You’ve decided to buy a home. Luckily, you’ve found a real estate agent who can help you find homes to look at and assist with negotiations and inspections. But what if that agent also works for the seller? But what if that person also works for the seller? That is called dual agency, and there’s a lot to consider before agreeing to the arrangement.
Here’s what future homebuyers need to know about dual agency to help decide if it’s the right choice for them.
What Is Dual Agency?
A dual agent represents both the buyer and seller in the same real estate deal. Dual agents are also sometimes referred to as transaction brokers.
Dual agency can be controversial and is banned in eight states: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, Vermont, and Wyoming.
Other states do not explicitly make it illegal, but some do warn against using a dual agent.
For example, the New York Department of State issued a memo advising consumers to be extremely cautious when signing on with a dual agent because in doing so they forfeited their right to an agent’s loyalty.
However, in every state where dual agency is legal, the law requires agents to disclose their work with both the buyer and the seller. Both buyer and seller must agree to use a dual agent and sign a consent form indicating they understand what they are agreeing to.
Dual agency may also refer to deal-making of seller’s agents and buyer’s agents at the same real estate company.
For example, Keller Williams, one of the largest real estate firms in the nation, has both seller’s and buyer’s agents. If one of its seller’s agents puts a home on the market, there’s a decent chance that one of its buyer’s agents may have a client for the property.
This is less controversial and poses fewer issues as it is still two separate people overseeing the seller’s and the buyer’s interests.
Real estate agents are legally bound to represent the best interests of their clients. This means agents are to disclose any information they have that may or may not help their clients in the negotiating phase.
The obligation to disclose could pertain to information on home inspection reports, defects with the house, or anything else that affects the property’s value.
While representing a buyer, an agent must also disclose any existing relationship with the seller.
A seller’s agent must disclose any relationship with potential buyers and all offers made on the property—unless, in general, the seller has instructed his agent in writing to withhold certain kinds of offers.
Real estate agents are also expected to put their clients’ financial best interests above their own. This could mean putting in an offer below asking price, which would reduce their own commission.
With all of that in mind, it becomes clear that issues of loyalty and confidentiality become challenging in a dual agency situation.
Pros of Dual Agency
Smoother communication: Having one agent representing both the buyer and seller could help create a smoother communication path. Because the person represents both parties, they may be able to speed up any negotiations. In this case, the dual agent may also better understand both the seller’s and the buyer’s timelines, their schedules, and any internal deadlines better than two separate parties could. Buyers wouldn’t have to wait for the seller’s agent to call back and sellers wouldn’t have to wait for a buyer’s agent to call back, because with dual agency they are the same person.
Potentially more information on the home: A dual agent may be able to obtain more information on the home than an agent just representing the potential buyer. In turn, they can relay any pertinent information, such as structural issues, inspection reports, and any updates made to the home, to the potential buyer.
Potentially more access to a larger pool of homes: Remember, dual agency also means a buyer’s agent and seller’s agent working for the same agency. That means, if one home doesn’t work out, the two agents could look internally to find more potential homes their agency represents for the would-be buyers. They may even be able to find a few homes that haven’t hit the market yet.
Possibility for a discount on commission: In a typical real estate transaction, the seller’s agent and buyer’s agent split the commission. A dual agent may be willing to negotiate down their commission since they are double-ending the deal.
Dual agents still have to do their job: In the end, even dual agents must present all offers, prepare all paperwork, present all disclosure agreements, and help to complete the deal.
Buyers (and sellers) won’t get special treatment: Agents only working for one side will likely be willing to go all out for their client to ensure that the client gets the best deal. An agent working for both sides may be more tempted to get the best deal for themselves to maximize the commission (hey, it’s just human nature to look out for No. 1). A buyer (and a seller) usually wants loyalty above all else when looking for a home. Homebuyers may want to seek out someone who knows what’s needed to buy a house and has their back.
Buyers (and sellers) may not get the price they want: Again, a dual agent’s allegiances are split down the middle during the deal-making process. A seller’s agent is meant to promote the home and get the seller the best price for the home with the fewest contingencies.
A buyer’s agent is on a mission to find every tiny thing that needs to be fixed with the home to get the buyer the best deal they can. If a person is representing both sides, how can they do both? It’s important to discern an agent’s allegiances before signing on the dotted line.
No pushback from the other agent: In a two-sided real estate deal, the two agents will typically go back and forth on the home’s price, any reductions the buyer may want in exchange for repairs, the home’s inspection report, and much more. This creates a system of checks and balances for both sides, which can be important when negotiating a fair deal. However, if one person is playing both sides, things may get muddled, hurting both the seller and the buyer.
The Takeaway
Dual agency is rare in the real estate world because most buyers and sellers want to find an agent who is loyal to them and has their best interests at heart. Still, if you find yourself in a dual agent situation, there is much to know.
There’s another important decision most homebuyers must make: getting the right home loan. Different lenders may offer different terms, rates, or perks that may fit a buyer best.
SoFi offers mortgage loans with competitive rates, an online application, and mortgage loan officers who can answer your questions.
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The short answer to the question, “Can I use a credit card in another country?” is yes, you can. The longer answer? Take precautions to ensure you don’t get hit with high foreign transaction fees. You also want to avoid having your card declined because the issuer didn’t know you were traveling and thinks it’s a fraudulent charge.
We’ll review those scenarios and more as we share smart strategies to use your credit card internationally without any hitches or way high fees. Let’s look into:
• Whether you can use your credit card abroad
• How to safely use a credit card overseas
• The cost of using a credit card when traveling
• The pros and cons on using plastic when in another country
• Alternatives to using a credit card when abroad.
Here’s what you need to know.
Can You Use Your Credit Card Abroad?
Whether you’re planning a quick weekend trip to Cabo or going to college abroad, using your credit card can be a super convenient way to pay for day-to-day expenses. It’s also more secure than carrying cash. After all, if you lose paper money, it’s gone… but if you lose your credit card, you can just call the issuer and let them know.
That said, you probably don’t want to rely solely on a single credit card as your only source of funds. Credit cards can be lost or stolen. Additionally, not all vendors will necessarily accept credit cards, and some may not accept the specific type you have. Generally speaking, Visa and MasterCard are more widely accepted than Discover or American Express. Worth noting, though: Both of these latter credit card companies are working hard to increase their overseas presence.
You’ll also want to be aware that many credit cards come with foreign transaction fees that can stack up quickly, even if they appear small. For instance, a 3% foreign transaction fee means that if you put $500 on your credit card during your trip, you’ll spend an additional $15 just for the privilege of using the card. Using a credit card responsibly means being aware of these charges and deciding when and if they are worth it.
Finally, keep in mind that you’ll want to call your card issuer ahead of time to put a travel advisory on the card. That way, they won’t automatically flag a transaction thousands of miles away from home as fraudulent — which could lead to an inconvenient and frustrating declined transaction.
Is It Safe to Use Your Credit Card Abroad?
As long as you’re making purchases from reputable vendors, it is safe to use your credit card abroad. Determining who’s a reputable vendor and who isn’t can be challenging when traveling, and credit card scams can be rampant wherever you go. And it’s always possible, whether you’re traveling or at home, to have your credit card information stolen and used fraudulently. (For example, some criminals steal private information by installing credit-card skimmers on self-service gas pumps.)
How to protect yourself? The best way to ensure your credit card is still secure is to regularly check your transactions and ensure they’re all legitimate. If you see one you don’t recognize, immediately contact your credit card issuer so they can remove the charge and issue you a new card.
Of course, while traveling internationally, it may be difficult to have that new card delivered to you in time to be useful. This is why it’s so important to have some backup funding with you, including some local currency and an additional credit card.
What Are the Costs of Using a Credit Card Overseas?
Using a credit card overseas can get expensive awfully quickly. You may run into hidden costs depending on how you use the credit card. Here are a few to look out for:
• Regular foreign transaction fees These charges are levied by credit card companies simply for your conducting a transaction with a foreign vendor.
• Cash withdrawal fees In some cases, you may be able to use your credit card to access cash money from an ATM. Doing so may incur additional ATM fees on top of the foreign transaction fee. You may even be hit by a third fee from the ATM provider.
• Dynamic currency conversion This is a service that some card issuers offer, which allows you to see what the cost will be in your home currency. Although this can make you feel more secure when it comes to knowing how much something really costs, you may pay for the privilege of seeing that information ahead of time. If you can, choose to have the price listed in the local currency. If you really need to know what that translates to in US dollars (or whatever your home currency is), look it up on your phone. There are plenty of sites and apps that will do the math for you.
• Interest As with any credit card purchase, if you let a revolving balance rack up on your card, you could be subject to expensive interest charges. The best practice is to pay off your card in full, each and every month.
The good news: It’s totally possible to avoid foreign transaction fees by opting for a card that simply doesn’t charge them. You can also skip dynamic currency conversion and decide not to use the card to withdraw cash from an ATM. These moves will help whittle down your fees.
As mentioned above, using credit cards to withdraw cash overseas is possible, but it might not be the smartest option. Along with any foreign transaction fees, you could also be charged cash withdrawal fees, ATM fees, and more.
That said, it is a good idea to have some local currency with you for your journey. So if you aren’t going to use your credit card to withdraw it, what are your options? While ordering foreign currency will almost certainly come at some cost, there are ways to lower the associated fees and save as much as possible.
For example, you may be able to order foreign currency from your regular domestic bank, which could come with fewer charges than withdrawing from an overseas ATM using a credit card. You may also see currency exchange services available at the airport, but these can be pricey in their own right.
Another good option: Withdraw money from a foreign ATM — but using the right kind of card. Some banks offer debit or prepaid cards with no foreign transaction fees, and may even throw in ATM fee reimbursement so you truly don’t have to worry about any additional fees. Of course, you’ll have to put in the effort ahead of time to ensure your bank offers a product like this or even to open a new bank account for this purpose.
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Is It Better to Pay and Withdraw Money in Local Currency?
As mentioned above, one of the costliest parts of overseas travel is dynamic currency conversion — the service that lets you choose to pay in your own currency at a point-of-sale transaction. Dynamic currency conversion comes at an additional cost, and that’s not counting any other foreign transaction fees you might be hit with.
All of which is to say: If you can, paying in local currency is almost always the better option. (And, of course, with cash, you won’t face any additional charges other than what you already paid to acquire the currency.)
Pros and Cons of Using a Credit Card Overseas
As with any financial decision, using a credit card overseas has both pros and cons to consider. Here are a few to mull over.
Pros of using a credit card overseas:
• More secure than cash, which can be easily lost
• Easy to use and less bulky than carrying around bills and coins
• Some cards offer special travel perks, such as the ability to earn miles as a reward, which can make travel easier and cheaper
Now, let’s look at the other side: the cons of using a credit card when you travel outside the U.S.
• Can come with costly foreign transaction fees, some of which may be hidden
• Not all overseas vendors accept credit cards (or all types of credit cards)
• Could be declined if you don’t put a travel advisory on your card
For those who like an at-a-glance approach to seeing the benefits and downsides, take a look at this chart summarizing both sides of charging purchases with a credit card when on foreign soil:
Pros
Cons
More secure than cash
May trigger costly foreign transaction
Easy to use and less bulky to carry
Not all overseas vendors accept credit cards
May offer special travel perks, like earning travel miles
Could be declined if you don’t add a travel advisory to your account
Alternatives to Using Credit Cards
If you decide you don’t want to use credit cards overseas, you can always rely on cash. Ideally, though, you’ll also want to carry a debit card connected to your checking account that allows you to access more cash in case you overrun your original budget or need money in an emergency.
You may also be able to pay for certain goods and services using an online P2P payment system like PayPal or Venmo, or purchase gift cards for specific vendors ahead of time.
Although they’re slightly outdated, traveler’s checks are still available, though relatively rare compared to their heyday. They offer another relatively secure way to pay for goods and services overseas.
Tips for When You Travel With a Credit Card
For the best success when traveling with a credit card, follow these tips:
• Choose a card that’s widely accepted worldwide.
• Shop around for a card that doesn’t assess foreign transaction fees.
• Call your card issuer ahead of time to tell them you’ll be traveling. This will help you avoid having a transaction declined while you’re abroad.
• It’s a good idea to travel with some backup funds, whether that means cash, a foreign-transaction-fee-free debit card, or another credit card.
The Takeaway
Whether you’re studying abroad or just enjoying a foreign getaway, it’s possible to use a credit card in another country. Yet, if you’re not careful, you may run into costly foreign transaction fees that can stack up fast. It’s a good idea to do your homework ahead of time to avoid any billing-statement sticker shock or regret. With a little planning, you can enjoy your travels without the cloud of growing credit-card debt hanging over your head.
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FAQ
How do I pay internationally with a credit card?
The same way you do at home: You might swipe, dip, or tap the card at the point of sale. Use a card that doesn’t charge foreign transaction fees to minimize charges as you travel.
Is it better to use a debit or credit card abroad?
Whichever option offers lower — ideally, zero — foreign transaction fees is the best bet. Keep in mind that withdrawing money from an ATM using a credit card can be a very expensive option for acquiring foreign currency.
Can I withdraw money from my credit card abroad?
You can, but that doesn’t necessarily mean you should. Many credit cards charge foreign transaction fees as well as cash withdrawal fees that can really add up. Look for a bank account that offers a no-foreign-transaction-fee debit card, or order foreign currency ahead of time from your local bank.
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When you’re buying a home, you probably have a million questions that need answering, especially when it comes to getting the proper insurance to protect your investment.
Soon-to-be homeowners may see both title and homeowners insurance on the lending documentation and wonder what the difference is between the two. While both types of insurance can provide vital coverage for homeowners, they differ vastly in their purpose and protection.
What Is Homeowners Insurance?
A homeowners insurance policy protects a home and personal property from loss or damage. It may also provide insurance in the event someone is injured while they are on the property.
Here are some common things homeowners insurance may cover:
• Damage that may occur in the home, garage, or other buildings on the property
• Damaged, lost, or stolen personal property, such as furniture
• Temporary housing expenses if the homeowner must live elsewhere during home repairs
Depending on the policy, homeowners insurance may also cover:
• Physical injury or property damage to others caused by the homeowner’s negligence
• An accident that happens at home, or away from home, for which the homeowner is responsible
• Injuries that take place in or around the home and involve any person who is not a family member of the homeowner
• Damage or loss of personal property in storage
Some coverage may also apply to lost or stolen money, jewelry, gold, or stamp and coin collections.
Buying Homeowners Insurance
While someone can legally own a home without taking out homeowners insurance, the mortgage loan holder may require the homeowner to purchase an insurance policy. Typically, lenders do require this as a condition of the home loan.
It’s important to understand that homeowners need to insure the home but not the land underneath it. Some natural disasters — tornadoes and lightning, for example — are covered by typical homeowners policies. Floods and earthquakes, however, are not. If you live in an area where floods or earthquakes are common, you may want to consider purchasing extra insurance to cover damages from potential disasters.
Special coverage may also be worthwhile for those who own valuable art, jewelry, computers, or antiques.
There are two policy options that can help homeowners replace insured property in the event of damage or a loss. Replacement cost coverage covers the cost to rebuild the home and replace any of its contents, while actual cash value simply pays the current value of the property at the time of experienced loss.
When it comes time to shop for and buy homeowners insurance, start by asking trusted friends, family, or financial advisors for their recommendations. Do some online research, too. Before you make a final decision, contact multiple companies and request quotes in writing to compare their offerings. That process can give you a good idea of who is offering the best coverage for the most affordable price.
Title insurance provides protection against losses and hidden costs that may occur if the title to a property has defects such as encumbrances, liens, or any defects unknown when the title policy was first issued.
The insurer is responsible for reimbursing either the homeowner or the lender for any losses the policy covers, as well as any related legal expenses.
Title insurance can protect both the homeowner and lender if the title of the property is challenged. If there is an alleged title defect, which the homeowner may be unaware of at the time of purchase, title insurance can provide protection to cover any losses resulting from a covered claim.
The policy will cover legal fees incurred if there is a claim against the property.
Both home buyers and lenders can purchase title insurance. If the home buyer is the purchaser, they may want to insure the full value of the property. (The value of the property will affect how much the policy costs). When the lender is the purchaser, they typically only cover the amount of the homeowner’s loan. When it comes time for a home buyer to purchase title insurance, they have full choice of the insurer.
According to the Real Estate Settlement Procedures Act (RESPA) of 1974, the seller cannot require the home buyer to purchase title insurance from one certain company.
Lenders are required to provide a list of local companies that provide closing services, of which title insurance is just one. But it may be worth doing independent research. Lenders may not select their recommendations based on the home buyer’s best interest, but instead because a service provider is an affiliate of the lender and provides a financial incentive in exchange for a recommendation.
Again, it’s a smart idea to seek the counsel of friends and family and do online research to uncover competitive prices and learn which service providers have a solid reputation.
Homeowners insurance is an ongoing cost (billed monthly, quarterly, or annually) that helps cover damage or loss of the home and possessions within the home. Title insurance, on the other hand, can help protect against losses caused by defects in the title and is a one-time fee payable during the closing process. The advantage to having both types of coverage is that each policy can protect homeowners against financial loss in very different circumstances.
Shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.
Experian allows you to match your current coverage to new policy offers with little to no data entry. And you can easily bundle your home and auto insurance to save money. All with no fees and no paperwork.
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Buying a home is probably one of the biggest financial commitments many people make in their life, and so it stands to reason that the process can be complex and lengthy. From figuring out how much you can afford to understanding how mortgages work to getting preapproved to determining where exactly to live…it’s a lot!
But by learning about the usual flow before you begin hitting the open houses, you can be well-prepared to dive into homeownership. Here, the eight steps to follow that will help make purchasing a home a smooth process.
8 Steps to Prepare for a Home Purchase
Here, the moves that will help you get ready to buy your dream property:
1. Determining Credit Score
A homebuyer’s credit score can impact their ability to secure a mortgage loan with a desirable rate. It can also affect how much they’ll be required to pay as a down payment when it’s time to close.
Credit score can be influenced by a variety of factors, from payment history to amount of debt (a.k.a. credit utilization ratio) to age of credit accounts, mix of credit accounts, and new credit inquiries.
Payment history is the main factor that affects a person’s credit score, accounting for 35% of an overall FICO® score. Missing a payment on any credit account — from unpaid student loans to credit cards, auto loans, and mortgages — can negatively impact a person’s credit score.
On the other hand, positive habits can include making on-time payments, limiting the number of new inquiries on their credit file, and working to pay down outstanding balances.
Is There a Credit Score “Sweet Spot?”
Many buyers wonder whether there’s a desired credit score range or “sweet spot” to obtain a mortgage. Typically, a credit score of 740 or higher will get the best deals (meaning lowest rates).
Credit scores can also affect the amount of the down payment itself. Some mortgage lenders require at least 20% of the house’s sale price be put down, but might offer more flexibility if the buyer’s credit score is in the higher range. A lower credit score, on the other hand, could call for a larger down payment.
Whether homebuyers have debt or not, checking credit reports is still a recommended first step to applying for a mortgage. Understanding the information on credit reports can be invaluable in knowing where you stand when qualifying for a mortgage loan rate.
2. Deciding How Much to Spend
Deciding how much to pay for a new home can be based on a variety of factors including expected and unexpected housing costs, upfront payments and closing costs, and how it all fits into the buyer’s overall budget.
Calculating Housing Costs
There are several housing costs for home purchasers to consider that might affect how much they can afford to offer for the house itself. The costs of ongoing fees like property taxes, homeowner’s insurance, and interest — if the loan isn’t a fixed-rate mortgage — can all lead to an increase in the monthly mortgage payment.
Closing costs are fees associated with the final real estate transaction that go above and beyond the price of the property itself. These costs might include an origination fee paid to the bank or lender for their services in creating the loan, real estate attorney fees, escrow fees, title insurance fees, home inspection and appraisal fees and recording fees, to name a few.
Typically, closing costs are between 3% and 6% of the loan’s amount. To get an idea on how this can impact your budget, use this home affordability calculator to estimate total purchase cost.
In addition to closing costs, expenses that potential homebuyers might want to consider are repairs and updates they might want to make to a home, new furniture, moving costs, or even commuting costs.
Finally, unforeseen costs of a major life event like a layoff or the birth of a new child might not be the first expenses that come to mind. However, some buyers could find themselves making a potential home-buying mistake by not getting their finances in order to prepare for the unexpected.
Making a list of these estimated expenses can help homebuyers calculate how much they can feasibly afford. It can also help them create a budget that could help them avoid being overextended on housing costs, especially if they might be paying other debt or saving for other financial goals.
3. Saving for a Down Payment
Saving money for a house is one of the biggest financial goals many people will have in their lifetime. And how much they’re able to offer as a down payment can significantly impact the amount of their monthly mortgage payment.
A larger down payment can also be convincing to sellers who see it as evidence of solid finances, sometimes beating out other offers in a competitive housing market.
The average down payment on a house varies depending on the type of buyer, loan, location, and housing prices. Most recently, the average down payment was 13%.
For first-time homebuyers, 13% or 20% of the price of the home can seem like a daunting figure. Many buyers find that cutting spending on luxury or non-essential items and entertainment can help them save up the funds.
Other tactics could include getting gifts and loans from family members, applying for low down-payment mortgages, withdrawing funds from retirement, or receiving assistance from state and local agencies.
For buyers who were also sellers, proceeds from another property could also fund the down payment.
4. Shopping for a Mortgage Lender
There are many mortgage lenders competing for the business of homebuyers who finance their home purchases. These lenders offer a variety of mortgages to apply for, with a few of the most common being conventional/fixed rate, adjustable rate, FHA loans, and VA loans.
Buyers might not realize they can — and should — shop around for a lender before selecting one to work with. Different lenders offer different variations in interest rates, terms, and closing costs, so it can be helpful to conduct adequate research before landing on a particular lender.
Mortgage lenders must provide a loan estimate within three business days of receiving a mortgage application. The form is standard — all lenders are required to use the same form, which makes it easier for the applicant to compare information from different lenders and make sure they are getting the best loan for their financial situation.
When a buyer is prequalified for a loan, their mortgage lender estimates the loan amount they are qualified for, based on financial information they provided.
When a buyer is preapproved, the lender conducts a thorough investigation into their finances that includes income verification, assets, and credit rating. Preapproval is not a guarantee but tells a buyer that a lender is likely to approve them for a certain amount, as long as they clear the underwriting process.
Having a preapproval letter in hand can help some buyers get ahead by appealing to the seller as a serious intention of purchase and a lender’s guarantee to back that purchase up.
6. Finding the Right Real Estate Agent
While the internet and popular real estate search websites have made it easier for homebuyers to hunt for a house online, most buyers still solicit the help of a real estate agent to find the right home and negotiate the price and purchase.
Also, many realtors are experts in their particular housing market, so for buyers who are searching in a specific location, a real estate agent may be able to offer valuable insights that might not be revealed online.
7. Exploring Different Neighborhoods
By researching neighborhoods where they might want to purchase a property (both in-person and online), homebuyers can get a better sense of what living in their future community could look like.
Many real estate websites provide comparable listings to help determine a reasonable offer amount in a given neighborhood.
Check out housing market
trends, hot neighborhoods,
and demographics by city.
They may also highlight nearby school ratings, price and tax history, commute times, and neighborhood stats like home value fluctuations or predictions, and walkability ratings.
All of this information can help paint a picture of life in the area a homebuyer chooses to settle in. Doing a deep dive into a desired neighborhood can help inform a more realistic decision on where to buy a house.
8. Kicking off the House Hunt
Once the neighborhoods are whittled down, the loan is secured, the real estate agent has been signed, and the savings are set aside, the official house hunt can begin.
With the help of a trusted real estate agent and a housing market with adequate inventory, most homebuyers can begin to book showings, attend open houses, and formally put down an offer on a house they like.
In particularly “hot” markets, houses could receive several offers, so homebuyers might want to be prepared to go through the bidding process with a few properties before they get to that glorious final sale.
Are You Ready to Buy a Home Quiz
The Takeaway
A home may well be the biggest purchase you make and the biggest asset you ever own, so it makes sense to spend some time on the home-buying process. From checking out different mortgage options to getting preapproved for a loan to attending open houses, the process is a valuable one that brings you closer to your dream 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.
SoFi Mortgages: simple, smart, and so affordable.
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.
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 .
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.
A reverse mortgage may help older Americans who find they need more money in retirement. It’s common for inflation and rising medical costs to be issues. A reverse mortgage allows them to convert some of their home’s equity into cash, which can benefit their financial situation.
Protections established over the past few years by the U.S. Department of Housing and Urban Development (HUD) focus on lowering the risk previously associated with reverse mortgages. What’s more, the federal and state governments have taken aim at deceptive marketing practices that can minimize the complex aspects of reverse mortgage agreements.
That said, it’s wise to proceed with caution. There are still considerable cons to reverse mortgages, and borrowers may be unaware of the finer points. One important fact: It is possible to lose one’s home if you don’t comply with all the loan terms. Take a closer look at this topic here.
Why Do People Choose a Reverse Mortgage?
A reverse mortgage allows qualifying homeowners age 62 and older to convert part of the equity they’ve built up in their primary residence into money they can use to pay off their existing mortgage or for any other expenses that come up in retirement (from health-care costs to home repairs).
The big selling point for reverse mortgages is that the loan usually doesn’t have to be paid back until the last borrower, co-borrower, or eligible non-borrowing spouse dies, moves away, or sells the home. And when it is time to repay the loan, neither the borrower nor any of the borrower’s heirs will be expected to pay back more than the home is worth.
Main Types of Reverse Mortgages
There are three basic types of reverse mortgages. The most common is a home equity conversion mortgage (HECM), which is the only reverse mortgage insured by the U.S. government and is available only through an FHA-approved lender. An HECM can be used for anything, but there are limits on how much a homeowner can borrow.
Note: SoFi does not offer home equity conversion mortgages (HECM) at this time.
There are also proprietary reverse mortgages, which are private loans that may have fewer restrictions than HECMs — including how much a homeowner can borrow.
And there are single-purpose reverse mortgages, which are typically offered by nonprofit organizations or state or local government agencies that may limit how the funds can be used. Most of the time, when someone refers to a reverse mortgage, though, they’re talking about an HECM.
Reverse Mortgage Terms to Know
There are safeguards in the reverse mortgage process that protect borrowers, but there are also loan terms borrowers are required to uphold or risk defaulting and potentially triggering a mortgage foreclosure. They include:
Staying Current With Ongoing Costs
Borrowers must stay up to date on property taxes, homeowners insurance, homeowners association fees, and other costs, or they could risk defaulting on the loan. An assessment of a borrower’s ability to pay for those ongoing expenses is part of the reverse mortgage application process, and if it looks as though money might be tight, a lender may require a borrower to set up a reserve fund, called a “set-aside,” for those costs. (In this way, it’s akin to an emergency fund, which is there to cover expenses if needed.)
Maintaining Full-Time Residency
Borrowers (and eligible non-borrowers) must use the home as their primary residence — the home they occupy for most of the year. If they move out of the house or leave the home for more than six months, or receive care at a nursing home or assisted living facility for more than 12 consecutive months, it could result in the lender calling the loan due and payable.
The lender also may choose to accelerate the loan if the borrower sells the home or transfers the title to someone else, or if the borrower dies and the property isn’t the principal residence of a surviving borrower.
Keeping the Home in Good Repair
Because the home is collateral and may have to be sold to repay the loan, lenders may require borrowers to do basic maintenance that will help the property keep its value (e.g., repairing a leaky roof or fixing a problem with the electrical system). If an inspector feels the home is not being properly maintained, the lender could take action.
What Happens If a Reverse Mortgage Borrower Defaults?
If the homeowners default, the first thing that could happen is that future loan payments may be stopped. And if the problem isn’t corrected within the lender’s stated timeline, the loan may become due and payable, which means the money the lender has distributed to the borrower, plus any interest and fees that have accrued, must be repaid. In that case, the borrower typically has four options:
• They can pay the balance in full and keep their home.
• They can sell the home for the lesser of the balance or 95% of the appraised value and use the proceeds to pay off the loan.
• They can sign the property back to the lender.
• They can allow the lender to begin foreclosure.
No matter what the homeowners decide to do, the process could take months to complete. HECM lenders may offer borrowers additional time to fix the problem that put them into default, or the borrowers may qualify for extensions or a repayment plan.
But in the meantime, there could be other implications — if the homeowners are no longer getting money they need to pay their bills or if the lender reports the default to credit monitoring agencies — that could affect the homeowners’ credit scores.
A Few Alternatives to Consider
The advertisements some lenders use to sell their reverse mortgages can be convincing, and some seniors may see these loans as a convenient way to get some extra cash or as a much-needed lifeline.
But, as with any financial decision, there are advantages and disadvantages — and alternatives — to be considered. There are other ways homeowners may be able to get help that could be less complicated and less limiting than a reverse mortgage.
Here are a few options:
• Borrowers may wish to tap into their home’s equity with a traditional home equity loan or home equity line of credit. They’ll have to make monthly payments, and their income and credit history will be considered when they apply, but the terms may be more flexible and the overall cost may be lower than a reverse mortgage. Because the home is used as collateral, there’s still a risk of foreclosure.
• Low interest-rate personal loans might be another option for homeowners who qualify for a competitive interest rate based on their income and credit. Borrowers who don’t have much equity in their home may choose to look into this type of loan, which is unsecured and is paid out in a lump sum. While foreclosure is not a worry with a personal loan, there still may be consequences to the borrower’s credit rating if they don’t uphold the loan terms.
• Borrowers who are struggling to keep up with their bills in retirement may find that refinancing a mortgage with a new, lower-cost mortgage might be an option to help them lower their monthly payments and stay on track with their budget.
Or, if they need extra cash right away and can get a low enough interest rate, they may want to look into a “cash-out refinance,” which would involve taking out a new loan for a larger amount based on the equity they’ve built up during the years they’ve lived in the home.
Unfortunately, no matter which type of loan homeowners might choose, there could be risks.
The government requires a counseling session for reverse mortgage borrowers for a reason: They’re complex, and it can be helpful to have someone cover all the rules and costs involved.
Homeowners also may want to pay a financial advisor and tap their expertise about what type of loan, if any, fits with their needs, goals, and where they are in their retirement.
Though reverse mortgages are available to homeowners starting at age 62, borrowers who expect to have a long retirement may choose to wait until they’re older to tap into their home equity, so they don’t risk running out of money in their later years.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
