Bonds vs Stocks: Understanding the Difference
Understanding the differences between stocks and bonds can help an investor build a stronger portfolio.
Read moreUnderstanding the differences between stocks and bonds can help an investor build a stronger portfolio.
Read moreIf you’re in the market for a mortgage, you may be overwhelmed by all the different options — conventional vs. government-backed, fixed vs. adjustable rate, 15-year vs 30-year. Which one is best?
The answer will depend on how much you have to put down on a home, the price of the home you want to buy, your income and credit history, and how long you plan to live in the home. Below, we break down some of the most common types of home mortgages, including how each one works and their pros and cons.
When choosing the best type of mortgage for your needs, it helps to understand the difference between adjustable-rate mortgages and fixed-rate mortgages. Each option has advantages and disadvantages. Here’s a closer look.
Pros | Cons | |
---|---|---|
Fixed-Rate Mortgage | Your monthly payment is fixed, and therefore predictable. | If rates drop, you have to refinance to get the lower rate. |
Adjustable-Rate Mortgage | The initial interest rate is usually lower than a fixed-rate mortgage. | Once the intro period is over, ARM rates adjust, potentially raising your mortgage payment. |
With a fixed-rate mortgage loan, the interest is exactly that — fixed. No matter what happens to benchmark interest rates or the overall economy, the interest rate will remain the same for the life of the loan. Fixed loans typically come in terms of 15 years or 30 years, though some lenders allow more options.
This type of mortgage can be a good choice if you think rates are going to go up, or if you plan on staying in your home for at least five to seven years and want to avoid any potential for changes to your monthly payments.
Pro: The monthly payment is fixed, and therefore predictable.
Con: If interest rates drop after you take out your loan, you won’t get the lower rate unless you’re able to refinance.
💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*
A 30-year fixed-rate home loan is the most common type of mortgage and the longest term length available for mortgages.
Monthly payments are generally lower than shorter-term mortgages because the loan is stretched out over a longer term. However, the overall amount of interest you’ll pay is typically higher, since you’re paying interest for a longer period of time. Also, interest rates tend to be higher for 30-year home loans than shorter-term mortgages, since the longer term poses more risk to the lender.
A 15-year loan allows you to build equity more quickly and pay less total interest. Loans with shorter terms also tend to come with lower interest rates, since they pose less risk to the lender.
On the flipside, the shorter term means monthly payments may be much higher than a 30-year mortgage. This type of loan can be a good choice for borrowers who can handle an aggressive repayment schedule and want to save on interest.
An adjustable-rate mortgage (ARM) has an interest rate that fluctuates according to market conditions.
Many ARMs have a fixed-rate period to start and are expressed in two numbers, such as 7/1, 5/1, or 7/6. A 7/1 ARM loan has a fixed rate for seven years; after that, the fixed rate converts to a variable rate. It stays variable for the remaining life of the loan, adjusting every year in line with an index rate. A 7/6 ARM, on the other hand, means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. A 5/1 ARM has a rate that’s fixed for five years and then adjusts every year.
Many ARMs have rate caps, meaning the rate will never exceed a certain number over the life of the loan. If you consider an ARM, you’ll want to be sure you understand exactly how much your rate can increase and how much you could wind up paying after the introductory period expires.
Pro: The initial interest rate of an ARM is usually lower than the rate on a fixed-rate loan. This can make it a good deal for borrowers who expect to sell the property before the rate adjusts.
Con: Even if the loan starts out with a low rate, subsequent rate increases could make this loan more expensive than a fixed-rate loan.
Recommended: First-Time Home Buyer’s Guide
Mortgages can also be broken down into two other categories: conventional loans, which are offered by banks or other private lenders, and government-backed loans, which are guaranteed by a government agency. Here’s a breakdown of conventional vs. government-insured loans, including how each works, and their pros and cons.
This is the most common type of home loan. Conventional mortgages must meet standards that allow lenders to resell them to the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. This is advantageous to lenders (who can make money by selling their loans to GSEs) but means stiffer qualifications for borrowers.
Pro: Down payments can be as low as 3%, though borrowers with down payments under 20% have to pay for private mortgage insurance (PMI).
Con: Conventional loans tend to have stricter requirements for qualification than government-backed loans. You typically need a credit score of at least 620 and a debt-to-income ratio under 36%.
If you have trouble qualifying for a conventional loan, you may want to look into a government-insured loan. This type of mortgage is insured by a government agency, such as the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and the U.S. Department of Veterans Affairs (VA).
FHA loans are not directly issued from the government but, rather, insured by the FHA. This protects mortgage lenders, since if the borrower becomes unable to repay the loan, the agency has to handle the default. Having that guarantee significantly lowers risk for the lender.
As a result, qualifying for an FHA loan is often less difficult than qualifying for a conventional mortgage. This makes an FHA mortgage a good choice if you have less-than-stellar credit scores or a high debt-to-income (DTI) ratio.
Pro: With a FICO® credit score of 500 to 579, you may be able to put just 10% down on a home; with a score of 580 or higher, you may qualify to put just 3.5% payment.
Con: FHA mortgages require you to purchase FHA mortgage insurance, which is called a mortgage insurance premium (MIP). Depending on the size of your down payment, the insurance lasts for 11 years or the life of the loan.
💡 Quick Tip: Check out our Mortgage Calculator to get a basic estimate of your monthly payment.
The U.S. Department of Veterans Affairs backs home loans for members and veterans of the U.S. military and eligible surviving spouses. Similar to FHA loans, the government doesn’t directly issue these loans; instead, they are processed by private lenders and guaranteed by the VA.
Most VA loans require no down payment. However, you’ll need to pay a VA funding fee unless you are exempt. Although there’s no minimum credit score requirement on the VA side, private lenders may have a minimum in the low to mid 600s.
Pro: You don’t have to put any money down or purchase mortgage insurance.
Con: Only available to veterans, current service members, and eligible spouses.
Got your eye on a fixer-upper? An FHA 203(k) loan allows you to roll the cost of the home as well as the rehab into one loan. Current homeowners can also qualify for an FHA 203(k) loan to refinance their property and fund the costs of an upcoming renovation through a single mortgage.
The generous credit score and down payment rules that make FHA loans appealing for borrowers often apply here, too, though some lenders might require a minimum credit score of 500.
With a standard 203(k), typically used for renovations exceeding $35,000, a U.S. Department of Housing and Urban Development (HUD) consultant must be hired to oversee the project. A streamlined 203(k) loan, on the other hand, allows you to fund a less costly renovation with anyone overseeing the project.
Pro: If you have a credit score of 580 or above, you only need to put down 3.5% on an FHA 203(k) loan.
Con: These loans require you to qualify for the value of the property, plus the costs of planned renovations.
A USDA loan is a type of mortgage designed to help borrowers who meet certain income limits buy homes in rural areas. The loans are issued through the USDA loan program by the United States Department of Agriculture as part of its rural development program.
Pro: There’s no down payment required, and interest rates tend to be low due to the USDA guarantee.
Con: These loans are limited to areas designated as rural, and borrowers who meet certain income requirements.
Conventional loans, which are not backed by the federal government, come in two forms: conforming and non-conforming.
Mortgages that conform to the guidelines set by government-backed agencies (such as Fannie Mae and Freddie Mac) are called conforming loans. There are a number of criteria that borrowers must meet to qualify for a conforming loan, including the loan amount.
For 2023, the ceiling for a single-family, conforming home loan is $726,200 in most parts of the U.S. However, there is a higher limit — $1,089,300 — for areas that are considered “high-cost,” a designation based on an area’s median home values.
Typically, conforming loans also require a minimum credit score of 630 to 650, a DTI ratio no higher than 41%, and a minimum down payment of 3%.
Pro: Conforming loans tend to have lower interest rates and fees than nonconforming loans.
Con: You must meet the qualification criteria, and borrowing amounts may not be sufficient in high-priced areas.
Nonconforming mortgage loans are loans that don’t meet the requirements for a conforming loan. For example, jumbo loans are nonconforming loans that exceed the maximum loan limit for a conforming loan.
Nonconforming loans aren’t as standardized as conforming loans, so there is more variety of loan types and features to choose from. They also tend to have a faster, more streamlined application process.
Pro: Nonconforming loans are available in higher amounts and can widen your housing options by allowing you to buy in a more expensive area, or a type of home that isn’t eligible for a conforming loan.
Con: These loans tend to have higher interest rates than nonconforming loans.
A reverse mortgage allows homeowners 62 or older (typically those who have paid off their mortgage) to borrow part of their home equity as income. Unlike a regular mortgage, the homeowner doesn’t make payments to the lender — the lender makes payments to the homeowner. Homeowners who take out a reverse mortgage can still live in their homes. However, the loan must be repaid when the borrower dies, moves out, or sells the home.
Pro: A reverse mortgage can provide additional income during your retirement years and/or help cover the cost of medical expenses or improvements.
Con: If the loan balance exceeds the home’s value at the time of your death or departure from the home, your heirs may need to hand ownership of the home back to the lender.
A jumbo loan is a mortgage used to finance a property that is too expensive for a conventional conforming loan. If you need a loan that exceeds the conforming loan limit (typically $726,200), you’ll likely need a jumbo loan.
Jumbo loans are considered riskier for lenders because of their larger amounts and the fact that these loans aren’t guaranteed by any government agency. As a result, qualification criteria tends to be stricter than other types of mortgages. Also, in some cases, rates may be higher.
You can typically find jumbo loans with either a fixed or adjustable rate and with a range of terms.
Pro: Jumbo loans make it possible for buyers to purchase a more expensive property.
Con: You generally need excellent credit to qualify for a jumbo loan.
💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.
With an interest-only mortgage, you only make interest payments for a set period, which may be five or seven years. Your principal stays the same during this time. After that initial period ends, you can end the loan by selling or refinancing, or begin to make monthly payments that cover principal and interest.
Pro: The initial monthly payments are usually lower than other mortgages, which may allow you to afford a pricier home.
Con: You won’t build equity as quickly with this loan, since you’re initially only paying back interest.
Recommended: What’s Mortgage Amortization and How Do You Calculate It?
There are many different types of mortgages, including fixed-rate, variable rate, conforming, nonconforming, conventional, government-backed, jumbo, and reverse mortgages. It’s a good idea to research and compare different loan programs, consult with lenders, and, if needed, seek advice from a mortgage professional to determine the best type of home loan for your specific circumstances.
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.
There are several types of mortgages available to homebuyers, each with its own characteristics and requirements. Some of the most common types include:
• Conventional mortgage This type of mortgage is not insured or guaranteed by a government agency.
• FHA loan Insured by the Federal Housing Administration (FHA), FHA loans are popular among first-time homebuyers. They offer more lenient credit requirements and allow for a lower down payment (as low as 3.5%).
• VA loan These loans are available to eligible veterans, active-duty service members, and eligible surviving spouses, and come with favorable rates and terms.
• USDA Loan Issued by the U.S. Department of Agriculture, these loans are designed for low- and moderate-income homebuyers in rural areas. They offer low interest rates and may require no down payment.
• Jumbo mortgage A jumbo mortgage is a loan that exceeds the loan limits set by Fannie Mae and Freddie Mac.
• Fixed-rate mortgage The rate stays the same for the entire life of the mortgage.
• Adjustable-rate mortgage (ARM) The interest rate is initially fixed for a specific period, then typically adjusts annually based on market conditions.
Qualified mortgages are mortgages that meet certain criteria set by the Consumer Financial Protection Bureau (CFPB) to ensure borrowers can afford the loans they obtain. The four main types of qualified mortgages are:
• General qualified mortgages These mortgages adhere to basic criteria set by the CFPB.
• Small creditor qualified mortgages These loans have more flexible requirements for small lenders.
• Balloon payment qualified mortgages These mortgages allow for a balloon payment at the end of the term.
• Temporary qualified mortgages This type of qualified mortgage provides a transition period for loans that were eligible for purchase or guarantee by Fannie Mae or Freddie Mac but no longer meet those standards.
The best type of home loan depends on your financial situation, goals, and preferences.
If you have a significant down payment and strong credit, you might consider a conventional mortgage. If, on the other hand, you have limited funds for a down payment and lower credit scores, you might consider a Federal Housing Administration (FHA) home loan.
VA loans benefit eligible veterans and service members, while USDA loans are for homebuyers in rural areas.
Whether to choose a fixed-rate or adjustable-rate mortgage will depend on your long-term plans and tolerance for risk.
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.
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.
SOHL0723018
Read moreSaving for kids’ college expenses can be a massive undertaking, but a critically important one. If you’re a parent, you’ve probably heard the mantra that education is the key to a successful future for your child. You’re also likely aware that college isn’t cheap, and it isn’t getting cheaper.
The escalating costs of college may have you worried about how to pay for higher education. You’re smart to think about how to start saving for college, even if your kids are still young. If you truly want to give your child the gift of a college education and free them from overwhelming student debt, the time to plan is now.
Generally speaking, the sooner you can start saving for your kids’ college fund or overall education, the better. Tuition, even at in-state public schools (which tend to be the least-expensive options for many people) are already in the four and five-figures territory, depending on where you live. And, as noted, it’s unlikely that costs are going to decrease in any meaningful way in the near future.
For parents who paid for college using student loans, emphasizing saving for their children’s college expenses may be a no-brainer. Those parents may benefit from looking through a student loan refinancing guide, too, to see if they can free up space in their budget to increase their capacity for saving – more on that in a minute.
Yes, there are schools that offer free tuition, but it’s probably best to plan on paying for attendance – you never know what could happen going forward.
With that in mind, it’s never too early to start socking away money for your children’s education. Getting a head start gives your money more time to grow over the long term and to rebound after any dips.
It also means you can recalibrate if your child seems to be on track for scholarships related to sports or academic achievements, or if your child decides to forgo college. Keep in mind that the money you save will generally affect the financial aid package your child qualifies for.
Before you launch a college savings plan for your kids, it’s best to have your other financial ducks in a row. You might first focus on paying off any credit card balances or other high-interest debt. Then you might want to make sure you’ve paid off your own student loans (or looked at student loan refinancing, at least) and saved an emergency fund (generally three to six months’ worth of living expenses), and are on track in terms of saving for retirement.
After all, your child always has the option to take out student loans, but you can’t rely on that to pay for a crisis or retirement. You wouldn’t want to have saved for your kids’ college only to burden them with your living expenses after you retire because you haven’t built a nest egg.
Again, if you’re still grappling with your own student loan debts, you can experiment with a student loan refinance calculator to see if refinancing can make it easier to pay it off, and put you in a better position to start saving for your child’s education.
If you’re ready to start saving for higher education, you may be tempted to keep that cash reserve in a savings account. While it might seem like that would protect your funds from market ups and downs, you might actually be losing money.
That’s because even accounts with the best interest rates aren’t keeping up with the pace of inflation. Especially if your child won’t be going to college for a while, investing your savings is a way you might see your money grow. Keep in mind that investments can lose money.
It’s also worth mentioning, again, that many parents may still be struggling with their own student loan debts. As such, it’s worth asking: should you refinance your student loans? It’s worth considering, at the very least, or speaking with a financial professional about if you think it may help you save for your child’s college expenses.
Here are some of the best ways to save for a child’s college:
A 529 plan, also known as a “qualified tuition plan,” allows you to save for education costs while taking advantage of tax benefits (the plan is named after the section of the Internal Revenue Code that governs it). 529 plans break down into two categories: educational savings plans and prepaid tuition plans.
Educational savings plans, which are sponsored by states, allow you to open an investment account for your child, who can use the money for tuition, fees, room and board, and other qualifying expenses at any college or university. You can also use up to $10,000 a year to pay for schooling costs before college.
You can invest the money in a variety of assets, including mutual funds or target-date funds based on when you expect your child to go to college. The specific tax benefit depends on your state and plan. Generally, you contribute after-tax money, your earnings grow tax-free, and you can withdraw the money for qualified expenses without paying taxes or penalties. If you withdraw money for anything else, you’ll pay a 10% tax penalty on earnings.
Not all states offer tax benefits, so be sure to look into this when choosing your plan.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
Prepaid tuition plans, as you may expect, allow you to prepay tuition and fees at a college at current prices. These plans are only available at certain universities, usually public institutions, and often require you to live in the same state. A prepaid tuition plan can save you a lot of money, given how much college costs are increasing each year.
Depending on the state and the 529 plan, you may be able to deduct contributions from state income tax. However, if your prepaid tuition plan isn’t guaranteed by the state, you might lose money if the institution runs into financial trouble. You also run the risk that your child will choose to go to a school that’s outside the area covered by the plan.
Like a 529 educational savings plan, a Coverdell ESA allows you to set up a savings account for someone under age 18 to pay for qualified education expenses. The money can be invested in a variety of stocks, bonds, or other assets, and grows tax-free.
Your contributions are not tax-deductible, and the plan is only available to people who earn under a certain income threshold.
When your child withdraws the funds for qualified educational expenses, they won’t pay taxes on it. The money can also pay for elementary or secondary education. But note that you can only contribute $2,000 per year to a Coverdell ESA per beneficiary.
You can open a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account on behalf of a beneficiary under 18, and all the assets in it will transfer to the minor when he or she becomes an adult (at age 18 to 25, depending on the state).
Young adults are able to use the funds for anything they want. That means they won’t be limited to qualified education expenses. Another plus is that you can contribute as much as you want. The downside is that there are no tax benefits when contributions are made. Earnings are taxable.
A custodial account is an irrevocable gift to the minor named as the beneficiary, who receives legal control of the account at the age of majority.
Given the increasing costs of higher education, parents are smart to save for a child’s college early and often. But rather than keep the money in a savings account, they’d likely benefit by choosing an option that lets their money grow.
The more popular routes for doing so often involve 529 Plans, Coverdell Education Savings Accounts, and UGMA and UTMA accounts. But you’ll need to do some thinking and research before deciding on the right strategy and accounts for you and your child. Just remember: The sooner you start saving, the better — generally speaking.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
With an abundance of Americans reaching retirement age—10,000 people will turn 65 every day for the next two decades—some of those will be looking for a new place to call home and a way to finance it.
You might think of the young and middle-aged as typical homebuyers and older people as more likely to have paid off, or nearly paid off, their homes and wanting to stay put. But with opportunity in the air and a desire to downsize—and sometimes upsize—more retirees could well be in the market for a new home.
Mortgage lenders look for a variety of things when qualifying a home loan applicant. What they can’t do is take age into consideration when making a lending decision.
The Equal Credit Opportunity Act bans creditors from using age to influence a loan application decision.
Retirees applying for a home loan, like people still working, generally just need to have good credit, minimal debt, and enough ongoing income to repay the mortgage.
Here are some of the main factors you need to buy a house that lenders look for:
• Proof of income
• Low debt-to-income ratio
• Decent credit profile
• Down payment
• If it’s a primary or secondary home
Let’s take a look at each.
While many retirees live on a fixed income, putting multiple sources of income together can help establish income that is “stable, predictable, and likely to continue,” as Fannie Mae instructs lenders to look for.
Social Security. The average monthly Social Security payout was $1,827 in 2023, enough to contribute to a mortgage payment. But if Social Security is an applicant’s only source of income, they may have trouble qualifying for a certain loan amount.
Investment income. Sixty-nine percent of older adults receive income from financial assets, according to the Pension Rights Center. But half of those receive less than $1,754 a year, the center says.
But for those who do receive investment income, it’s important to know that a lender generally looks at dividends and interest, based on the principal in the investment. If an applicant plans to use some of the principal for a down payment or closing costs, the lender will make calculations based on the future amount.
Lenders may view distributions from 401(k)s, IRAs, or Keogh retirement accounts as having an expiration date, as they involve depletion of an asset.
Home loan applicants who receive income from such sources must document that it is expected to continue for at least three years beyond their mortgage application.
And lenders may only use 70% of the value of those accounts to determine how many distributions remain.
Annuity income can be used to qualify, as well, as long as the annuity will continue for several years (three years is likely the minimum).
Part-time work. Retirees who earn money driving for a ride-share service, teaching, manning the pro shop, and so forth add income to the pot that a lender will parse.
Clearly, the more income a retiree can note on a mortgage application, the better the odds of a green light.
💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.
If your income level falls into a gray area, mortgage lenders are even more likely to focus on your debt-to-income ratio.
Debt-to-income is a straightforward proposition. It’s calculated as a percentage and it’s vetted by lenders and creditors as a percentage. Simply divide your regular monthly expenses by your total monthly gross income to get your debt-to-income ratio.
Let’s say you have $5,000 in regular monthly gross income and your regular monthly debt amount is $1,000. In that scenario, your debt-to-income ratio is 20% (i.e., $1,000 is 20% of $5,000.)
By and large, the higher your DTI ratio, the higher the risk of being turned down for a mortgage loan.
If you have a spouse who also has regular income and low debt, adding that person to the mortgage application could help gain loan approval. Then again, married couples applying for a loan may want to consider how a spouse’s death would affect their ability to keep paying the mortgage.
Lenders, though, cannot address that matter in the loan application.
Recommended: 11 Work-From-Home Jobs Great for Retirees
Mortgage lenders also give great weight to consumer credit scores when evaluating a home loan application. That’s understandable, as a high FICO® credit score—740 or above is considered generally quite mortgage-worthy—shows lenders that you pay your bills on time and that you’re not a big credit risk.
It might be smart to take some time before you apply for a mortgage to review your credit report, making sure all household bills are up-to-date and no errors exist that might trip you up. And it’s a good idea to limit credit inquiries on big-ticket items.
You can get a free copy of your credit scores at annualcreditreport.com and at any of the “big three” credit reporting agencies: Experian, Equifax, and Transunion.
Mortgage lenders will also take a close look at the home you wish to purchase.
In general, it’s easier to obtain a mortgage for a primary residence, as it represents the home you’ll live in long term and there’s only one mortgage to pay.
A second home, either as a vacation or investment property, is a riskier proposition, as it represents another mortgage to pay and may bring more debt to the lender’s mortgage approval score sheet.
💡 Quick Tip: Because a cash-out refi is a refinance, you’ll be dealing with one loan payment per month. Other ways of leveraging home equity (such as a home equity loan) require a second mortgage.
Using the asset depletion method, a lender will subtract your expected down payment from the total value of your financial assets, take 70% of the remainder (if it’s a retirement account), and divide that by 360 months.
Then the lender will add income from Social Security, any annuity or pension, and part-time work in making a decision.
For borrowers, putting at least 20% down sweetens the chances of being approved for a mortgage at a decent interest rate.
Recommended: Home Affordability Calculator
As a retiree, if your income, debt-to-income ratio, and credit score are solid, you’re as likely as any other borrower to gain approval for a new home loan. Lenders cannot legally take age into consideration when making their decisions.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages
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.
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.
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.
SOHL0623061
A first-time homebuyer isn’t just someone purchasing a first home. It can be anyone who has not owned a principal residence in the past three years, some single parents, a spouse who has not owned a home, and more.
If the thought of a down payment and closing costs put a chill down your spine, realize that first-time homebuyers often have access to special grants, loans, and programs.
To get a sense of who qualifies for a mortgage as a first-time homebuyer, let’s take a look at the government’s definition.
The U.S. Department of Housing and Urban Development (HUD) says first-time buyers meet any of these criteria:
• An individual who has not held ownership in a principal residence during the three-year period ending on the date of the purchase.
• A single parent who has only owned a home with a former spouse.
• An individual who is a displaced homemaker (has worked only in the home for a substantial number of years providing unpaid household services for family members) and has only owned a home with a spouse.
• Both spouses if one spouse is or was a homeowner but the other has not owned a home.
• A person who has only owned a principal residence that was not permanently attached to a foundation (such as a mobile home when the wheels are in place).
• An individual who has owned a property that is not in compliance with state, local, or model building codes and that cannot be brought into compliance for less than the cost of constructing a permanent structure.
For conventional (nongovernment) financing through private lenders, Fannie Mae’s criteria are similar.
💡 Recommended: The Complete First-Time Home Buyer Guide
First-time homebuyers may not realize that they, like other buyers, may qualify to buy a home with much less than 20% down.
They also have access to first-time homebuyer programs that may ease the credit requirements of homeownership.
When the federal government insures mortgages, the loans pose less of a risk to lenders. This means lenders may offer you a lower interest rate.
There are three government-backed home loan options: FHA loans, USDA loans, and VA loans. In exchange for a low down payment, you’ll pay an upfront and annual mortgage insurance premium for FHA loans, an upfront guarantee fee and annual fee for USDA loans, or a one-time funding fee for VA loans.
Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.
The Federal Housing Administration, part of HUD, insures fixed-rate mortgages issued by approved lenders. On average, more than 80% of FHA-insured mortgages are for first-time homebuyers each year.
If you have a FICO® credit score of 580 or higher, you could get an FHA loan with just 3.5% down. If you have a score between 500 and 579, you may still qualify for a loan with 10% down.
The U.S. Department of Agriculture offers assistance to buy (or, in some cases, even build) a home in certain rural areas. Your income has to be within a certain percentage of the average median income for the area.
If you qualify, the loan requires no down payment and offers a fixed interest rate.
A mortgage guaranteed in part by the Department of Veterans Affairs requires no down payment and is available for military members, veterans, and certain surviving military spouses.
Although a VA loan does not state a minimum credit score, lenders who make the loan will set their minimum score for the product based on their risk tolerance.
💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
Fannie Mae and Freddie Mac, government-backed mortgage companies, do not originate home loans. Instead, they buy and guarantee mortgages issued through lenders in the secondary mortgage market.
They make mortgages available that are geared toward lower-income, lower-credit score borrowers.
Freddie Mac’s Home Possible program offers down payment options as low as 3%. There are also sweat equity down payment options and flexible terms.
Fannie Mae’s 97% LTV (loan-to-value) program also offers 3% down payment loans.
If you’re a law enforcement officer, firefighter, or EMT working for a federal, state, local, or Indian tribal government agency, or a teacher at a public or private school, the HUD-backed Good Neighbor Next Door Program could be a good fit. It provides 50% off the listing price of a foreclosed home in specific revitalization areas. In turn, you have to commit to living there for 36 months.
Homes are listed on the HUD website each week, and you have to put an offer in within seven days. Only a registered HUD broker can submit a bid for you on a property.
If using an FHA loan to buy a home in the Good Neighbor Next Door Program, the down payment will be $100. If using a VA loan to purchase a house through the program, buyers will receive 100% financing. If using a conventional home loan, the usual down payment requirements stay the same.
It isn’t just the federal government that helps to get first-time buyers into homes. State, county, and city governments and nonprofit organizations run many down payment assistance programs.
HUD is the gatekeeper, steering buyers to state and local programs and offering advice from HUD home assistance counselors.
The National Council of State Housing Agencies has a state-by-state list of housing finance agencies, which cater to low- and middle-income households. Contact the agency to learn about the programs it offers and to get answers to housing finance questions.
💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($806,500 in most places, or $1,209,750 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.
First-time homebuyers might also want to think about seeking down payment and closing cost help from family members.
If you’re using a cash gift, your lender will want a formal gift letter, and the gift cannot be a loan. Home loans backed by Fannie Mae and Freddie Mac only allow down payment gifts from someone related to the borrower. Government-backed loans have looser requirements.
Want to use your 401(k) to make a down payment? You could, but financial advisors frown on the idea. Borrowing from your 401(k) can do damage to your retirement savings.
First-time homebuyers are in the catbird seat if they don’t have much of a down payment or their credit isn’t stellar. Lots of programs, from local to federal, give first-time homeowners a break.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages
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.
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.
SOHL0623081
Read moreSee what SoFi can do for you and your finances.
Select a product below and get your rate in just minutes.