student loans in particular.

What Is an Interest Rate?

An interest rate is the rate you pay to borrow money, expressed as a percentage of the principal. Generally, an interest rate is determined by market factors, your credit score and financial profile, and the loan’s repayment terms, among other things.

Nearly all federal student loans have a fixed interest rate that is not determined by credit score or financial standing. (However, a credit check is made for federal Direct PLUS Loans, which reject applicants with adverse credit, except in specific circumstances.)

Rates on federal student loans are rising: For loans made from July 1, 2024, to July 1, 2025, rates are increasing by roughly half a percentage point:

•   Direct Loans for undergraduate students. 6.53%, up from 5.50% for 2023-24.

•   Direct Loans for graduate students. 8.08%, up from 7.05% in 2023-24.

If a loan were to have no other fees, hidden or otherwise, the interest rate and APR could be the same number. But because most loans have fees, the numbers are usually different.

What Is APR?

An APR is the total cost of the loan, including fees and other charges, expressed as an annual percentage.

Compared with a basic interest rate, an APR provides borrowers with a more comprehensive picture of the total costs of paying back a loan.

The federal Truth in Lending Act requires lenders to disclose a loan’s APR when they advertise its interest rate.

In most circumstances, the APR will be higher than the interest rate. If it’s not, it’s generally because of some sort of rebate offered by the lender. If you notice this type of discrepancy, ask the lender to explain.

APR vs Interest Rate Calculation

The bottom line: The interest rate percentage and the APR will be different if there are fees (like origination fees) associated with your loan.

Let’s say you’re comparing loans with similar interest rates. By looking at the APR, you should be able to see which loan may be more cost-effective, because typically the loan with the lowest APR will be the loan with the lowest added costs.

So when comparing apples to apples, with the same loan type and term, APR may be helpful. But lenders don’t always make it easy to tell which loan is an apple and which is a pear. To find the best deal, you need to seek out all the costs attached to the loan.

You may find that a low APR comes with higher upfront fees, or that you don’t qualify for a super low advertised APR, reserved for those with stellar credit.

How APR Works on Student Loans

Not all students (and graduates, for that matter) understand the true cost of their student loans. Borrowers may think that only private student loans come with origination fees, but that is not the case.

Most federal student loans have loan fees that are taken directly out of the balance of the loan before the loan is dispersed. It’s on the borrower to pay back the entire amount of the loan, not just the amount received at disbursement.

Federal student loan fees from Oct. 1, 2020, to Oct. 1, 2024, are as follows:

•   Direct Subsidized and Direct Unsubsidized Loans: 1.057% of the total loan amount

•   Direct PLUS Loans: 4.228% of the total loan amount

While interest on many other loans is actually calculated monthly or annually, interest on federal Direct Loans is calculated daily. As a result, it is slightly more difficult to do an interest rate-to-APR calculation on a federal student loan.

Comparing Private and Federal Student Loans

Federal and private student loans have their pros and cons. In general, Direct Subsidized Loans offer competitive rates that are not dependent on the borrower’s credit.

When a federal student loan is subsidized, the borrower is not responsible for paying the interest that accrues while the student is in school and during most deferment periods.

Additionally, federal student loans offer flexible repayment plans, including income-driven repayment options. Federal student loans have fixed rates, and private loans may have fixed or variable rates.

Private student loans typically take borrowers’ credit into consideration. They can be useful in bridging gaps in need if you reach a cap on federal student loan borrowing.

Understanding Interest Costs

Being able to compare an APR to another APR may help level the playing field when shopping for loans, but it’s not the only thing to consider.

You might want to take into consideration the repayment period of the loan in question, because it will also affect the total amount you’ll owe in interest over the life of the loan.

Two loans could have the exact same APR, but if one loan has a term of 10 years and the other has a term of 20 years, you’ll pay more in interest on the 20-year loan even though your monthly payments may be lower.

To illustrate this, imagine two $10,000 loans, each at a 7% interest rate, but with 10- and 20-year repayment terms.

10-year repayment:

$116.11 monthly payment
Total interest paid: $3,933

20-year repayment:

$77.53 monthly payment
Total interest paid: $8,607

As you can see, the monthly payment on the 20-year loan is lower, but you pay significantly more in interest over time.

The reverse is also true: Shortening the payback period should lower the amount that you pay in interest over time, all else being equal.

Can Refinancing Help?

When you refinance student loans, you pay off your existing federal and/or private student loans with a new loan from a private lender, aiming for a lower interest rate or a repayment timeline that works better for your finances. A brand-new loan means dealing with only one monthly payment.

Refinancing may be a good idea for working graduates who have high-interest Unsubsidized Direct Loans, Graduate PLUS Loans, and/or private loans. Just realize that when borrowers refinance federal student loans, they give up benefits like income-​driven repayment plans and loan forgiveness.

To understand how interest rates, loan repayment terms, and total interest charges interplay with one another, check out this student loan refinancing calculator.

The Takeaway

APR vs. interest rate is what you may want to look at when deciding on a loan, because the APR reflects the fees involved. Even when it comes to federal student loans, fees are part of the story.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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.

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