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Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)

Ready to learn how to apply for a home loan? Here are the seven steps in the mortgage process, including moves you can make that may expedite your approval.

Table of Contents

1. Submit Your Mortgage Application

You’ve found the ideal property, made an offer on the house, and put your down payment into escrow. If you didn’t already get preapproved for a mortgage online, it’s time to apply for a mortgage. There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle. Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or a government-insured loan, such as an FHA loan backed by the Federal Housing Administration or a VA loan backed by the U.S. Department of Veterans Affairs)

•   A fixed-rate or an adjustable-rate mortgage

•   Your repayment term: typically 15, 20, or 30 years

A good lender will walk you through your options, whether you’re looking at a home requiring an FHA mortgage or a high-priced home with a jumbo loan.

Your lender will have the required forms for your mortgage loan application, and you can often submit everything online, but you’ll want to have the following at hand:

•   Proof of identity.

•   Documentation of income: W-2s or 1099s, your most recent income tax filing, profit-and-loss statements if self-employed, pay stubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: bank accounts, real estate, investment accounts, etc. If you received help from a family member to fund your down payment, a gift letter will be necessary.

•   Documentation of debts: any current mortgage you might have, car loans, credit cards, student loans, etc.

•   Information on property: street address, sale price, property size, property taxes, etc.

•   Employment documentation: current employer information, salary information, position/title, length of time at employer, etc. In general, lenders like to see two years of employment on a loan application. Self-employed individuals will generally submit two years of tax returns.

2. Schedule Your Home Inspection and Appraisal

It can take a little time to get your inspection and appraisal on the calendar, and then you can expect to wait at least a few days to get the reports. So now’s the time to make sure these two important aspects of the home-buying process are moving along.

A home inspection may not be required, but it’s a good idea to hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction, which could affect your mortgage principal amount. If the problem is a dealbreaker, the inspector’s report could help you back out of the deal without penalty.

Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).

Don’t let the infatuation with a seemingly perfect property blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.

An appraisal will be necessary as part of the mortgage underwriting process. It’s an independent evaluation of a home’s value. It will describe the property and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

Recommended: Local Housing Market Trends

3. Secure Homeowners Insurance

You’ll need to buy homeowners insurance before you can close on your new home, so now’s the time to scout around for a policy that provides the coverage you need at the price you feel is right. Thanks to the appraisal, you can feel confident in the value of the home, which will help in the insurance process.

Before you commit, get quotes from a few different companies. Taking the time to do so at this step of the mortgage process will ensure your coverage is shipshape when you reach your closing. Your prospective lender will want to know the home is covered and many homeowners make their insurance premium payments as part of their monthly mortgage bill.

4. Undergo Loan Processing and Review

While you are taking care of your insurance coverage, the lender will be processing and reviewing your loan application to make sure you meet all the mortgage loan requirements. A major part of the mortgage loan process is the underwriting phase. The underwriting process begins after you complete your mortgage application, ends after all the documentation has been completed, and includes the appraisal.

During the process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance. The lender will perform a hard credit inquiry. In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house. Lenders are required to do a second credit check before final mortgage loan approval and may likely ask for further documentation.

The average time between submitting a mortgage application and closing is about 50 days, so if you’re wondering how long does the underwriting process take for a mortgage, you can expect things to take a little under two months, start to finish. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, take out auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time. If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let it know.

Responding quickly to any questions or requests from your lender can help keep your application on track.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

5. Receive Your Approval and Closing Disclosure

It can be tough feeling like your life is on hold while you’re waiting for the mortgage underwriting process to be completed. Try to be patient and let things play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will complete the mortgage underwriting process and recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

It’s a happy day when your lender officially notifies you that you have been approved for your home loan. After underwriting approval with a “clear to close,” you’re set to close on your loan. The mortgage closing disclosure you receive from the lender is a required document. This five-page form from your lender will outline the home mortgage loan terms, including the loan principal, interest rate, and estimated monthly payment. It also lays out how much money is owed for closing costs and the down payment.

Lenders are required by federal law to provide the mortgage closing disclosure at least three business days ahead of the closing date. Make sure you read it immediately and thoroughly.

6. Do A Final Walk-Through of the Home

Before arriving at closing, you’ll want to do a final walk-through of the property you’re purchasing. During this walk-through, confirm that the sellers have made any repairs that were agreed to — and that they haven’t removed anything, such as an appliance or light fixture, that was meant to be left, per the purchase agreement.

7. Attend the Closing Meeting

Closing day comes after the mortgage loan approval process is completed. All parties will sign the final documents and ownership is legally transferred from the sellers. In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 2% to 5% of the mortgage principal and may include items like:

•   Lender fees

•   Appraisal and survey fees

•   Title search/title insurance fees

•   Recording fees

•   First year of private mortgage insurance (PMI) premiums, if required

You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common. The closing may be virtual, but the feelings of relief and happiness that typically result are very real.

The Takeaway

Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.

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

FAQ

How long is a mortgage loan in processing?

It takes a little under two months from the date you submit your mortgage application to closing on the house — the average timeline is about 50 days. In some scenarios, you may be able to close in as little as 30 days.

How do you know when your mortgage loan is approved?

Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.

What should I avoid after applying for a mortgage?

You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either

What looks bad on a mortgage application?

Key red flags on a mortgage application include a high level of debt relative to your income, a low credit score, or a history of late or missed debt payments. A lender might also be concerned about any large, unexplained influx of cash into your bank account in the months leading up to your application. A history of gambling or repeated use of payday loans might also be cause for concern from a lender’s perspective.

Photo credit: iStock/MicroStockHub

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

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

SOHL-Q425-196

Getting a mortgage can be one of life’s biggest financial undertakings. What’s more, it also unlocks the path to what is typically the biggest asset and wealth builder out there: a home of your own.

Whether you’re dreaming of a center hall Colonial or a cool, loft-style condo, you will likely need a mortgage to make homeownership happen. And if you want to qualify for the best possible interest rate, it helps to have a little more knowledge and preparation when you seek a home loan.

This guide will teach you how to get a home mortgage and arrive expeditiously at the closing. Read on to learn how to get a mortgage right now, what matters most to lenders when you’re getting a mortgage, and the seven steps necessary to get a mortgage on your new home.

Step 1: Prepare Your Finances and Determine Your Budget

Now is the time to develop a budget for buying a house. Use a mortgage calculator to see what your monthly payment might be depending on the home price, down payment amount, and mortgage type. But don’t overlook these other costs:

•   Closing costs and related expenses (typically 2% to 5% of the loan amount)

•   Funds to make any repairs/renovations required

•   Moving expenses

•   Home insurance premium

•   Property taxes

•   Utilities (especially important if you are moving from a rental where your landlord paid some of these costs)

•   Maintenance (landscaping, HVAC service, etc.)

Another good first step to getting a mortgage is to understand how you will be evaluated by lenders so you can put your best foot (or financial profile) forward. Here are the key mortgage loan requirements:

Your Credit Score

Your credit score is an important number: It tells lenders how well you have managed debt in the past. Typically, you will need a credit score of 620 or higher to qualify for a conventional home loan. However, those with scores of 740 or higher may snag lower interest rates. So as you’re learning how to get a house loan, make sure you are also taking good care of your credit score.

If your score is at least 580, you may qualify for a government-backed loan (more on those below). And even those with a credit score of 500 to 579 may be eligible in some cases. If you’d like to build your credit score, make every payment on time and pay any unpaid bill. Avoid opening new credit accounts or closing old ones in the months leading up to your mortgage application.

Your Debt-to-Income Ratio

Another number that lenders will be interested in is your debt-to-income (DTI) ratio — in other words, how much debt you are carrying relative to your income. To compute your DTI ratio, total your monthly minimum debt payments, such as student loans, car loans, credit-card bills, current rent or mortgage and property taxes, and the like. Divide the total by your gross monthly income. The resulting number is your DTI.

The DTI figure that lenders look for may vary. Some lenders want to see 36%; others will be comfortable with up to 45%. Government-backed loans are likely to accept higher DTI’s than other lenders. You can use a home affordability calculator to compute what price home you might be able to afford based on your income and debts.

Other factors lenders will consider are your income history and assets. Lenders like to see signs of a positive, stable income. Ideally, you have been employed for at least two years. If you have been out of work or have job-hopped recently, it might be wise to wait a bit before applying for a mortgage.

Lenders will also want to see that you have some assets available, such as cash in the bank or other fairly accessible funds. This is where a healthy emergency fund and money saved for a down payment can be a real boost.

Speaking of your down payment: A down payment for a conventional loan has traditionally been 20% of a home’s cost, but there is some flexibility. A recent survey by the National Association of Realtors® found that first-time homebuyers typically put down 10% on a home purchase. And some loans are available with as little as 3% down or even (for certain government-backed ones) zero money down.

Keep in mind that if you put down less than 20%, you will likely have to pay for private mortgage insurance (PMI), or in the case of a Federal Housing Administration (FHA) loan, a mortgage insurance premium.

💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a competitive rate with SoFi Mortgage Loans.

Step 2: Research Mortgage Loan Types and Find a Lender

It’s worth reviewing some of the different types of mortgage loans that you may qualify for.

•   Conventional vs. government-backed loans. Conventional loans typically have stricter income, credit score, and other qualifying factors, while government-backed loans may be easier to obtain. Government-backed loans may have lower (or even no) down payment requirements. Examples of these government loans are FHA, VA, and USDA loans.

•   Type of rate: For some borrowers, a fixed-rate loan, with its never-varying monthly payment, may be best. For others, an adjustable-rate one that fluctuates may be more appealing. The payments tend to start out low, which can be attractive for those who may sell their home within a few years’ time. You may also look into mortgage points, which involve paying more upfront to shave down your rate over the life of the loan.

•   Mortgage loan term: Many loans last 30 years, but there are other options, such as 5, 10, 15, or 20 years. The shorter the term, the higher your payment is likely to be.

Next, it’s wise to review different mortgage lenders and see what kind of rates and terms are quoted. For example, your own bank may offer mortgages and could give you a good rate in an effort to keep your business. Or you might look into online lenders, where the process can be more streamlined and the rates possibly better than traditional options.

Step 3: Get Preapproved for a Mortgage

It can be wise to get preapproved by more than one lender. This can help you evaluate different offers and broaden your options when it’s time to apply for a loan. When you apply for preapproval, you can expect the lender to do a credit check, verify your income and assets, and consider your DTI ratio.

It’s often possible to get preapproved for a mortgage online. If all goes well, the lender will provide you with a preapproval letter, and you can shop for a home in the designated price range.

While not a guarantee of a mortgage, it shows you are serious about buying and are on the path to securing your funding, and it reflects that the lender found you qualified for a mortgage. Having this letter can be especially helpful when you are competing for a home in a seller’s market.

You might also decide to work with a mortgage broker to get help learning about your alternatives.

💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.

Step 4: Find a Home and Make an Offer

With your preapproval letter in hand, you are ready to go home shopping. As you tour properties, you’ll likely refer back to your budget and down payment plans again and again as you get to an accepted offer. Don’t be surprised if you find yourself having agonized discussions about whether a home is truly affordable. Try to avoid pushing yourself beyond what you can comfortably afford.

Once you find a suitable property and your offer is accepted (a big moment!), you will hopefully be on the path to home ownership. If contract negotiations and the inspection goes well, you will move along to the final steps.

Step 5: Submit Your Mortgage Loan Application

Once you have an accepted offer and know how much you need to borrow, you’ll submit a full-fledged mortgage application. Expect to submit the following, and possibly more:

•   Two years’ worth of W-2 forms or other income verification

•   A month’s worth of pay stubs

•   Two years’ worth of federal tax returns

•   Proof of other income sources

•   Recent bank statements and documentation of possibly recent sources of deposits

•   Documentation of funds/gifts of money to be used as your down payment

•   ID and Social Security number

•   Details on debt, such as student loans and car payments

These forms allow a lender to consider your level of financial security and whether you are a good risk to offer a mortgage loan.

Step 6: Go Through the Underwriting Process

As you wait for your mortgage approval and a closing date, the underwriting process is happening. You’ll need a home appraisal and title search, and an underwriter will verify your income, evaluate your credit history, and assess your financial readiness to take on the loan. It’s not unusual for the lender to reach out with questions or to ask for more documentation during underwriting. Respond promptly to keep things on track.

If things progress smoothly, your loan will be approved and you will be ready to close on your home. You’ll do a final walk-through of the home to make sure everything is in order and any repairs that the seller agreed to make have been addressed.

Three days before your closing date, your lender will provide you with a closing disclosure that outlines the final closing costs and terms of your home loan. You can compare this five-page form with the loan estimate you received initially. If everything looks to be in order, get ready to close.

Step 7: Close on Your New Home

You may wish to bring your real estate agent and/or attorney with you to your closing meeting, which might be in-person or virtual. They can help explain everything — especially valuable if you are a first-time homebuyer. At the closing you will sign all your forms and submit your down payment and closing costs (or provide proof of wire transfer). The closing attorney, escrow officer, or title company representative will record the deed, and you will be given the house keys. Congratulations — you’re a homeowner!

The Takeaway

The path to homeownership can be a long and winding road, but worth it as you gain what could be your biggest financial asset. By learning how to get a mortgage, preparing to present a creditworthy file, and following the steps needed to apply for a home mortgage, you can be on your way to owning your new home.

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

FAQ

How do you improve your chances of getting approved for a mortgage loan?

You can improve your chances of getting approved for a mortgage by checking on your credit score (and improving it, if necessary), showing a debt-to-income ratio of ideally 36% or lower, and having two years’ of a steady job history.

What is the lowest income to qualify for a mortgage?

There is no one set income required to qualify for a mortgage. Much will depend on how much you want to borrow versus your income, how much debt you are carrying, and your credit score. For those who have a lower income, there are government-backed loans that may be suitable; it can be worthwhile to look into FHA, USDA, and VA loans to see what you might qualify for.

What credit score is needed to get a mortgage?

Typically, a credit score of at least 620 is required for a conventional loan, and the higher your score (say, in the 700s or higher still), the more loan options and lower rates you may find. For those with a credit score of at least 500, there may be government-backed loan products available.

How long does the mortgage approval process take?

The full approval process for a mortgage can take 30 to 60 days. If you have a closing date or range of dates specified in your agreement with the seller, it’s important to let your prospective lender know.

What documents are needed for a mortgage application?

Documents needed for a mortgage application include proof of identity and at least two years’ worth of W-2 forms and tax filings. You can also expect to need your most recent pay stubs, bank statements, and proof of other income sources. If you are self-employed, be prepared to be asked for more details about your income, including, potentially, a profit-and-loss statement for your business.

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

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

SOHL-Q425-197

Borrowing money to pay for school comes at a cost, in the form of interest. In certain situations, interest that has accrued may be “capitalized” on the loan. Student loan capitalized interest is when the accrued interest is added to the principal, or the initial amount borrowed. This new value is then used to calculate the amount of interest owed each day.

Interest capitalization can dramatically increase how much a borrower owes over time. Students who have subsidized federal student loans don’t have to worry about interest accruing while they are in school or during their grace period after graduation. For other types of federal student loans, however, including unsubsidized loans and PLUS loans, borrowers are responsible for paying the accrued interest.

Read on for more information about capitalized interest on student loans, plus ways that can help reduce its impact.

What Is Capitalized Interest On A Student Loan?

When accrued interest is unpaid, it is sometimes added to the principal value of the loan, which is known as capitalized interest. This new loan principal becomes the value that is used to calculate the interest. Because the borrower is now paying interest on top of this new, higher loan balance, future payments will also be higher.

How Does Interest Capitalization Work on Student Loans?

Capitalized interest can happen on student loans in several scenarios. First, it may happen after a borrower graduates from school or after a student loan grace period, and unpaid interest is added to the balance of the loan. Second, it could happen after periods of student loan deferment on Direct loans and the Federal Family Education Loan (FFEL) Program loans managed by the U.S. Department of Education. Private student loans that are in forbearance may also be subject to capitalized interest.

Even though payments are not due during these periods, interest is often calculated and added to the balance of the loan once that period is over. This is the process of capitalization, which will likely increase the student loan balance.

Borrowers utilizing income-driven repayment (IDR) plans may want to pay attention to capitalized interest as well. In these situations, unpaid interest may be capitalized on the loan:

•   If an individual voluntarily leaves an income-driven repayment plan, does not recertify their income and family size annually, or does not have a partial financial hardship

•   If a deferment period ends

•   If a borrower consolidates their loans

In general, unpaid interest is added to the principal of a loan under an IDR plan under the following circumstances:

•   During times of forbearance or deferment

•   While the borrower is enrolled in school and has an unsubsidized loan

•   The borrower has a grace period.

Can You Avoid Student Loan Interest Capitalization?

There are a few ways that borrowers can try to minimize capitalized interest. Once interest is capitalized, there is little a borrower can do about it, so the trick is to avoid scenarios where interest is capitalized in the first place.

How Much Does Capitalized Interest Cost?

The actual cost of capitalized interest varies according to the amount of the principal and interest rate. For instance, if a borrower has $25,000 in student loans with an interest rate of 5.00%, the capitalized interest could be $3,083. This brings the total amount owed to $23,083.

When Does Interest Accrue?

Interest on federal student loans begins to accrue the day the loans are disbursed, and interest accrues daily through the life of the loan. This is likely also the case for many private student loans, but be sure to confirm the terms with the lender before borrowing.

Regardless of whether the student loan is federal or private, the promissory note generally includes all pertinent information on the loan.

Depending on the type of loan(s) a borrower has — subsidized or unsubsidized — they may or may not be responsible for paying for the interest charges accrued while they are enrolled in school and during periods of deferment or forbearance.

Immediately after graduation, most federal loans offer a six-month grace period where borrowers aren’t required to make loan payments. The grace period exists so recent graduates have time to find work. Not all loans have grace periods and even if they do, interest may still accrue during the grace period, but a borrower may not be responsible for paying it during this time.

Understanding Interest During Deferment or Forbearance

Students may be able to temporarily halt their student loan payments with programs such as student loan deferment or forbearance due to economic hardship or job loss, but interest may accrue during these periods.

Borrowers with subsidized loans won’t have to pay interest accrued during periods of deferment because the government covers those interest charges. However, the government pays no interest charges on unsubsidized loans during deferment and does not make interest payments on any loan types during periods of forbearance.

It’s important to understand whether or not the interest will be capitalized on the loan before filing for deferment. This can help borrowers prepare for what lies ahead.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fees-required loans, you could save thousands.

Ways to Minimize Capitalized Interest

These strategies may help borrowers reduce or avoid capitalized interest on their student loans.

Making Interest-Only Payments

Consider making interest-only payments while in school, during the loan’s grace period, or during periods of deferment or forbearance. If that isn’t in the cards, try to minimize the amount you borrow.

Applying for Scholarships and Grants

Continue to look for scholarships and grant money while enrolled in school and after receiving your financial aid award. Scholarships and grants are free in the sense that they are not required to be repaid.

Think Carefully Before Taking a Deferment

Graduates should be judicious about taking a deferment. While you shouldn’t feel bad about utilizing these programs when needed, it can be a wiser decision to do so only if it’s totally necessary.

If a borrower puts their loans in deferment, they can try making interest-only payments. Even if they’re not able to tackle the principal at this time, making interest payments might minimize the amount of interest that may ultimately be capitalized on the loan.

The Takeaway

When the accrued interest on federal student loans is unpaid, it may be added to the principal value of the loan under certain circumstances. This becomes the new principal value of the loan and is used to calculate the interest as it accrues moving forward. This is capitalized interest, which only applies:

•  When a borrower withdraws from an IDR plan.

•  When a borrower on an IDR plan does not update their income and family size, or doesn’t have a financial hardship.

•  After deferment on an unsubsidized loan.

In the long term, capitalized interest can make the cost of borrowing more expensive.

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.

FAQ

Can interest be capitalized on a student loan if it is deferred?

In some cases, yes. If the loan is a federal Direct unsubsidized loan or a Federal Family Education Loan (FFEL), interest can be capitalized on the loan after a deferment.

Why does my loan interest capitalize?

One of the primary reasons student loan interest capitalizes on certain types of loans is that it accounts for periods of unpaid interest, such as when a borrower is in school or in deferment. Because the interest is still accruing during these times, capitalization gives the loan issuer a way to account for that debt by making it part of the principal balance.

How can I avoid capitalized interest?

To avoid capitalized interest, you can make interest-only payments while you’re in school, during the grace period after graduation, and while the loans are in deferment. If you’re on an income-driven repayment plan, be sure to recertify your income every year so you continue to qualify for the plan.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.