SoFi

Signing on a knowledgeable mortgage lender is one of the first steps you’ll take on your journey to homeownership. A good lender could help you make a sound decision about a major commitment.

If you want to know what questions to ask a mortgage lender, these can help you feel more confident choosing a lender to navigate the complex homebuying process with you.

1. How Much Can You Borrow?

How much you can borrow is the question most buyers have on their minds when they start dreaming about real estate listings online. You may have come across a mortgage calculator tool that estimates how much a mortgage is going to cost.

But that’s just a starting point. A mortgage lender will evaluate the entire spectrum of a homebuyer’s financial situation and find the true amount they’ll be able to borrow. The lender may also make recommendations for programs or loans for each buyer’s unique situation.

When you get a loan, you’ll receive a mortgage note, a legal contract between the lender and you that provides all the details about the loan, including the amount you were approved to borrow.

2. How Much of a Down Payment Do You Need?

Another key question your lender can help answer for you is how much are down payments? You’ve probably heard about the ideal 20% down, but a lender may be able to help homebuyers get into a home with a much lower down payment, such as 3% or 5%. The lowest down payment option is often available only to first-time homebuyers. But anyone who hasn’t owned a primary residence in the last three years is often considered a first-timer.

A 20% down payment will enable you to forgo mortgage insurance on a conventional loan (one not insured by the federal government), but lower down payment amounts can help homebuyers obtain housing sooner. There are plenty of options to explore with your lender.

3. What Is the Interest Rate and APR?

Your mortgage lender may explain the difference between the interest rate and annual percentage rate.

•   Interest rate. The interest rate is the cost to borrow money each year. It does not include any fees or mortgage insurance premiums.

•   APR. The APR is a more comprehensive reflection of what you’ll pay for the mortgage, which will include the interest rate, points paid, mortgage lender fees, and other fees needed to acquire the mortgage. It’s usually higher than the interest rate.

The interest rate and APR must be disclosed to you in a loan estimate with the other terms and conditions the lender is offering. Pay particular attention to how the APR changes from loan to loan. When you’re looking at APR vs. interest rates for an FHA loan and a conventional mortgage, for instance, you’ll notice the numbers come out very different. (This is just a recent example.)

In this case, the interest rate on a 30-year FHA loan is lower than on a conventional loan; however, when accounting an upfront mortgage premium for the FHA loan and other fees, the APR is higher on the FHA loan than on the conventional loan.

4. What Are the Differences Between Fixed- and Adjustable-Rate Mortgages?

The main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is whether or not the monthly payment will change over the life of the loan.

•   Fixed-rate mortgages start with a little higher monthly payment than an ARM, but the rate is secure for the term.

•   An adjustable-rate mortgage will start with a lower interest rate that may increase as the index of interest rates increases. This type of loan may be more appropriate for buyers who know they will not be keeping the mortgage for long.

The key to an ARM is to know how it adjusts. How frequently will your rate adjust? How much could your interest and monthly payments increase with each adjustment? Is there a cap on how high your interest rate could go? A good mortgage lender will help you consider all these variables when selecting a fixed-rate or adjustable-rate mortgage.

5. How Many Points Does the Rate Include?

What are points on a mortgage? Mortgage points are fees paid to a lender for a lower interest rate. Asking your lender how many points are included in the rate can help you compare loan products accurately.

6. When Can the Interest Rate Be Locked In?

Rate lock policies differ from lender to lender. Check at the top of the first page of your loan estimate to see if your rate is locked, and for how long.

You’ll want to ensure that any rate lock agreement gives you enough time to close on your loan. Many lenders have fees for extending a rate lock.

7. How Much Are Estimated Closing Costs?

One of the most important documents you’ll receive from your lender is called a loan estimate. The loan estimate gives a detailed breakdown of the interest rate, monthly payment, fees, and closing costs on the loan you’re applying for. When you ask about closing costs, your lender can provide this document to you.

Common closing costs include:

•   Appraisal fee

•   Loan origination fee

•   Title insurance

•   Prepaid expenses such as homeowners insurance, property taxes, and interest until your first payment is due

Expect to see 2% to 5% of the purchase price in closing costs.

8. Are There Any Other Fees?

Lenders are required to disclose all costs in the loan estimate. They’re also required to use the same standard form so you can compare costs and fees among different lenders accurately. Be sure to ask lenders about other fees and watch for them on your loan estimate.

9. When Will the Closing Happen?

The time to close on a house will depend on your individual circumstances, but the national average is 43 days.

An experienced lender with a digitized process may be able to close a loan more quickly. The time it takes a lender to approve and process the loan are also factors to consider.

10. What Could Delay the Closing?

In the August 2024 National Association of Realtors® Confidence Index survey, 14% of real estate transactions had a delayed settlement. Previous surveys have shown that the main reasons for a delay included appraisal issues, financing issues, home inspection or environmental issues, deed or title issues, or contingencies stated in the contract.
An experienced lender may know how to bring a home to the closing table despite the challenges with financing and appraisals. Be sure to ask upfront how these challenges would be addressed.

11. What Will Fees and Payments Be?

The neat part about obtaining a mortgage since 2015 is that the information is included in a standard form, the loan estimate. The form is used by all lenders and allows borrowers the opportunity to compare costs among lenders quickly and accurately. All fees and payments are required to be clearly outlined in this form.

Recommended: Guide to Mortgage Statements

12. How Good Does Your Credit Need to Be?

You’ll typically need a FICO^® credit score of at least 620 to get a conventional mortgage, but lenders consider a credit score just one slice of the qualification pie.

With a lower credit score, a lender may steer you in the direction of an FHA loan, which requires a score of 580 or higher to qualify for a 3.5% down payment. Credit scores lower than 580 require a 10% down payment for an FHA loan.

Borrowers with credit scores above 740 may qualify for the best rates and terms a lender can offer.

13. Do You Need an Escrow Account?

Your lender can set up an escrow account to pay for expenses related to the property you’re purchasing. These may include homeowners insurance and taxes. An escrow account can take monthly deposits from the borrower, hold them, and then disburse them to the proper entities when yearly payments are due. In some locations and with certain lenders, escrow accounts are required.

14. Do You Offer Preapproval or Prequalification?

Lenders have different processes for qualifying mortgage applicants so it’s important to understand prequalification vs. preapproval. Preapproval is a much more in-depth analysis of a buyer’s finances than prequalification.

A preapproval letter provided by the lender specifies how much financing the lender is willing to extend to you, and helps to show sellers you’re a qualified buyer. Getting preapproved early in the homebuying process can also help you spot and remedy any potential problems in your credit report.

15. Is There a Prepayment Penalty?

A prepayment penalty is a fee for paying off all or part of your mortgage early. Avoiding prepayment penalties is easy if you choose a mortgage that doesn’t have any. Ask lenders if your desired loan carries a prepayment penalty. It will also be noted in the loan estimate.

16. When Is the First Payment Due?

A lender will be able to help you get your first payment in, which is typically on the first day of the month after a 30-day period after you close. For example, if you closed on Aug. 15, the first mortgage payment would be due on the 1st of the next month following a 30-day period (Oct. 1).

Each mortgage statement sent every billing cycle includes current information about the loan, including the payment breakdown, payment amount due, and principal balance.

17. Do You Need Mortgage Insurance?

Your mortgage lender will guide you through the process of acquiring private mortgage insurance, commonly called PMI, if you need it. Mortgage insurance is required for most conventional mortgages made with a down payment of less than 20%, as well as for FHA and USDA loans.

It’s not insurance for the buyer; instead, it protects the lender from risk. A good mortgage lender can also help advise borrowers on dropping PMI as soon as possible. A home loan help center can help you learn more about PMI or any mortgage question.

Recommended: What is PMI & How to Avoid It?

18. How Much Is the Lender Making Off of You?

Lenders are required to be clear and accurate when it comes to the costs of the loan. These should be fully disclosed on your loan estimate and closing documents. If you want to know how much the lender is charging for its services, you’ll find it under “origination fee.”

The Takeaway

If you’re shopping for a home loan or thinking about it, you might have mortgage questions — about down payments, APR, points, PMI, and more. Don’t worry about asking a lender too many, because many buyers need a guide throughout the homebuying journey. Asking questions is a great way to get to the lender and loan terms that make the most sense for your financial situation.

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 should you not say to a mortgage lender?

The most important thing to remember when communicating with a prospective lender is that you should be truthful — about everything, but especially your finances.

What questions can a mortgage lender not ask?

Generally speaking, most of the topics that are off limits in a job interview are also off limits in a mortgage negotiation. A lender should not ask you about race, ethnicity, religion, or sexual orientation, for example. You also shouldn’t be asked your age (unless you are applying for an age-based loan), or about your family status (married vs. divorced, whether you are planning to have kids, etc.), or about your health.

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

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

*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.

^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.
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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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

SOHL-Q424-121

Tenants in common is a way for two or more parties to buy a property or parcel of land. Buying real estate is expensive, and pooling your resources with others can be a great way to bring the price within reach and potentially lower your mortgage payment. Perhaps you are buying a house with relatives that you’ll live in and that they will stay in when they are in town. Or maybe you’re eyeing the purchase of several acres of land with some colleagues as an investment.
These are examples of why it may make sense for you to join forces with someone else (or multiple people) when acquiring a property. It can, however, open up a number of other questions and issues.

If you’re buying any kind of property with another person, even family, then you’ll need to consider how you want to co-own or take title to it. Tenants in common is one way to take title to a property.

Taking title as tenants in common first became popular in the 1980s in cities where the price of real estate had increased steeply. Acquiring properties in this manner has grown in popularity, especially in expensive urban areas, where merging money from different individuals became a way to increase purchasing power.

Read on to learn more about tenancy in common, including what is tenancy in common, how it works, and what are the pros and cons of tenancy in common.

What Is Tenancy In Common (TIC)?

Tenancy in common, also known sometimes as “tenants in common,” is a way for multiple people (2 or more) to hold title to a property. Each person owns a percentage of the property, but they are not limited to a certain space on the property.

In other words, you might be tenants in common with one or more persons, each holding a percentage of ownership share (which does not have to be equal), but you have a right to the entire property. There’s no limit to how many people can be tenants in common.

Worth noting: Despite the use of the word “tenant,” tenants in common has nothing to do with renting.

Recommended: First-Time Homebuyer Guide

How Tenancy in Common (TIC) Works

Tenancy in common works by people pooling their resources and buying property together. Each tenant, or person who is part of this legal arrangement, may own a different percentage of the real estate, but that doesn’t limit you to, say, just one room of a house.

The TIC relationship can be updated, with new tenants being added. What’s more, each tenant can sell or get a mortgage against their share of the property as they see fit. Each tenant may also name a beneficiary (or beneficiaries) to inherit their share upon their death.

If a group of tenants in common decides to dissolve the TIC agreement, one or more of the tenants can buy out the other tenants. Or the property can be sold and the proceeds split per the ownership percentages.

Property Taxes With Tenancy in Common

You may be wondering how tenants pay taxes on TIC properties. In most cases, a single tax bill will turn up, regardless of how many co-owners are involved or how they have divvied up percentages of ownership. It is then up to the tenants to determine who pays how much.

Another facet of tenancy in common arrangements to consider: Tenants can deduct property taxes when filing with the IRS. A common tax strategy is for each member to pay property taxes equal to the percentage of their ownership and then to deduct what they pay.

Recommended: Understanding the Different Types of Mortgage Loans

Tenancy in Common vs Joint Tenancy

When it comes to shared ownership, tenancy in common isn’t the only option. Another way to handle a shared purchase is joint tenancy. Here are some points of comparison for a tenant in common vs. joint tenant:

•   In TIC, the tenants can divide up ownership of property how they see fit. In a joint tenancy, the tenants hold equal shares of a single deed.

•   With a TIC arrangement, when an owner dies, their portion of the property passes to their estate. With joint tenancy, however, the property’s title would go to the surviving owner(s).

Recommended: How to Choose a Mortgage Term

Marriage and Property Ownership

Tenancy in common and joint tenancy are often ways that property is held in marriage. This will vary depending on the state you live in. Some states consider TIC the default way to own property in marriage. Elsewhere, it may be joint tenancy.

There is one other option possible, known as tenants by entirety (TBE). In this case, it’s as if the property is owned by one entity (the married couple) in the eyes of the law. Each spouse is a full owner of the real estate.
As with most things in life, there are pros and cons to TIC arrangements. First, the benefits:

•  With the high cost of real estate, especially in expensive markets, taking title as tenants in common can be one way to pool money and buy property you couldn’t otherwise own as an individual. It’s a way to bring home affordability into range.

•  Because tenants in common also allows for flexibility in terms of how you work out the specifics of living arrangements, it lends itself well to situations where friends decide to go in together on a vacation home or property where they won’t all be occupying the property at the same time.

•  You can transfer your share at any time without the consent or approval of the other tenants. You also have the right to mortgage, transfer, or assign your interest and so do your partners.

Now, for the disadvantages:

•  Tenants can decide to sell or give away their ownership rights, without the consent of the others, which means you might end up co-owning a property with someone you don’t know or even like.

•  In terms of real estate law, one of the main issues with a tenancy in common is that if you all signed the mortgage loan in order to purchase the property, you could end up being liable for someone else not paying their portion of the mortgage or for creditors forcing a sale or foreclosure of the entire property.

Increasingly, though, some banks and lenders are offering fractional loans for tenants in common on real estate that is easier to divide into separate units. This then allows each tenant to sign their own loan tied just to their percentage of the property. A mortgage calculator can help you figure out what your payments might look like.

Example of Tenancy in Common

Here’s an example of how tenancy in common might look in real life: Sam wants to buy a condo in Florida for $300,000 but can’t afford to do so; his limit is $200,000. His sister Emma loves Florida and says she would like to go in on the condo if she can spend a couple of months there in the winter. She adds her $100,000, and together, they can afford the condo. They pool their resources and make a down payment of 20% on the $300,000 property. After reading up on mortgage basics, they decide Sam will take out the mortgage. The mortgage principal on the purchase is $240,000.

Sam owns two-thirds and Emma owns one-third and Emma pays Sam for one-third of the cost of the mortgage, property taxes, and homeowners association dues. They both have the right to occupy the property. If Emma decides that she wants to get her own place in Florida, she could sell her share in the condo, while Sam retains his interest.

The Takeaway

Buying a house can seem overwhelming, but it doesn’t have to be. Tenancy in common presents one avenue to affordable ownership by allowing you to purchase property with others. Another way to manage costs is to get the best possible mortgage to suit your needs and budget.

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 tenancy in common be dissolved?

A tenancy in common can be dissolved. A single or multiple tenants may agree to end the arrangement by buying out the others in the shared ownership. If there is a situation in which the tenants can not agree on a path forward, the courts can be involved.

What are the responsibilities of tenants in common?

In a tenancy in common relationship, each tenant must pay their share of the costs involved, which can involve the mortgage principal and interest, homeowners insurance, and property taxes. A tenant’s share of these costs will reflect how much of the property they own. In addition, you may need to manage a portion of the property (say, if you’ve divided a house up or own a plot of land with others). Lastly, a TIC agreement may involve rights of first refusal if any tenants want to sell their share.

What happens when a tenant dies?

When a tenant in a tenants in common agreement dies, their share of the property is passed along to their beneficiary or beneficiaries; it does not automatically go to the other tenants.

What are the disadvantages of tenants in common?

Typically, the most important disadvantages of a tenants in common agreement are: Each member can sell their share independently, meaning you could be stuck with a tenant you don’t know or like; the TIC could be dissolved by tenants buying out one another; and if the tenants cosigned a mortgage for the property and one or more don’t pay, the other tenant could be stuck with liability for additional costs.

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.

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

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.

SOHL-Q424-127

Are you ruminating about a refi? How long you must wait to refinance depends on the kind of mortgage you have and whether you want cash out.

You can typically refinance a conventional loan as soon as you want to, but you’ll have to wait six months to apply for a cash-out refinance.

The wait to refinance an FHA, VA, or USDA loan ranges from six to 12 months.

Before any mortgage refinance, homeowners will want to ask themselves: What will the monthly and lifetime savings be? What are the closing costs, and how long will it take to recover them? If I’m pulling cash out, is the refinance worth it?

Refinance Wait Time Based on Mortgage Type

How soon can you refinance? The rules differ by home loan type and whether you’re aiming for a rate-and-term refinance or a cash-out refinance.

A rate-and-term refi will change your current mortgage’s interest rate, repayment term, or both. Cash-out refinancing replaces your current mortgage with a larger home loan, allowing you to take advantage of the equity you’ve built up in your home through your monthly principal payments and appreciation.

Conventional Loan Refinance Rules

If you have a conventional loan, a mortgage that is not insured by the federal government, you may refinance right after a home purchase or a previous refinance — but likely with a different lender.

Many lenders have a six-month “seasoning” period before a borrower can refinance with them. So you’ll probably have to wait if you want to refi with your current lender.

Cash-Out Refinance Rules

If you’re aiming for a cash-out refinance, you normally have to wait six months before refinancing, regardless of the type of mortgage you have.

FHA Loan Refinance Rules

An FHA Streamline Refinance reduces the time and documentation associated with a refinance, so you can get a lower rate faster.

But you will have to wait 210 days before using a Streamline Refinance to replace your current mortgage.

VA Loan Refinance Rules

When it comes to VA loans, the Department of Veterans Affairs offers an Interest Rate Reduction Refinance Loan (IRRRL), also known as a “streamline” refinance.

It also offers a cash-out refinance for up to a 100% loan-to-value ratio, although lenders may not permit borrowing up to 100% of the home’s value.

The VA requires you to wait 210 days between each refinance. Some lenders that issue VA loans have their own waiting period of up to 12 months. If so, another lender might let you refinance earlier.

USDA Loan Refinance Rules

The Streamlined-Assist refinance program provides USDA direct and guaranteed home loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.

Borrowers of USDA loans typically need to have had the loan for at least a year before refinancing. But a refinance of a USDA loan to a conventional loan may happen sooner.

Jumbo Loan Refinance Rules

For a jumbo loan, even a rate change of 0.5% may result in significant savings and a shorter time to break even.

How soon can you refinance a jumbo loan? A borrower can refinance their jumbo mortgage at any time if they find a lender willing to do so.

Top Reasons People Refinance a Mortgage

If you have sufficient equity in your home, typically at least 20%, you may apply for a refinance of your mortgage. Lenders will also look at your credit score, debt-to-income ratio, and employment.

If you have less than 20% equity but good credit — a minimum FICO® score of 670 — you may be able to refinance, although you may not receive the best rate available or you may be required to pay for mortgage insurance.

Here are the main reasons borrowers look to refinance.

•   Reduce the interest rate. Reduce the interest rate. Refinancing to a loan with a lower rate is the point of refinancing for most homeowners. Just calculate your break-even point, when the closing costs will have been recouped: Divide the closing costs by the amount to be saved every month. If closing costs will be $5,000 and you’ll save $100 a month, it will take 50 months to break even and begin reaping the benefits of a refi. If you purchased your home around 2020, it may be hard to capture a lower interest rate than you currently have, as that was a particularly low time for historical mortgage rates.

•   Shorten the loan term. Refinancing from a 30-year mortgage to a 15-year loan usually results in a substantial amount of loan interest saved, as this mortgage calculator shows. Or you may refi to a 20-year term. If you’re years into your mortgage, resetting to a new 30-year term may not pay off.

•   Tap home equity. Here’s how cash-out refinancing works: You apply for a new mortgage that will pay off your existing mortgage and give you a lump sum. A lower interest rate may be available at the same time.

•   Shed FHA mortgage insurance. In many cases, the only way to get rid of mortgage insurance premiums on an FHA loan is to sell your home or refinance the mortgage to a conventional loan when you have 20% equity in the home — in other words, when your new loan balance would be at least 20% less than your current home value.

•   Switch to an adjustable-rate mortgage or from an ARM to a fixed-rate loan. Depending on the rate environment and how long you expect to keep the mortgage or home, refinancing a fixed-rate mortgage to an ARM that has a low introductory rate, or an ARM to a fixed-rate loan, may make sense.

Mortgage rates are no longer at record lows. But they’re still pretty low by historical mortgage rate standards.

And rates are not the be-all, end-all. Home equity increased for many homeowners as home values rose. That’s attractive if you want to tap your equity with a cash-out refinance.

Closing costs can often be rolled into the loan or exchanged for an increased interest rate with a no-closing-cost refinance.

The Takeaway

How soon can you refinance? If it’s a conventional loan, whenever you want to, although probably not with the same lender within six months. Otherwise, if you must bide your time before refinancing or you’re waiting for rates to abate, that gives you a lull to decide whether a traditional refinance or cash-out refi might suit your needs.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Do you need 20% equity to refinance?

Some lenders will allow you to refinance with less than 20% equity in your home, but you may not get the best available interest rate, or you may need to pay for private mortgage insurance. You’ll want to do the math to make sure you’re saving money with the refinance.

Does refinancing hurt your credit score?

There may be a temporary dip in your credit score after a refinance, but if refinancing helps you lower your monthly debts you may find that it is actually helpful to your credit score over the long term.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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.

^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.

SOHL-Q424-126

Student loan borrowers with a good credit score generally have a better chance of qualifying for student loan refinancing. FICO®, the credit scoring model, considers a score of 670 to 739 to be good. Yet according to the most recent report by the Federal Reserve Bank of New York, the average credit score of student loan borrowers was 656, which falls short.

The higher your credit score, the more likely you are to be approved for refinancing, and also to get a lower interest rate and favorable loan terms. Here’s what you need to know about your credit score and student loan refinancing.

Understanding the Credit Score Requirement

Your credit score is important because it gives lenders a synopsis of your borrowing and repayment habits. It’s based on information from your credit report, which is a highly detailed record of activity on all of your credit accounts. A credit score tells lenders how well you’ve managed your credit and repayments thus far.

With student loan refinancing, many lenders are looking for a good credit score. That’s because a higher score generally indicates that you’re likely to repay your debts on time. FICO calls a credit score of 670 to 739 a good score, while VantageScore®, another commonly used credit scoring model, designates a good credit range as 661 to 780.

Some lenders have more flexible credit score requirements than others, and they may set what’s called a minimum credit score requirement. This is the lowest eligible credit score for which they’re willing to approve a borrower for student loan refinancing.
However, higher is usually better when it comes to a credit score for refinancing, regardless of the scoring model that’s used. If your credit score exceeds the good range, and is considered “very good” or “excellent,” you may be more likely to qualify for student loan refinancing. This also improves your chances of getting a lower interest rate and favorable terms, which are important when you’re refinancing student loans to save money.

Recommended: Guide to Refinancing Private Student Loans

Additional Requirements for Refinancing

In addition to your credit score for a student loan, lenders have other requirements you’ll need to meet, whether you’re refinancing private student loans or federal loans. These eligibility requirements include:

Income

Lenders look for borrowers with a stable income. This indicates that you consistently have enough money coming in to pay your bills. You will likely have to provide lenders with proof of your employment and income, such as pay stubs.

If you’re a contract worker or freelancer whose income is more sporadic, you may need to show a lender your tax returns or bank account statements to show that you have enough funds in your bank account.
Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is a percentage that shows how much of your income is going to bills and other debts versus how much income is coming in each month. The lower your DTI, the better, because it indicates that you have enough money to pay your debts, making you less of a risk to lenders.

To calculate your DTI, add together your monthly debts and divide that number by your gross monthly income (your income before taxes). Multiply the resulting figure by 100 to get a percentage, and that’s your DTI.

Aim to get your DTI to below 50%, and pay off as much debt as you can before you apply for student loan refinancing.

Credit History

In addition to your credit score, lenders will also look at your credit history, which is the age of your credit accounts. Having some active older credit accounts shows that you have a solid pattern of borrowing money and repaying it on time.

Minimum Refinancing Amount

Lenders typically have minimum refinancing amounts. This is the outstanding balance on your loans that you want to refinance. For some lenders, the minimum refinancing amount is between $5,000 and $10,000. For others, it may be higher or lower. Lenders set minimums to ensure that they will earn enough interest on the loan.

Recommended: Student Loan Refinancing Calculator

Strengthen Your Credit Score for Refinancing

If your credit score isn’t high enough to meet a lender’s minimum score requirement, you can work on strengthening your score and apply for refinancing at a later date. The following strategies may help you build credit over time.

Make Timely Payments

Making full, on-time payments on your existing credit accounts is the most impactful way to improve your credit. This factor accounts for 35% of your FICO credit score calculation and is at the forefront of what lenders look at when evaluating your eligibility.

Lower Your Credit Utilization Ratio

This is the ratio of how much outstanding debt you owe, compared to your available credit. Credit utilization ratio accounts for 30% of your FICO score. Keeping your credit utilization low can be an indicator that, while you have access to credit, you’re not overspending.

Maintain Your Credit History

A factor that’s moderately important when it comes to your FICO score calculation is the age of your active accounts. Keeping older accounts active and in good standing shows that you’re a steady borrower who makes their payments.

Keep a Balanced Credit Mix

As you’re establishing credit, having revolving accounts such as credit cards, as well as installment credit like student loans or a car loan, shows you can handle different types of credit. This factor affects 10% of your credit score calculation.

Alternatives to Refinancing

If your credit isn’t strong enough for you to qualify for student loan refinancing, you have a few other options to help you manage your student loan payments. Some ideas to explore include:

•  Loan forgiveness programs. There are federal and state student loan forgiveness programs. For instance, the Public Service Loan Forgiveness (PSLF) program is for borrowers who work in public service for a qualifying employer such as a not-for-profit organization or the government. For those who are eligible, PSLF forgives the remaining balance on Direct loans after 120 qualifying payments are made under an IDR plan or the standard 10-year repayment plan.

  Individual states may offer their own forgiveness programs. Check with your state to find out what’s available where you live.

•  Income-driven repayment plans. You may be able to reduce your federal loan monthly payment with an income-driven repayment (IDR) plan, which bases your monthly student loan payments on your income and family size. Your monthly payments are typically a percentage of your discretionary income, which usually means you’ll have lower payments. At the end of the repayment period, which is 20 or 25 years, depending on the IDR plan, your remaining loan balance is forgiven.

•  Consolidation vs. refinancing: Which is right for you? Whether consolidation or refinancing is right for you depends on the type of student loans you have. If you have federal student loans, a federal Direct Consolidation loan loan allows you to combine all your loans into one new loan, which can lower your monthly payments by lengthening your loan term. The interest rate on the loan will not be lower — it will be a weighted average of the combined interest rates of all of your consolidated loans. Consolidation can simplify and streamline your loan payments, and your loans remain federal loans with access to federal benefits and protections. However, a longer loan term means you’ll pay more in interest over the life of the loan.

  If you have private student loans, or a combination of federal and private loans, student loan refinancing lets you combine them into one private loan with a new interest rate and loan terms. Ideally, depending on your financial situation, you might be able to secure a new loan with a lower rate and more favorable terms. If you’re looking for smaller monthly payments, you may be able to get a longer loan term. However, this means that you will likely pay more in interest overall since you are extending the life of the loan. On the other hand, if your goal is to refinance student loans to save money, you might be able to get a shorter term and pay off the loan faster, helping to save on interest payments.

Just be aware that if you refinance federal loans, they will no longer be eligible for federal benefits like federal forgiveness programs.

Understanding the Impact of Refinancing on Your Credit Score

Just as your credit score affects whether you qualify for refinancing, refinancing has an impact on your credit score.
When you fill out an application for refinancing, lenders do what’s called a hard credit check that usually affects your credit score temporarily. The impact is likely to be about five points of reduction to your score, which lasts up to 12 months, according to the credit bureau Experian.

After refinancing is complete, however, as long as you make on-time payments every month, your credit score might go up. Conversely, if you miss payments, or if you’re late with them, your score could be negatively affected.

It’s wise to keep your credit score as strong as possible before, during, and after refinancing. And watch out for common misconceptions about credit scores and student loan refinancing.

For instance, be sure to shop around for the best loan rates and terms. Checking to see what rate you can get on a student loan refinance, unlike filling out a formal loan application, typically involves a soft credit pull that won’t affect your credit score.

Also, if you choose to fill out refinancing applications with more than one lender, some credit scoring models may count those multiple applications as just one, as long as you apply during a short window of time, such as 14 to 45 days, which can lessen the impact to your credit.

Finally, keep paying off your existing student loans during the refinancing process. If you stop repaying them before refinancing is complete, your credit score may be negatively affected.

Making Informed Decisions About Student Loan Refinancing

As you’re considering refinancing, weigh the pros and cons of refinancing your student loans. Advantages of student loan refinancing include possibly getting a lower interest rate on your loan, adjusting the length of your payment term, and streamlining multiple loans and payments into one loan that’s easier to manage.

But remember: If you’re refinancing federal student loans, you will lose access to federal protections and programs like income-driven repayment plans. And refinancing may be difficult to qualify for on your own if you don’t have a good credit score and solid credit history, so you may need a student loan cosigner. Make the decision that’s best for your financial circumstances.

If you decide to move ahead with refinancing, be sure that your credit score is as strong as it can be. Then, shop around to compare lenders and find the best rates and terms. Once you’ve chosen a lender or two, submit an application. You’ll need to provide documentation of your income and employment, so be sure to have that paperwork on hand.

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.

FAQS

Can I refinance with a 580 credit score?

You may be able to refinance student loans with a credit score of 580, depending on the requirements of the lender. While most lenders look for borrowers with a good credit score, which FICO® defines as 670 to 739, some lenders set a minimum credit score as low as 580. If you meet other eligibility requirements, such as having a steady income and a low debt-to-income ratio, a lender may consider you with a 580 credit score.

What is the minimum credit score for a refinance?

Each lender has its own specific requirements, including the credit score needed to refinance. While most lenders look for applicants with a good score, which starts at 670, according to FICO, some lenders set a minimum credit score, which may be as low as 580. Check with different lenders to see what their requirements are.

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.

SOSLR-Q424-004

If you’re financing your home purchase, choosing the right lender could streamline the process. But there are many types of mortgage lenders: retail lenders, direct lenders, online lenders, and others.

Although many steps of the mortgage process are consistent across lenders, there are key differences that could affect the all-in cost. To help narrow your search, this guide will cover what mortgage lenders do and explore common mortgage lenders.

Mortgage Lender, Defined

A mortgage lender is a bank, credit union, mortgage company, or individual that grants home loans to borrowers. Mortgage lenders evaluate an applicant’s creditworthiness and ability to repay the loan. Based on the buyer’s qualifications, the lender sets the interest rate and mortgage term.

After closing, the loan may be managed by a mortgage servicer. The mortgage servicer vs. lender difference is that the mortgage servicer is responsible for sending statements, collecting monthly payments, and allocating funds between the loan principal, interest, and escrow account, while the lender is loaning you money.

It’s possible that financial institutions act as both the mortgage lender and mortgage servicer.

Mortgage Lender vs. Mortgage Broker

Both lenders and mortgage brokers can assist with the purchase of a home. But there are key differences to understand when comparing a mortgage broker vs. direct lender.

Mortgage brokers do not originate or approve loans; rather, they help borrowers find a home loan that best fits their financial situation. They often have connections with many lenders and find solutions for less-qualified borrowers. A mortgage broker also helps organize required paperwork and manages communication between the borrower and lender.

A mortgage broker earns a commission for these services from either the borrower or lender after the loan closes. Licensing is required to be a mortgage broker, and the Nationwide Mortgage Licensing System & Registry maintains a database of licensed professionals by state. Search for NMLS consumer access.

You can always obtain loan quotes from at least one broker and one direct lender when you shop for a mortgage.

Online Mortgage Lender vs. Bank

Borrowers can work with a bank or mortgage lender to fund their home purchase.

Banks can offer mortgages along with other financial products, including checking accounts and commercial loans. A borrower may receive benefits, like a lower rate and lower closing costs, when applying for a bank mortgage if they’re an existing customer. As larger financial institutions, banks tend to use a mortgage servicer for their mortgage loans after closing.

As larger financial institutions, banks tend to service their mortgage loans after closing.

On the other hand, banks may have stricter lending requirements than mortgage companies, thanks to federal regulation and compliance. Borrowers may also have fewer loan options to choose from with a bank, as a mortgage lender specializes in mortgage products.

Common Mortgage Lender Options

If you’re in the market for a home loan, there are several types of mortgage lenders and terms to become familiar with. Here are the most common.

Direct Lenders

Direct lenders like mortgage lenders, banks, credit unions, and portfolio lenders fund, originate, underwrite, process, and close the loans on their own. They work directly with buyers and refinancers; there is no broker involved.

They work directly with buyers and refinancers; there is no broker involved.

Retail Lenders

Banks, credit unions, and mortgage companies can also be categorized as retail lenders. Retail lenders issue mortgages directly to consumers.

Homebuyers may receive more personalized assistance from a mortgage loan originator to find a home loan that fits their situation. But because retail lenders handle loans in-house, they generally only offer their own loan products.

Besides mortgages, retail lenders provide other credit products, including savings accounts, personal loans, and credit cards.

Wholesale Lenders

Wholesale lenders offer home loans through third parties, such as retail lenders or mortgage brokers, instead of directly to consumers. They fund the mortgage and set the loan terms, while the third party facilitates the application process and communicates with the borrower. After closing, wholesale lenders typically sell their home loans on the secondary mortgage market.

Portfolio Lenders

A portfolio lender, such as a community bank, uses its own money to originate nonconforming mortgages — those that do not meet Fannie and Freddie standards for purchase, such as jumbo loans. A portfolio lender has more flexible lending standards than a conventional direct lender because it holds its own home loans in a portfolio. But portfolio loans may come with higher interest rates and closing costs.

Warehouse Lenders

Warehouse lending provides short-term funding to mortgage lenders to finance a home loan. The mortgage serves as collateral until the lender — often a small or midsize bank — repays the warehouse lender. With warehouse lending, the mortgage lender is responsible for the loan application and approval process. After closing, the mortgage lender sells the loan on the secondary market and uses the proceeds to repay the wholesale lender. Mortgage lenders profit from this practice through origination fees and mortgage points.

A mortgage financed through a warehouse lender may provide faster funding and more flexibility than a conventional loan. For instance, borrowers could apply for construction financing with warehouse lending.

Online Lenders

With an online lender, the mortgage application process, processing, underwriting, and closing can all be completed virtually. Opting for a digital borrowing experience can get you to the closing table faster. No overhead means online lenders can offer lower rates and fees. On the other hand, borrowers may find it more difficult to build a working relationship with a loan officer when completing the process online.

Recommended: Prequalification vs. Preapproval: What’s the Difference?

Hard Money Lenders

Hard money lenders — individuals or private companies — offer hard money personal loans based on the value of the property rather than the borrower’s creditworthiness. The property serves as collateral, and borrowers must repay the loan in just a few years.

While hard money lenders can offer faster financing, these loans usually come with higher down payment requirements and interest rates because of their risk. Borrowers may benefit from a hard money lender if they plan to flip a property.

How to Find the Right Mortgage Lender for You

While there’s no shortage of lenders, finding the right mortgage lender takes some shopping around.

When browsing options, it’s useful to consider your financial situation and needs. For instance, can you afford a down payment on your own or with help from a family member or friend? Is your credit score high enough to buy a house?

Checking the fees and interest rate are important to determine how much you’ll have to pay upfront and over the life of the loan.

Applying to several lenders and/or working with a mortgage broker can let you compare rates and fees to negotiate better terms. Apply to all within a 14-day window to minimize damage to your credit score.

There are first-time homebuyer programs, too. The definition of first-time homebuyer is broader than it seems. It includes anyone who has not owned a principal residence in the past three years.

Recommended: Mortgage Loan Help Center

The Takeaway

There are many types of mortgage lenders to choose from. Your financial situation and goals will help you pick the mortgage lender that offers terms that fit your budget.

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 lender do?

A mortgage lender offers home loans to borrowers with the expectation that the loans will be repaid with interest. They set the loan terms, including the interest rate and repayment schedule.

Are mortgage underwriters the same as the lender?

Underwriters assess a borrower’s income, assets, and debt to determine whether they are approved for a mortgage. Most lenders manage the underwriting process in-house.

Photo credit: iStock/luismmolina

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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