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It’s tough to afford a home these days. If you’re looking at a $275,000 mortgage, you’ll have a monthly payment of around $2,400 with today’s interest rates at 7% on a 30-year loan. You’ll need an income of about $80,000 per year to afford this mortgage.

This can change if you have a significant amount of debt, a low down payment amount, or a less-than-perfect credit history. We’ll run through a few scenarios to show you how much income is needed for a $275K mortgage.

Income Needed for a $275,000 Mortgage

The income needed for a $275K mortgage is around $80,000. If you have more debt, the lender will need to factor that in before calculating how much income you’ll need to afford the $275,000 mortgage. For example, if you have $400 in debt payments each month, you’ll need to earn more money each month to be able to afford the $275K mortgage and still stay within the 36% debt-to-income ceiling most lenders prefer. A closer look:

$2,402 (mortgage) + $400 (other debt payments) = $2,802 total debt payments per month

For $2,802 to be 36% of your monthly income, you would need to make $7,783 each month, or $93,400 per year to qualify for the $275,000 mortgage. This estimate is based on a mortgage calculator with taxes and insurance. If you would like to see what a lender can do for you, explore getting prequalified for a home mortgage loan.

How Much Do You Need to Make to Get a $275K Mortgage?

How much income you need for a $275K mortgage also depends on your debt-to-income (DTI) ratio, down payment, loan type, lender, and credit score. Let’s take a look at these each in detail.

What Is a Good Debt-to-Income Ratio?

The gold standard for debt-to-income ratios is <36%. However, there are lenders who are able to originate loans for borrowers with a DTI ratio up to 45%. Lenders who fall outside the norm in DTI and credit score requirements will influence how much you need for a $275K mortgage.

What Determines How Much House You Can Afford?

Home affordability isn’t a simple equation. There are a number of factors that go into a lender’s decision about your loan.

Income

Reliable income is the largest determinant in loan approval. The more you make, the more you have to work with each month. However, your income and home affordability are affected by how much debt you have.

Debt

Your lender will take into account any monthly debt obligations you have. These will be added to the maximum DTI. If you have debt, your monthly mortgage will need to be lower.

Down Payment

A larger down payment can afford you a larger mortgage. If you’re able to put down 20%, you won’t need to pay for private mortgage insurance (PMI), which saves you money every month. However, 20% could be a big chunk of change to come up with, and most loans accept lower than a 20% down payment to start. See this mortgage calculator for examples.

Loan Type

Home affordability is also affected by the different types of mortgage loans. Fixed-rate loans will have a different monthly payment than adjustable-rate loans, for example. Likewise, the monthly payment on a 15-year mortgage is far different from the payment on a 30-year mortgage.

Lender and Interest Rate

Interest rates will vary from lender to lender. You may also see a different acceptable DTI ratio from lender to lender. When a lender is able to offer a lower interest rate, you’ll see your home affordability improve. When a lender has a higher acceptable DTI ratio, you may be able to qualify for a higher mortgage amount.

Recommended: Cost of Living by State

What Mortgage Lenders Look For

Worried about qualifying for a $275K mortgage? Here’s what your lender will look for during the mortgage preapproval process. These are right in line with home affordability requirements.

•   Income Your income needs to be reliable and sufficient to qualify for the loan you want.

•   Credit score A good credit score helps with approval and lower interest rates.

•   Debt-to-income ratio Too much debt could prevent you from securing the loan you want. Before you apply for a loan, work on paying off debt as best you can.

•   Down payment A higher down payment can help you qualify for a larger purchase price on a home. A down payment over 20% can help you avoid the monthly mortgage insurance payment as well.

•   Loan-to-value ratio Lenders also want to be sure the property you’re buying qualifies for a loan. They don’t want to loan more on the property than it’s worth.

$275,000 Mortgage Breakdown Examples

Your individual situation will influence the income needed for the mortgage you want. Here are a few examples created with a home affordability calculator to show you how this works. In each case, the interest rate is 7% on a 30-year mortgage.

With no debt

•   Principal and interest: $1,830

•   Taxes and insurance: $573

•   Total monthly payment: $2,403

Income needed to afford the monthly payment: $6,672 per month, or $80,064 per year.

Assumptions: 20% down payment. The original purchase price would be $343,750 to get a $275,000 mortgage with a 20% down payment.

With $1,000 per month in debt

•   Principal and interest: $1,830

•   Taxes and insurance: $573

•   Total monthly payment: $2,403

Add monthly debt obligations to the monthly mortgage payment. $2,402 + $1,000 = $3,402 monthly debts.

Income needed to afford the monthly payment: $9,450 per month, or $113,400 per year.

Assumptions: 20% down payment. The original purchase price would be $343,750 to get a $275,000 mortgage with a 20% down payment.

With no down payment and $600 in monthly debt payments

•   Principal and interest: $1,830

•   Taxes and insurance: $458

•   PMI: $252

•   Total monthly payment: $2,540

Add monthly debt obligations to the monthly mortgage payment. $2,540 + $600 = $3,140

Income needed to afford the monthly payment: $8,722 per month, or $104,664 per year.

Assumptions: No down payment. The original purchase price would be $275,000.

Pros and Cons of a $275,000 Mortgage

Pros

•   Lower mortgage payment than for the median home price in the U.S.

•   Lower income requirement than a higher-priced mortgage

Cons

•   Few homes can be found for $275,000

•   May still be unaffordable for many families

How Much Will You Need for a Down Payment?

If you’re deciding how much of your hard-earned money to put down for a down payment on a property that you plan to buy with a mortgage of $275,000, here’s how it breaks down by loan program.

Program	Minimum down payment percentage	Amount for $275,000
VA, USDA	0%	$0
Conventional	3% or more	$8,250 or more
FHA	3.5% or more	$9,625 or more

Keep in mind, when you make a payment lower than 20%, you’ll need to pay PMI each month. For some loans, like the Federal Housing Administration (FHA) mortgage, you’ll need a mortgage refinance to get rid of PMI.

Can You Buy a $275K Home With No Money Down?

Yes, you can buy a $275K home for no money down. The two main programs that don’t require a down payment include:

•   VA (U.S. Department of Veterans Affairs) mortgages

•   USDA (U.S. Department of Agriculture) mortgages

Beyond these two programs, you may also find local housing programs that offer down payment assistance that may be able to help get you into a home with no money down (or close to it).

Can You Buy a $275K Home With a Small Down Payment?

Since a $275K mortgage loan falls under the conforming loan limits, it qualifies for loan programs with lower down payment requirements. These include conventional financing with a minimum 3% down payment for qualified first-time buyers, FHA with a 3.5% minimum down payment, as well as VA and USDA loans which have no down payment requirement.

Recommended: Best Affordable Places to Live

Is a $275K Mortgage with No Down Payment a Good Idea

It’s possible to get a $275K mortgage with no down payment. It also may help you get into a home that you otherwise wouldn’t be able to.

If you’ve run your numbers through a mortgage calculator and have worked closely with a lender to determine if the monthly payment is affordable for you, you shouldn’t hesitate to get a mortgage with no down payment.

The major downside to getting a mortgage with no down payment is the amount of mortgage insurance you’ll pay every month. That will need to be factored in when the lender determines how much mortgage you’ll be able to afford.

Can’t Afford a $275K Mortgage With No Down Payment?

If you still have a little work to get qualified for a $275K mortgage, especially if the cost of living in your state is high, there are some smart moves you can make to help your odds of approval.

Pay Off Debt

You may qualify for more house by paying down debt. Let’s take a look at our previous examples:

With no debt, a $275K mortgage will cost $2,402 per month, and you’ll need to earn $6,672 per month, or $80,064 per year.

With $1,000 monthly debt obligations, a $275K mortgage will have a total of $3,402 monthly debts and you’ll need $9,450 per month, or $113,400 per year to afford a $275K mortgage.

With a reduced debt load of $600 instead of $1,000, and a $275K mortgage, you’ll have a total debt load of $3,002. You’ll need $8,339 in income per month, or $100,067 per year to afford your debt load. This is much less than the previous example where the debt load was $1,000 per month.

Look into First-Time Homebuyer Programs

Most states and local housing programs have some type of first-time homebuyer program. It may be a down payment assistance program or a forgivable second mortgage that helps cover closing costs.

Build Up Credit

There’s nothing you can do about the current interest rates, but you can work on your credit to get the best rate you can. A better credit score translates into a better interest rate almost every time, which helps immensely with affording a $275K mortgage.

Start Budgeting

Good old-fashioned budgeting can help you zero in on your goals and save a large enough down payment to afford a $275K home. It helps to think of budgeting as a tool for achieving goals, rather than a punishment or restrictive way of life.

Alternatives to Conventional Mortgage Loans

If you’re not able to qualify for one of the different types of mortgage loans just yet, you might want to look into the following alternative financing methods:

Seller financing Seller financing is where the seller agrees to carry the mortgage and acts as lender. Usually, it’s a short-term agreement and the seller may charge a higher interest rate than what a traditional lender would. The details of the arrangements are made between buyer and seller, and can be quite complex. But it also avoids many closing costs and can be a faster transaction than a traditional sale.

Private lending A private lender is any lender not associated with a bank or lending institution. They may be more flexible with qualification and offer a wider range of lending tools, such as bridge loans to help you get from one house to another.

Recommended: Home Loan Help Center

Mortgage Tips

Getting a mortgage is intimidating at first. Once you’re done reading tips to qualify for a mortgage, you’ll want to start talking to lenders. Here’s what you’ll do to find the best rate.

1.    Shop around for a loan. Shopping around for a loan within a 45-day window only counts as a single credit inquiry on your credit report, so you can check out as many mortgage lenders as you want. This can help you find one with a great deal and terms that work for you.

2.    Compare loan estimates. A loan estimate is a document that outlines the different loan costs the lender charges. You’ll be able to compare origination fees, underwriting fees, and other closing costs in determining which loan will work best for you.

3.    Don’t get caught up in analysis paralysis. After you’ve looked at a handful of lenders, it’s time to pick one. Make a decision and go forward with excitement about moving into your home.

The Takeaway

Affording a home in today’s economy seems hard, and the amount of income needed for a $275K mortgage may feel like a heavy lift. But it’s not impossible to qualify for the mortgage you want. Even after you’ve worked out all the numbers online, you’ll still want to talk to a lender. They may have more options than you’d expect, and it’s worthwhile to start the process sooner rather than later.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I afford a $275K house on a $60K salary?

If you have a large enough down payment, you may be able to afford a $275,000 house on a $60,000 salary. For a $5,000 monthly income, you’ll need your mortgage amount to be around $1,800. To get to that payment, you’ll need a 20% down payment ($55,000) and a 6% interest rate (if rates don’t drop to that level, you can buy down your rate by paying mortgage points to your lender).

How much does a $275K mortgage cost over 10 years?

With an interest rate of 7%, a $275,000 mortgage will cost $383,158 over 10 years. So your total interest paid on this loan will top $108,000.

What credit score is needed to buy a $275K house?

Your credit score is only one factor in determining whether or not you can afford to buy a $275K house. FHA loans, for example, allow borrowers with credit scores as low as 500 (with a 10% down payment) and 580 (with a 3.5% down payment) to apply. Lenders also look at your debt-to-income ratio, income, employment history, and loan-to-value ratio.

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Photo credit: iStock/FG Trade Latin

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 for more information.

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

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

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

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

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

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Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.

If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.

What Is Mortgage Underwriting?

Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.

If you’re wondering what is the underwriting process, here are some of their tasks:

•   Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.

•   Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.

•   Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.

•   Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.

5 Steps of the Mortgage Underwriting Process

The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.

Here are common steps leading to underwriting:

1. Explore Your Budget

Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.

Think, too, about lending questions you’ll have during the mortgage process.

2. Get Preapproved for a Loan

Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).

A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.

3. Find Your Home

Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.

4. Apply for the Loan

You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.

If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.

5. Wait for the Underwriting Verdict

A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.

The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.

Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.

Required Information for Underwriting

Lenders are going to request a lot of documents from mortgage loan applicants.

Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.

Any additional income. Pension, Social Security, alimony, dividends, and the like all count.

Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.

Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.

Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.

Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.

How Long Does Underwriting Take?

Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.

Can You Speed Up the Mortgage Underwriting Process?

Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.

How You Can Improve Your Chance of Being Approved

Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.

Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.

Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.

Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.

The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.

Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.

Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.

With an underwriter extending a hand, a solution may be found that leads to approval.

The Takeaway

Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How long does it take for the mortgage underwriter to make a decision?

Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.

Is underwriting the last step before closing?

Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.

How often do underwriters deny loans?

About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.

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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 for more information.

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

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

SOHL-Q224-1945575-V1

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As a homeowner, chances are you’ve worked hard to build equity in your property — and if you’re facing a big purchase or unexpected financial need, it may make sense to convert that wealth into cash. But there are a variety of ways to go about it, each with their own benefits and drawbacks. In this article, we’ll walk you through the differences between a Home Equity Conversion Mortgage (HECM) and a Home Equity Line of Credit (HELOC), so you can determine which, if either, is right for you.

What Is an HECM?

Let’s take a look at HECMs first. An HECM is a type of reverse mortgage that allows homeowners aged 62 or over to take out a lump sum against the value of their home. (There are other types of reverse mortgages on the market that may be available to younger applicants, but these are privately offered and not backed by the Department of Housing and Urban Development, or HUD, as HECMs are. There’s also such a thing as an HECM for purchase, which helps those 62 and over finance a principal home.)

For some seniors, HECMs are especially attractive because the loan and its interest don’t need to be repaid until the last surviving borrower permanently vacates or sells the home (or dies). While there are usually upfront fees involved, for some borrowers, this arrangement can feel like free money.

However, because interest is building over time and not being repaid, HECMs can eat into the equity you’ve built in your home, which may be less than ideal if you’re planning to pass it on to an heir as an asset. Along with receiving a less valuable investment, your heirs will also be on the hook to pay the loan in full upon your death — or otherwise surrender the title to the lender.

What Is a HELOC?

A home equity line of credit, or HELOC, works differently than an HECM. A HELOC is kind of like a secured credit card, except it’s secured with your home’s equity. In fact, in some cases, it may literally come with a card — or a checkbook — attached to the account.

A HELOC allows you to borrow money against the value of your home, but doesn’t require you to take one large lump sum. Instead, you can borrow what you need through the HELOC’s draw period, and then repay it during the repayment period that follows. This arrangement may help some people borrow less overall, which in turn could mean paying less for the loan by way of interest. Some HELOC users borrow and repay money repeatedly during the draw period.

However, a HELOC is still a loan — and it still comes with costs. Some HELOCs allow borrowers to make interest-only payments during the draw period. However, once the principal comes due during the repayment period, the monthly payments will be much larger.

Key Differences

While HECMs and HELOCs are similar in some ways, there are some important differences that set them apart — and which may help you determine which is best suited to your needs.

Borrower Age Requirements

HECMs are only available to homeowners aged 62 and over.

HELOCs, on the other hand, don’t have any borrower age requirements — but they do have minimum equity requirements, and the lender will also check out your credit score and proof of income to qualify you for the loan. (Your credit history and other financial information will be part of the lending qualification decision for both HELOCs and HECMs.)

Collateral Requirements

Both HECMs and HELOCs are secured by your home, and you’ll need to have built up home equity in order to have value to borrow against.

Every lender has different specific requirements, but for a HELOC, you’ll generally need to own at least 15% or 20% of your home’s value. For an HECM, you’ll usually need to own a substantially greater portion of your home: 50% is a general rule of thumb, and some lenders may require you to have even more equity than that.

Repayment Requirements

Finally, as discussed above, there are substantial differences in HECM vs. HELOC repayment policies.

HECMs have upfront costs, but the loan principal and interest don’t come due until after the last surviving borrower sells the property, permanently moves out of the home, or dies.

HELOCs, on the other hand, are split into a draw period and a repayment period. During the draw period, when you can borrow against your home’s value, you may be able to make interest-only payments; both principal and interest will come due in the repayment period. The draw period is often 10 years long, and the repayment period may be another 10 or even 20 years.

Pros of an HECM

So, what are some of the benefits of a reverse mortgage?

•   Money up front with no interest until later. For seniors who are planning to live in their home until they die — and don’t necessarily want to pass the property on to heirs — an HECM can provide an additional income stream that doesn’t require repayment during their lifetime.

•   HECM funds aren’t taxable. Because money you borrow with an HECM isn’t considered income, you don’t owe income taxes on it.

Cons of an HECM

And now, some HECM drawbacks:

•   You’ll decrease your home’s value as a personal investment. Because an HECM is borrowed against your equity and repayments don’t begin until after you move out or die, it will decrease the value of your property as an investment for you and your family.

•   You’ll probably still have to pay upfront fees. Even for those who see HECM funds as “free money,” origination fees and other upfront costs can still add up to a sizable amount.

•   Your home could be foreclosed if you fail to make other payments. Property taxes, homeowners association fees, and homeowners insurance premiums will all still be due regularly, and if you don’t pay them, your HECM lender could take possession of your home.

•   Your heirs may face a challenging decision. If you don’t repay your HECM during your lifetime, your heirs will either have to repay the loan in full or surrender the property to the lender — and they’ll be forced to make that decision fairly soon after your death as the transaction typically needs to happen within one to six months.

Pros of a HELOC

Now, let’s take a look at the best reasons to consider a HELOC in the question of HECM vs. HELOC.

•   Lower interest rates than other forms of credit. Because a HELOC is secured by your home, it may offer lower interest rates than comparable types of loans like unsecured credit cards.

•   Borrow only what you need. HELOCs allow you to flexibly borrow only what you need during the draw period, rather than taking out a lump sum.

•   HELOC interest may be tax-deductible if you are using the funds you borrow to make improvements on your home.

Cons of a HELOC

There are drawbacks to HELOCs, too, to be aware of. For instance:

•   Variable interest. Most HELOCs have variable interest rates, which means your monthly payment can be unpredictable as market conditions change.

•   Decreased equity. Like any loan taken against your home’s value, a HELOC can decrease the amount of equity you own — which in turn decreases the value of your home investment (until the loan is repaid).

•   HELOCs open you up to foreclosure. If you fail to make your HELOC payments, the lender can foreclose on your home (even if you’re still making payments on your primary home mortgage loan).

HELOC vs HECM: Which Option Is Better?

In the end, only you can determine which of these loans makes the most sense for your personal situation — or if it would be better to find another way entirely to meet your financial needs. Both HELOCs and HECMs put your home on the line and decrease the equity you’ve worked hard to build in your property.

For those age 62 and over who are eligible to apply for an HECM — and who don’t plan on leaving the home to heirs — a reverse mortgage could offer access to cash without many costs in the short term.

For those who are looking for a more flexible way to borrow against their home equity, a HELOC may help you convert your home value to cash at a lower interest rate than other types of loans. However, variable-rate interest can make payments unpredictable, and if you choose interest-only payments during the draw period, you may be stuck with much higher bills later on when repayment comes due.

The Takeaway

HELOCs and HECMs can help eligible borrowers use the value they’ve built in their home to their advantage by converting some of it to cash in the short term. However, both are forms of debt, and therefore costs and risks are involved. One major advantage of HELOCs is that anyone with sufficient equity in their home can apply for a HELOC, whereas HECMs are only for those age 62 and over.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What are the differences between HELOC and HECM?

An HECM is a type of reverse mortgage. It is a loan available solely to homeowners aged 62 and over. With an HECM, the principal and interest payments don’t become due until the borrower moves out of the home or passes away, which can make them attractive for some seniors (but challenging for those hoping to pass on the home to heirs). A HELOC, on the other hand, is a more flexible line of credit that allows you to borrow money as needed, up to the maximum amount you qualify for, against your home’s equity. Unlike HECMs, HELOCs do not have age eligibility requirements.

What are the downsides of an HECM loan?

HECMs lower the equity you own in your home, and since interest and principal are building up unpaid over time, the value of your ownership can decrease dramatically over the course of the loan’s lifetime. Furthermore, the entire sum of the loan becomes due when the last surviving borrower vacates the home or passes away, which means your heirs will need to pay up — or they will forfeit the property to the lender.

Is there an age requirement for a HELOC?

Unlike HECMs, HELOCs do not have age requirements. However, your lender will still assess your creditworthiness, and there are also minimum equity requirements to ensure you own enough of your home’s value to borrow against.

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Photo credit: iStock/VioletaStoimenova

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 for more information.

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

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

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

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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A reverse mortgage is a popular way for retirees to supplement their retirement income. A home equity conversion mortgage (HECM) is the Federal Housing Administration’s reverse mortgage program, which allows borrowers to withdraw some of the equity in their home. It has stricter eligibility requirements than other reverse mortgages, but it is also the only reverse mortgage insured by the U.S. Government.

Here’s a look at the unique aspects of an HECM compared to a traditional reverse mortgage, the pros and cons, and the all-important fees that come with reverse mortgage financing arrangements.

What Is a Reverse Mortgage?

A reverse mortgage loan is a way to obtain financing using your home as security. In most cases, the home must be your primary residence. You, as the borrower, receive either a lump sum or an amount each month. You accrue interest and pay fees based on the amount you receive, and the amount you owe the lender increases over time. As your loan balance increases, your home equity decreases. You pay back the loan when you sell the house, permanently move away, or pass away.

When someone with a reverse mortgage dies, the heir who has inherited the house settles the loan balance, either by repaying the outstanding loan amount, selling the home and keeping any remaining proceeds after settling the loan, or signing over the deed to the lender.

What Is an HECM?

A home equity conversion mortgage (HECM) is one type of reverse mortgage. It is the most popular type of reverse mortgage, but it is only available to people aged 62 and older. This is the only reverse mortgage insured by the U.S. Government and is only available through a lender approved by the Federal Housing Administration (FHA). (It’s not to be confused with an HECM for purchase, which allows homebuyers aged 62 and older to purchase a home with the loan proceeds from a reverse mortgage.)


💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Key Similarities

HECMs and other types of reverse mortgages share similarities. One is that they are a popular way for seniors to supplement their income if they have significant equity in their home. Another is that borrowers remain responsible for paying the property taxes and homeowners insurance for the life of the loan.

Key Differences

There are always reverse mortgages pros and cons. But there are also key differences when you examine an HECM vs. a reverse mortgage.

•   Age of borrowers: A reverse mortgage is an option for anyone aged 55 or older. An HECM is only available to those aged 62 or older.

•   Payout options: Reverse mortgages typically only offer a lump-sum payout. An HECM has more options, such as a lump sum, monthly payouts, or a credit line.

•   Stricter eligibility requirements: The HECM property must be a primary residence, the homeowner must have a certain amount of equity, and the homeowner must have the ability to pay property taxes and homeowners insurance.

•   FHA-insured: The HECM is the only reverse mortgage insured by the U.S. federal government and is only available through an FHA-approved lender.

•   Mortgage insurance: This may not be required for a proprietary mortgage, but it is for an HECM.

•   Lending limits: For an HECM the lending limit is $1,149,825 for 2024. Lending limits may be higher for other reverse mortgages.

Pros of an HECM

The main advantages of an HECM are that monthly payments are not required because the loan is paid back when the home is sold. Also, lenders do not set a minimum credit score to qualify. The table below lists the pros of an HECM.

Pros of an HECM

No required monthly payment	Borrowers can pay down the principal each month, pay just interest, or pay nothing at all until the home is sold.
No minimum credit score	Lenders do not look for a minimum credit score, but they may do a credit check to look for federal tax liens or loan delinquencies.
FHA-insured	The FHA protects you if your mortgage is more than your home’s value.
No spending restrictions	You can spend the money from an HECM on whatever you like.
No income taxes	The money from an HECM is not subject to income tax.
Guaranteed income	As long as you stay in your home, you are guaranteed the income from an HECM.
Home ownership	When it is time to sell your home, any remaining equity after paying off the mortgage belongs to you or your heirs.

Cons of an HECM

In the HECM vs. reverse mortgage equation, the cons of an HECM are mostly related to the strict eligibility requirements listed in the table below.

Cons of an HECM

Age requirements	You must be at least 62 years of age. This applies to your spouse also if you are applying together.
Home maintenance	You must live in the home as your primary residence and maintain it appropriately.
Free of debt payments	You must be free of debt payments and up-to-date on your insurance and property taxes.
Scams are rife	Some HECMs are scams. It’s wise to consult a financial advisor before signing anything so that you understand the terms and consequences of the loan.
Potential loss of aid	The IRS does not consider an HECM as income, so you do not have to pay taxes on the financing. However, the money may affect any Supplemental Security Income or Medicaid you may be eligible for.

Comparing Costs and Scenarios

A reverse mortgage does not require a monthly payment, but you will pay origination, servicing, and third-party fees, property taxes, and insurance. These fees are paid back when you sell your home, move, or pass away.

The amount that you can borrow through a reverse mortgage will be less than the full value of your home to cover the cost of insurance and origination fees. Also, the younger you are the less you can borrow because you are expected to live longer, giving the loan more time to grow before the debt is paid. If you’re thinking about a reverse mortgage, it might be wise to also look at a home equity line of credit (HELOC), which is another way to borrow based on the equity you have in your home. HECM vs. HELOC is worth considering as there are costs and benefits in each case.

Insurance Premiums

For an HECM, you will likely pay a mortgage insurance premium (MIP) at closing and an annual MIP for the life of the loan. The MIP charge at closing is based on the home’s appraised value or the HECM loan limit, whichever is less. Insurance fees are typically 2% of your home’s appraised value upfront, and then you will be charged an additional 0.5% of the total loan value annually. There will also be an origination fee of around 3% of the loan value.

The HECM loan limit is $1,149,825 for 2024.

Origination Fee

Your lender will charge an origination fee for processing your HECM loan. According to the U.S. Department of Housing and Urban Development (HUD), the lender can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000 or $2,500, whichever is the greater amount. However, the lender cannot charge more than $6,000.

Here are a few scenarios for an HECM loan with different home values and the associated costs. Note that not all lenders charge the maximum fee, so it pays to shop around.

1.    Home value: $100,000

The home’s value is less than $125,000 so the lender will charge $2,500.

2.    Home value: $175,000

Since the home is valued at more than $125,000 but less than $200,000, the lender will charge a maximum of 2% of the home’s value, or $3,500.

3.    Home value: $350,000

Since the home is valued at greater than $200,000, the lender may charge up to 2% ($4,000) plus 1% for the remaining $150,000 ($1,500), for a total of $5,500.

Servicing Fee

The servicing fee covers the cost of calculating and sending statements and making sure taxes and insurance premiums are up to date. If the interest rate is fixed or annually adjusted, the monthly fee may be around $30. If the interest rate is adjusted monthly, the fee might be slightly higher and around $35. At closing, the lender may set aside the servicing fee and add the cost to your loan balance each month.

Third-Party Fees

Third-party fees are closing costs and include survey and appraisal fees, title and title insurance fees, and credit checks. These are likely to be in the range of $1,000 to $2,000.

Interest Rates for HECMs

Reverse mortgage interest rates are another factor to consider. It’s not easy to find the interest rates for HECMs. However, you can find recent average rates on the HUD website. The interest rate will vary between private and HECM loans, but the latter tend to have lower interest rates because they are backed by the FHA.

Fixed vs. Adjustable Interest Rate

Most lenders offer monthly adjustable interest rates. The lender calculates an adjustable HECM by including an index and setting a margin. The margin does not change after the loan is originated, but the index fluctuates according to the market. Reverse mortgage borrowers can’t typically predict how much interest they will ultimately pay because the term of the loan is uncertain and interest continues to mount over the life of the loan. How much interest will ultimately accrue is somewhat uncertain for both variable and fixed rate reverse mortgages, so it is wise to discuss the pros and cons with a lender and with a financial advisor as well.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

The Takeaway

An HECM is a type of reverse mortgage. It has stricter eligibility requirements compared to other reverse mortgages. To qualify for an HECM, you must be aged 62 or older and should be relatively free of debt.

There are benefits to an HECM. For example, it is FHA-insured and you don’t have to pay tax on the payouts. However, an HECM may affect your eligibility for Supplemental Security Income or Medicaid. Also, the lending limits are lower for an HECM. Seekers of a reverse mortgage or an HECM should be careful not to fall victim to a scam and a fraudulent loan — do your research carefully and only work with a lender that has a good reputation. Consider asking a trusted financial advisor for a recommendation.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is an HECM the same as a reverse mortgage?

An HECM is a type of reverse mortgage. However, it is only available to people aged 62 and older. An HECM is insured by the U.S. federal government and is only available through a Federal Housing Administration (FHA)-approved lender.

What are the main differences between an HECM vs. reverse mortgage?

The main differences between an HECM and a reverse mortgage are that an HECM is only available to those aged 62 or older. An HECM is also FHA-insured. The payout options are often more flexible for an HECM, whereas a private reverse mortgage might only offer a lump sum payout.

Are the qualifications the same for an HECM and reverse mortgage?

No. For an HECM, you must be 62 years old or older, whereas other reverse mortgages are available to those 55 and over. For an HECM, the property must be your primary residence, and the equity requirements might be higher for an HECM than a private reverse mortgage. Also, the lender will want to see that you can pay property taxes and homeowners insurance.

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Photo credit: iStock/LordHenriVoton

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 for more information.

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

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

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

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

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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It has long been the norm in real estate transactions for the buyer’s and seller’s agents to be paid with a commission fee — typically 5% to 6% of the house price — that was split between the two agents and paid by the seller. But in early 2024, the National Association of Realtors®, a real estate trade association, agreed to settle a group of lawsuits that challenged this commission structure for violating antitrust laws and contended that commissions were artificially inflated.

NAR will pay out $418 million in damages. But more importantly for homebuyers, the fallout could trigger big changes in how homebuyers work with real estate agents to make their purchase — and maybe even save buyers and sellers a little money. NAR Realtors handle the majority of sales in the U.S., so this settlement could have a significant impact on real estate transactions going forward.

How might real estate agent fees work in this new environment? If you plan to buy or sell a home, it’s important to understand. Let’s take a closer look at how homebuyers and sellers might be affected.

What’s Changing About Real Estate Commissions?

The NAR settlement, which was preliminarily approved by a judge in April 2024, means that as of August 2024, sellers’ agents will no longer be required to offer to share commissions with buyers’ agents. If a commission (paid by the seller) is compensating the seller’s agent but not the buyer’s agent, homebuyers will likely be responsible for paying their own agent.

This isn’t all bad news for buyers. Sellers might reduce home prices if their costs associated with paying a broker are lower. It’s also possible that buyers’ brokers will compete for customers by keeping their fees low. But it’s too soon to say what exactly will happen.

What Does a Buyer’s Real Estate Agent Do?

If you’re a homebuyer, especially a first-time homebuyer, you may be wondering what services you would be paying for when you hire a real estate agent. Agents can perform a variety of services on behalf of their clients. If you’re buying a home, an agent can help you:

•   Narrow your search to the most desirable properties for your budget

•   View the homes in person or virtually

•   Make an offer on a property

•   Navigate the home inspection process

•   Negotiate any contingencies you’d like to include in the home contract

•   Prepare for closing

Who Pays the Agents’ Commissions?

It remains to be seen whether real estate agents will charge by the hour or bill customers a flat rate — or if some agents will continue to work on commission that is perhaps paid by the buyer.

Buyer’s real estate agents might begin to charge a fee (vs. a commission) for showing homes and shepherding clients through the purchase process. For buyers, this would add to the cost of a home purchase. Buyers have long suspected that sellers baked the commission fees into a property’s price, so that, in effect, buyers were already paying the commission. But while buyers could cover those baked-in costs out of their home mortgage loan, new fees paid by the buyer to the agent would come from the buyer’s pocket.

And they aren’t the only fees a buyer has to pay to finalize the purchase of a home. Closing costs can include:

•   Attorney fees

•   Title search and title insurance fees

•   Credit check fees

•   Upfront costs paid to cover homeowners insurance and/or property taxes

•   Home mortgage loan origination fees

•   Mortgage points, if you choose to purchase them

•   Recording fees

Closing costs typically run between 3% and 6% of the home’s purchase price. So if you’re buying a $300,000 home, you might pay anywhere from $6,000 to $15,000 at closing, not including the down payment.

Closing costs are usually the buyer’s responsibility, but it’s not unusual for buyers to persuade sellers to share some expenses that are paid in advance.

All this may lead some buyers to consider shopping for a home without the help of an agent. If you’re thinking of going this route, be prepared to spend lots more time researching potential properties, reaching out to schedule viewings, and vigorously advocating for yourself if you’re in a seller’s market. And be ready to be your own best representative in negotiations.

Recommended: Cost of Living By State

What Does a Seller’s Agent Commission Cover?

Real estate commissions compensate a seller’s agent for the work the agent puts into helping sell the home. What this specifically entails can depend on the agent you’re working with and your needs. But again, this often involves researching listings, preparing comparative analyses, guiding home viewings, and helping to negotiate offers.

Here is how the commission fee has typically worked in the past: Say a home sells for $366,000 (the average home price in Fresno, California) and the commission is 6%, or $21,960.

If the sellers owe $250,000 on the home’s mortgage, they’d be poised to pocket $116,000 in profit. But first they have to subtract $21,960 to cover the commission fee. It’s likely that the commission fees will be lower now that the commission is not shared between the buyer’s and seller’s agents. But exactly what percentage a seller’s commission fee will be is up in the air.

Commissions are paid out once the transaction is complete. This typically happens after the buyer and seller have signed their closing paperwork. The seller will receive a check for any profits due to them from the sale, while the agent receives a check for the commission. Exact amounts of commissions, like home sale prices, vary widely by state.

It’s worth noting that there are still other costs involved in selling a home. You may pay a separate fee for professional staging or photography to get it ready to list, for example.

Recommended: Home Appraisals 101: What You Need to Know

Flat Fee vs Real Estate Commission Fee

There are real estate brokerages that advertise listing services for a flat fee. Usually, the flat fee is very low and may only include a listing with photos on the MLS (the Multiple Listing Service, a list of available properties). Real estate agents who charge a flat fee usually don’t offer to schedule showings or manage the listing in other ways.

Are Real Estate Commissions Negotiable?

More than ever, thanks to the NAR settlement, real estate commission fees may be on the table for negotiations. A seller may be able to ask for a reduced commission if you’re working with an agent to sell multiple properties. The agent may be open to accepting a slightly lower fee per deal if there are multiple deals in play. This, of course, depends on how likely those properties are to sell at your desired price point.

As a buyer, how you might negotiate paying your agent in this new payment structure remains to be seen — and it will be up to you to start that conversation. Remember that you can also still negotiate a house price in other ways, such as by tailoring your offer price and asking the seller for help on closing costs.

Why Even Involve Agents?

You could buy a house without a Realtor® but having a professional’s help can be invaluable, especially if you’re a first-time homebuyer. (Realtors® are real estate agents who are members of the country’s largest trade association, the National Association of Realtors®. They subscribe to a strict code of ethics.)

A real estate agent or Realtor® can help you navigate the ins and outs of the homebuying process so that you can feel confident about your purchase.

Real estate agents are legally obligated to put their clients’ best interests first. They are trained to negotiate price and contingencies, handle legally binding documents, prepare and show properties for sale, and market homes through the MLS.

And if you’re thinking about selling your home on your own, it’s worth considering that homes for sale by owner usually sell for an average of $100,000 less than agent-assisted sales.

The Takeaway

Changes in the way that real estate agents are paid are underway, and while sellers will continue to pay their agents a commission, buyers may increasingly need to pay their agents themselves. Whether buyers come out ahead financially in this changed compensation structure remains to be seen. Bottom line? If you are in the market for a new home, make sure you discuss an agent’s fee structure and payment process before signing on.

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

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is commission and flat rate the same?

No. A flat rate is a specific rate negotiated for a certain service, while a commission-based fee is based on a price, such as the sale price of a home. For a seller, a flat rate typically covers only basic real estate agent services such as listing the property in a database.

What fee do most Realtors charge?

Historically, most real estate agents have worked on commission and would split an amount equal to 5%-6% of a home’s price, which was paid by the seller. Now, seller’s agents may still be paid on commission (albeit a smaller percentage) but buyer’s agents will increasingly be paid by the buyer. This means buyers will need to negotiate a fee with a real estate agent before agreeing to be represented by that agent in their home search. The amount of the fee will vary based on factors such as location, services provided, and time spent.

What is the difference between a flat fee and a fixed fee?

Yes, a flat fee and a fixed fee are the same when it comes to how a real estate agent is paid.

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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 for more information.

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

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

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

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

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