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

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

1. Estimate Your Budget

Before any mortgage application, your first step should be figuring out how much house you can afford. Being realistic about your budget — factoring in income, debts, monthly spending, down payment savings, and more — can keep you from shopping outside your budget.

Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, property taxes, and (possibly) private mortgage insurance, or PMI. Some popular methods for calculating your mortgage budget include:

•   The 28% rule: No more than 28% of your gross monthly income should go to a mortgage payment.

•   The 35% / 45% guideline: Your total monthly debt should be no more than 35% of your pre-tax income or 45% of your post-tax income.

When calculating your budget, don’t forget the down payment. A higher down payment can yield a lower monthly payment — and putting down 20% or more could help you avoid PMI — but don’t drain your savings for a down payment. You want to have savings on hand should you need to cover emergency home repair costs down the line.

💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*

2. Choose a Mortgage Type and Term

There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle.

Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or government-insured loan (FHA loan, USDA loan, or VA loan)

•   A fixed-rate or adjustable-rate mortgage

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

•   A conforming or nonconforming loan (such as a jumbo loan)

•   If you should opt for an interest-only mortgage

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

3. Get Preapproved

At this stage in the mortgage application process, you can shop around for multiple mortgage lenders and even get prequalified. Look for lenders that not only offer you a great rate but that are also willing to help you navigate the mortgage process. Here are a few questions to ask a lender to narrow down your list.

Found the perfect lender? Then it’s time to get preapproved. During the mortgage preapproval process, you’ll complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.

In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house.

A preapproval letter, usually good for up to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a preapproval letter may even be a requirement.

Getting preapproved requires some work on your part. You’ll need to furnish the lender with proof that you can afford the mortgage, which typically includes the following documents:

•   Bank statements

•   Paystubs

•   Tax returns

•   W-2s

•   Retirement account statements

•   Gift letter (if you received help from a family member to fund your down payment)

•   Identification

Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.

In general, lenders like to see two years of employment on a loan application. Self-employed individuals will submit two years of tax returns.

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

4.Find a Property and Make an Offer

Your real estate agent will guide you through the process of finding a property and making an offer on a house. The offer is typically written by the buyer’s agent on a standardized form.

Only make offers on properties that fall within the amount you’ve been preapproved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.

Your offer will typically include earnest money — a good-faith deposit you’re making on the house. It’s usually 1% to 3% of the offer price, and it’s meant to make your offer more attractive to the buyer.

If your offer is accepted, you’ll send the signed paperwork to your lender.

5. Submit a Mortgage Application

Lenders are required to do a second credit check before final mortgage loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since preapproval, those actions will have to be vetted.

Responding quickly to your lender’s requests for documentation can help keep your application on track. Your lender likely has most of the required forms from your preapproval application, but in general, you’ll need:

•   Documentation of income: W-2s or 1099s, profit-and-loss statements if self-employed, paystubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: Bank accounts, real estate, investment accounts, gifted funds, etc.

•   Documentation of debts: Any current mortgage if you own a home, car loans, credit cards, student loans, etc.

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

•   Employment documentation: Current employer information, salary information, position/title, length of time at employer, etc.

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

6. Be Patient and Avoid New Debt

The average time between submitting a mortgage application and closing is 50 days. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time.

If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let them know.

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

Recommended: What’s a Mortgage Commitment Letter?

7. Get a Home Inspection

Home inspections may not be required — but they’re a crucial part of the mortgage loan process. Hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction or back out of the deal without penalty.

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

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

8. Go Through the Mortgage Underwriting Process

A major part of mortgage loan processing is the underwriting process. But what is underwriting? The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed and includes the appraisal. During this process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.

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

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

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

After underwriting approval with a “clear to close,” you’re set to close on your loan.

Recommended: Local Housing Market Trends

9. Close on Your New Home

Closing day is when all parties sign the final documents, and ownership is legally transferred from the sellers.

In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 3% to 6% of the mortgage principal and consist of:

•   Lender fees

•   Appraisal and survey fees

•   Title service

•   Recording fees

•   Home warranty costs

•   First year’s premium of PMI

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

Before arriving at closing, however, you’ll want to do a final walk-through of the property. During this walk-through, confirm that the sellers have made all the repairs agreed to — and that the buyers haven’t removed anything, like appliances, that were meant to be left, per the purchase agreement.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common.

The Takeaway

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

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

FAQ

What are the first steps of applying for a mortgage?

The first step when applying for a mortgage is estimating how much house you can actually afford. Once you have an idea of your budget, you can research mortgage types and lenders and get preapproved for a loan.

What are the steps of mortgage loan processing?

During mortgage loan processing, an underwriter will first review your personal information and information about the sale property to determine approval. The potential lender will request an appraisal of the home, and also request additional documents from you as needed. Finally, the underwriter will recommend approval or denial of the loan.

How long is a mortgage loan in processing?

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

How do you know when your mortgage loan is approved?

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

What should I avoid after applying for a mortgage?

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

Photo credit: iStock/MicroStockHub

*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.

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

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.

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Government-backed mortgages can be easier for potential homebuyers to qualify for as these loans are insured by the federal government, which brings down the risk for lenders. There are three main types of government-backed mortgages that can help consumers — and especially first-time homebuyers — reach their goal of homeownership.

Let’s take a closer look at these different types of government-backed mortgages and how these government-backed insured mortgages work.

What Is a Government-Backed Mortgage?

Essentially, a government-backed mortgage is a mortgage loan that a federal government agency insures. These types of mortgages are typically easier to qualify for than conventional home loans, as the lender takes on less risk due to the government insurance that forms the safety net underpinning the loan.

Of course, consumers can also apply for non-government-backed mortgages, so it’s important to do your research before applying for home loans to see which mortgages best suit your financial needs.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

How Do Government-Backed Mortgages Work?

Let’s take a closer look at how government-backed home loans work. To start, they are insured by one of three different federal agencies.

•   Federal Housing Administration (FHA loans)

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

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

The way this works is that if the borrower defaults on the loan, the government repays the lender instead. This greatly reduces the risk that the lender faces, which means they can in turn extend more favorable interest rates to borrowers who may not normally qualify for low interest rates. Many government-backed loans also don’t require a down payment.

Most of these loans are not issued by the government. Consumers still have to apply with private lenders and it’s a bit hit or miss which (if any) types of government-backed loans a private lender might offer.

A government-backed loan works differently than a conventional loan. To start, conventional loans don’t have any government backing and therefore have stricter eligibility requirements. Typically, government-backed loans also have different mortgage insurance requirements than conventional loans and may charge more upfront fees.

Borrowers who choose a government-backed loan also have to meet different eligibility requirements than borrowers who choose a conventional loan. For example, only members of the military or select family members can qualify for a VA loan.

Different Types of Government-Backed Mortgages

There are three different types of government-backed mortgages: FHA, VA, and USDA loans. Each type of mortgage is designed to meet the unique needs of different borrowers. Some consumers may qualify for all three loan types or they may meet the requirements and qualify for just one type of mortgage-backed loan. In some cases, a borrower may not qualify for any of these loans.

•   FHA loans This loan type is backed by the Federal Housing Administration and it tends to be much easier to qualify for than USDA and VA loans. FHA loans are popular with first-time homebuyers. Having a credit score of at least 580 is a must and a down payment of 3.5% is necessary. Those with a credit score in the 500 to 579 range can still qualify, but only if they make at least a 10% down payment. The main disadvantage of FHA loans is they require mortgage insurance initially. If the borrower makes a downpayment of 10% or more, after 11 years the lender can remove the mortgage insurance requirement, but many borrowers need to refinance to escape this insurance.

•   USDA loans Low- or moderate-income borrowers looking to buy a home in a rural area or select suburban areas may qualify for the USDA’s Rural Development Guaranteed Housing Loan Program. There are a few different types of USDA loans and which one a borrower can qualify for depends on their credit score and income. There are no down payment requirements with USDA loans, but there are mortgage insurance requirements. There is no way to remove mortgage insurance from the loan, however the insurance payments are typically lower than those for conventional or FHA loans.

•   VA loans VA loans are only available to active-duty service members, veterans, reservists, National Guard members, and certain surviving spouses. There are no credit score requirements for VA loans or down payment requirements, although some lenders may have their own credit score requirements. There are no mortgage insurance requirements for VA loans, but there are some extra closing costs that can equate to 1.4% to 3.6% of the loan amount.

Pros and Cons of Government-Backed Mortgages

There are some unique advantages and disadvantages associated with government-backed mortgages:

Pros

•   Can be easier to qualify for than conventional loans

•   Lower down payment requirements (or no down payment at all)

•   Lower credit score requirement (or no requirement at all)

•   Potentially lower interest rates

Cons

•   VA and USDA loans can be hard to qualify for

•   You may need to pay mortgage insurance for the life of the loan

•   Not all lenders offer government-backed mortgages

Examples of Government-Backed Mortgages

There are three types of government-backed mortgage. They are USDA loans, VA loans, and FHA loans. Here is how a USDA loan might work: Let’s say you are home-shopping in an area with a population under 20,000. If you have an average or only slightly above-average salary for the area and a credit score of 640 or higher, you might qualify for a USDA loan. (So, for example, if the median annual income in the area is $62,000, you could qualify with a salary of $71,300 or less.) If you borrowed $100,000, you would have a $1,000 mortgage insurance cost upfront, and you would pay about $29 per month for mortgage insurance after that.

If your military service history makes you eligible for a VA loan, you would likely need a credit score of at least 580 to go with a VA loan. You wouldn’t need a down payment or mortgage insurance, but you would pay an upfront funding fee of between 0.5% and 3.6% of the loan amount unless exempt. Your purchase would need to be a primary home, but unlike with the VA loan, there are no restrictions on where that home could be located or what your annual income might be.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Is a Government-Backed Mortgage Worth It?

Whether or not a government-backed mortgage is worth it depends entirely on the borrower’s other home loan options. It’s generally a good idea to shop around with different lenders for the best possible deal. Spend some time comparing potential interest rates, fees, and mortgage insurance requirements to see which loan will cost the most in the long run. First-time homebuyers often find government-backed mortgages especially attractive, in part because it can be difficult to come up with a down payment for a first home.

The Takeaway

Government-backed mortgages can be a great option for borrowers, especially those who don’t qualify for a conventional mortgage. While these government-backed mortgage loans can be hard to qualify for if the borrower doesn’t meet unique requirements (like being a military member or buying a home in a rural area), they can have more relaxed credit score and down payment requirements than those of conventional mortgages.

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

FAQ

What are government-backed mortgages?

Government-backed mortgages are mortgage loans insured by a select federal government agency. There are USDA, FHA, and VA loans available to eligible borrowers. Because these loans are insured by the federal government, the private lenders who issue them take on much less risk and can work with borrowers who wouldn’t traditionally qualify for a home loan.

What are the benefits of a government-backed mortgage?

Often, government-backed mortgages are much easier to qualify for than conventional mortgages. They typically have lower credit scores and downpayment requirements. Because these loans are insured by the federal government, lenders can work with “riskier” borrowers to whom they may not normally offer a conventional home loan.

What are the three types of government-backed loans?

The three main types of government-backed loans are FHA, VA, and USDA loans. The Federal Housing Administration offers FHA loans, the U.S. Department of Agriculture backs USDA loans, and the Department of Veterans Affairs is responsible for VA loans.

Photo credit: iStock/Prostock-Studio

*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.

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.

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.

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Buying a house with your partner? You’ll need to make many decisions during the process — like figuring out who gets to use that sweet spare room as a home office or what your landscaping will look like. But one of the most important choices is how the two of you hold the title of the house. It might sound like a no-brainer, but there are actually a few different legal ownership designations to know and understand.

Both joint tenancy and community property with right of survivorship are ownership structures that can be used by partners buying a home together. But community property with right of survivorship is specifically reserved for married couples, and is only available in certain states. Community property with right of survivorship offers certain tax benefits in the event that one spouse dies before the other, but both of these ownership structures confer joint ownership over the property to both people whose names are on the title.

Let’s take a closer look.

What Is Joint Tenancy?

In order to fully understand community property, it’s helpful to first understand joint tenancy, which is the ownership structure that came first. In fact, community property with right of survivorship is a fairly new legal designation; it was invented by the California legislature back in 2001.

Before that time, joint tenancy was one of the most common ways that couples — or other parties holding an asset together — designated their ownership. Joint tenancy basically states that everyone has equal ownership over the shared asset, be it a piece of real estate or a joint brokerage account. Conceptually, it helps to think about each person owning 100% of the asset, rather than each holding a proportional amount (50/50, 33/33/33, etc). If you and your spouse are first-time homebuyers on the market, understanding this legal jargon is an important step in the journey.

Joint tenancy could be shared between more than two people under certain circumstances — like if you and two friends bought a vacation home together. But because everyone in the agreement owns 100% of the asset, nobody can sell their share of it or will it to their heirs after their death. That’s the “right of survivorship” part: Any surviving parties automatically have ownership rights over the asset if one of the owners dies.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

What Is Community Property?

Community property works very similarly to joint tenancy, but is reserved specifically for married couples. (That’s why it’s also sometimes known as marital property.) Community property is only a legal designation in a handful of U.S. states, including:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

Three additional states — Alaska, South Dakota, and Tennessee — allow couples to decide whether or not they’d like to opt into a community property ownership structure — whereas in the other states listed, community property is the default status for shared ownership of assets between married couples. It is, however, always possible to opt out of the community property system with a prenuptial agreement.

Under community property, each partner has equal joint ownership over shared assets — which, again, can range from a piece of real estate to bank accounts and even to debt (like a mortgage). This means that, in the event of a divorce, all assets are required to be split 50/50 — which is part of why some partners in those states might opt to sign a prenup ahead of time, if they want to hold onto an asset no matter what.

However, community property also comes with the added bonus of some tax incentives for spouses — which is part of why it was created in the first place.

Recommended: The Cost of Living By State

The Difference Between Joint Tenancy and Community Property With Right of Survivorship

The most salient difference between joint tenancy and community property with right of survivorship comes down to taxes.

That’s right: This ownership structure is really all about how much a surviving spouse stands to owe Uncle Sam if their partner passes away.

What Are the Tax Benefits for Surviving Spouses in Community Property States?

In a joint tenancy situation, even with right of survivorship, a property sold after the death of a spouse would be subject to capital gains taxes — taxes levied against earnings on an asset like a home or an investment.

Part of the reason buying a house is considered such a good financial move is because homes tend to appreciate, or grow in value, over time. With the capital gains tax, a surviving loved one would be required to pay taxes on that appreciated value if they chose to sell the home after their spouse’s death.

Community property with right of survivorship, however, allows these proceeds to be exempt from the capital gains tax — which can ease the overall financial burden in an already difficult time.

What Is the Right of Survivorship in Real Estate?

Now let’s take a look at the piece that both joint tenancy and this type of community property have in common: right of survivorship.

Right of survivorship in real estate pretty much does what it sounds like — it confers the surviving partner, in the event of the other party’s death, the right to continue to live in the house. Again, this can ease the burden for a surviving spouse in an incredibly difficult emotional time, when there are already other significant financial planning steps to take. However, it also means that couples under this ownership structure are unable to give the home to an heir, or anyone else, in their will. The property will instead automatically be under the ownership of the surviving spouse.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Does a Right of Survivorship Work With a Will?

So what happens if a person sharing community property — or joint tenancy, for that matter — with right of survivorship tries to leave some or all of their property to an heir in a will?

While every legal case is different, in most cases, the right of survivorship will take precedence over wishes stated in a will. So if Rebecca and Ann share a home under community property with right of survivorship, and Rebecca writes into her will that she’d like to leave her share of the home to her grandson Pete, it’s very likely this wish will be superseded by Ann’s right to survivorship in the event of Rebecca’s death.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Community Property vs Community Property With Right of Survivorship

It’s important to understand that the right of survivorship part of this kind of agreement is separate from the community property part.

Community property basically states that assets acquired in a marriage are evenly shared between the partners, 50/50 — and must be distributed that way in the event of a divorce. But without the right of survivorship, a partner would still be able to will their 50% of the home to whomever they want, which may or may not be their surviving spouse. Those few extra words make a big difference!

The Takeaway

Community property with right of survivorship is a legal ownership structure that confers ownership rights and possible tax benefits to married couples, while also creating rules as to how assets are distributed in the event of a divorce. You’ll need to decide on your preferred ownership structure when purchasing a home, along with other important decisions you’ll make.

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

FAQ

What is the difference between joint tenancy and community property with right of survivorship in California?

Although the designation of community property with right of survivorship was originally invented in California, couples can own property there under either ownership structure — and indeed, many maintain joint tenancy. Community property requires couples to split assets 50/50 in a divorce, which is not the case with joint tenancy. However, in both cases, right of survivorship confers the surviving spouse the right to ownership over the home, and other assets, in the event of one spouse’s death.

What is the difference between joint tenancy and community property in California?

In California, as in all states, the most salient difference between joint tenancy and community property is how a property is taxed in the event it is sold after one party’s death. In addition, community property is an ownership structure only available to married couples.

What are the disadvantages of community property with a right of survivorship?

While every type of shared ownership structure has both benefits and drawbacks, one drawback of community property with right of survivorship is that neither owner can choose to will their share of the property to an heir — instead, ownership is automatically conferred to the other party in the event of their death. Additionally, community property must, by law, be split 50/50 in the event the couple divorces, whereas in other cases there’s more flexibility about what constitutes an “equal” dispersal of assets.

Photo credit: iStock/andresr

*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.

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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

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A $450,000 fixed-rate mortgage, with an annual percentage rate (APR) of 7.3% and a 30-year term, would cost you $3,085.07 per month, or $37,020.84 per year in combined principal & interest payments. Of course, your exact payment would depend on your interest rate and other individual factors.

The same loan amount with a 15-year fixed-rate loan would warrant a lower mortgage rate, but the monthly payment would be higher due to the compressed repayment period. For example, a 15-year mortgage for $450,000 with a 6.3% APR would cost $3,870.68 per month, or $46,448.16 per year.

Keep in mind that these costs factor in your mortgage alone but don’t account for any taxes, fees, insurance, or other payments you may incur over your ownership period. Let’s break down the expected costs of a $450K mortgage payment as well as any additional expenses you’ll need to keep in mind over the life of your loan.

Total Cost of a $450K Mortgage

While it’s easy to focus on your monthly mortgage payment, the economics of taking out one of the many different types of home loans become more pronounced when you weigh the total lifetime cost of the loan.

To put this into perspective, the total cost of the 30-year $450,000 mortgage quoted above at an APR of 7.3% would cost you $1,110,624.90 in payments over the life of the loan. If you were to make every single payment on schedule without any prepayments or late payments, you would pay $660,624.90 in interest over 30 years. A shorter mortgage term would result in significant savings on interest.

Owning a home also involves other costs aside from your mortgage, including things like maintenance, and property taxes; we’ve broken these down into the upfront and long-term costs below.


💡 Quick Tip: SoFi’s new Lock and Look⁺ feature allows you to lock in a low mortgage financing rate for up to 90 days while you search for the perfect place to call home.

Upfront Costs

Upfront costs on a home usually consist of all the expenses required to close on your home purchase, including closing costs, your down payment, and any earnest money you put down on the property.

While your earnest money and down payment are rolled into the purchase price of the home and will eventually come back to you in the form of home equity, closing costs consist of fees to compensate lenders, agents, and other third-parties for the services they provide to facilitate your home purchase.

Earnest money This generally won’t be more than 1-2% of the home’s purchase price and can be rolled into the down payment on your home. It serves as a good-faith deposit to show that you’re serious about buying a home.

Down payment On average, down payments typically make up 3-20% of the purchase price of the home according to the underwriting standards of most major mortgage programs. Lenders usually require a down payment contribution to ensure that buyers have some “skin” in the game, which reduces the likelihood of default on a loan. You also may wish to contribute a greater down payment upfront if you can afford it, as it also directly reduces the amount you need to borrow on your mortgage.

Closing costs Average upfront closing costs will typically set the buyer back 2-5% of the total purchase price of your home, however the amount paid will vary depending on the taxes and fees in your area as well how the fees are allocated between the buyer and seller.

Long-Term Costs

Long-term costs include property taxes, homeowner’s insurance, maintenance, and utility bills.

Property taxes These are levied annually and can vary anywhere from around 0.5% of your home’s assessed value to as high as 3% or more depending on your state and county of residence.

Insurance The average cost of homeowners insurance in the United States is $1,393 per year. However, this can vary widely depending on your policy terms and property type. In many cases, you can save hundreds of dollars on your home insurance each year by shopping around for the best provider.

Maintenance Maintenance expenses vary widely depending on the age and condition of your home. Generally, it’s a good idea to set aside 1-2% of the cost of your home annually for emergency expenses such as roof repairs, plumbing issues, or appliance repairs.

Don’t forget to factor in homeowners association, co-op, or condo fees if these apply to your purchase.

Recommended: First-Time Homebuyers Guide

Estimated Monthly Payments on a $450K Mortgage

The estimated monthly payment on a $450K mortgage with a 7.3% APR and 30-year loan term is $3,085.07. The interest payments on fixed-rate mortgage loans are front-weighted, which results in $4,313 worth of principal paid back within the first year, even though you’ve made total payments of $37,020.83.

As principal is paid off over time, the balance on which interest accrues will decline. As a result, the majority of your monthly payments made during the early years of your mortgage will be dedicated towards interest. During the later years, the principal portion making up your monthly payment will increase as well, accelerating the rate at which you pay off your mortgage.

Here’s an amortization table showing how that plays out over the life of the loan:

💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

How Much Interest Is Accrued on a $450K Mortgage?

One choice you will need to make is the term of your loan. Often the choice is a 30-year versus a 15-year loan term. Over a 30-year term, a $450K mortgage with a 7.3% APR will accrue $660,624.90 in total interest expense over the life of the loan, assuming no prepayments. A similar loan balance with the same interest rate and a 15-year loan term will accrue $291,703.73 worth of interest.

The amount of interest accrued on a mortgage is directly related to the loan balance, interest rate, and speed at which the loan is repaid. The faster a loan is repaid, the less interest that is accrued on the loan balance. This is because the interest has less time to accrue as the loan is paid off.

Monthly Payment Breakdown by APR and Term

We’ve broken down the estimates for a $450K mortgage payment across two interest rates, assuming both 30-year and 15-year terms. Try using a mortgage payment calculator to estimate the payments on your loan terms.

What Is Required to Get a $450K Mortgage?

To qualify for a $450K mortgage, you’ll need to meet minimum income and credit requirements, have enough funds on hand for the lender-mandated down payment, and fall within loan limits for the property type you’re attempting to purchase in your area. We’ve spelled out each step of the process below.

1.    Estimate your budget and review your finances

You can start by pulling a copy of your credit report and conducting an honest review of your budget. All Americans are entitled to one free copy of their credit report each year at Annualcreditreport.com; it’s important to do a detailed review of your credit history to ensure everything is correct and address any outstanding issues.

It’s a good idea to shore up your credit score by taking care of any outstanding debt, within reason, prior to starting the loan approval process. Your credit profile doesn’t have to be perfect, but it’s important to ensure it’s as spotless as possible to 1) increase your probability of being approved, and 2) ensure you get the best terms on your loan.

2.    Get prequalified with multiple mortgage lenders

This step will give you an estimate of how much home you can afford. During this step, each lender will do a soft-pull on your credit report, calculate your debt-to-income (DTI) ratio, and give you a sense of how much you would be eligible to borrow at what interest rate. From there, you’ll move on to getting preapproved for a mortgage in the amount you think you will need to purchase a home.

Recommended: Home Loan Help Center

3.    Place a bid on your dream home

You’ll work with an agent to scout homes in your top neighborhoods and identify your potential dream home. It’s important to have your lender preapproval in hand when you arrive at this step in the process, as that signals to both your agent and home sellers that you’re serious about buying a home.

4.    Complete the mortgage application process

Once you’ve submitted a bid and had your offer accepted, you’ll furnish your chosen lender with more financial documentation so that it can formally underwrite your mortgage loan. All your terms will be finalized during this formal mortgage application stage.

5.    Close on your home

Assuming no hiccups arise during the underwriting process, once your loan is formally approved, the only thing to do is wait for the closing date and ensure all legal forms are signed and payments are transferred in good order. Congratulations!

The Takeaway

A $450,000 mortgage could mean you’re spending between $2,400 and $4,300 per month to pay off your loan, depending on your interest rate and loan term. Even a fraction of a percentage point in your quoted interest rate can mean the difference of tens of thousands of dollars in interest payments over the life of your loan. Consequently, it’s important to get the best terms for your mortgage to maximize your value in this transaction.

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

FAQ

How much does a $450,000 mortgage cost per month?

While the estimates will vary depending on your quoted interest rate and loan terms, a $450,000 mortgage with a 6% interest rate would cost $2,698 per month over 30 years.

What credit score is required for a $450K mortgage?

In most cases, the minimum FICO score required for a conventional $450,000 mortgage is 620, according to Fannie Mae’s underwriting guidelines. However, to qualify for the best terms, you’ll want your credit score to be as high as possible.

Photo credit: iStock/Hispanolistic

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

*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.

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.

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.

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How does subleasing work? Whether you’re a current tenant thinking about subleasing your apartment or a prospective renter looking at a possible subtenant situation, you might be wondering if it makes sense to sublease an apartment.

Subleasing is like renting from another renter instead of the landlord. The rights of the original lease between the owner and the original tenant are transferred to the subtenant, yet the original tenant is still responsible to fulfill contractual obligations of the lease. If the subtenant doesn’t pay, for example, the original tenant will likely still need to pay the landlord rent. (Note that subleasing is different from subletting, in which you let a new tenant take over your current lease and have a direct relationship with your landlord.)

Subleasing may be considered when a tenant needs to move out before it expires. It’s also common when a tenant needs to leave for a short time and wants to return to the apartment later.

What Is Subleasing?

Subleasing is a legal way for a tenant to rent out their property to another tenant (also called a subtenant). The original tenant remains on the lease and is expected to fulfill the obligations of that lease. They may be responsible for damages and unpaid rents caused by the subtenant, for example.

There are a number of scenarios where subleasing might make sense, such as when a tenant wants to rent out extra rooms or when the original tenant needs to leave the area for a new employment opportunity. Breaking leases can be quite costly, so if the landlord allows for a unit to be subleased, finding a subtenant can ease the financial burden on the original tenant. Likewise, if a tenant is able to rent out extra rooms, they can factor that into the money they have available to spend on rent and may be able to afford the apartment better.

How Does a Sublease Work?

A sublease only works if it is allowed by the landlord. Basically, a sublease creates a new landlord-tenant relationship between the original tenant and the subtenant instead of between the landlord and the subtenant.

The new tenant pays the original tenant and the original tenant pays the landlord. The subtenant must fulfill contractual obligations to the original tenant (who acts as landlord) while the original tenant must abide by the lease agreement made with the landlord.

Recommended: How Much Rent Can I Afford on $60K a Year?

When to Consider Subleasing

When canceling/breaking your lease is incredibly expensive, you’re probably looking at what it takes to sublease your apartment or home. Certain situations may make more sense than others when it comes to subleasing.

•   You are temporarily moving to a different location for work and would like to return to your apartment.

•   You have an opportunity to study or work abroad for a semester.

•   You bought a home and have a home mortgage loan to pay for and may need a subtenant to finish your lease for you.

•   You’re moving for a job opportunity and need a subtenant to finish your lease for you.

•   Your family has increased in size and you need a bigger apartment.

•   A personal situation, such as a sudden need to care for an elderly or disabled family member, makes it necessary to move.

Keep in mind, landlords may not allow subleasing. It’s usually specified in the original rental agreement if subleasing isn’t allowed. If your contract does not forbid it, you’re likely able to sublease your apartment.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Pros and Cons of Subleasing

Subleasing has some pros and cons to consider.

Pros of subleasing

•   The financial burden of a lease you can’t fulfill is eased.

•   You may be able to avoid expensive fees for breaking your lease.

•   You may be able to move to a more suitable housing situation for you if you find a subtenant.

•   You may earn income if your subtenant pays more than you pay to rent the property.

Cons of subleasing

•   You may have to act as landlord.

•   You could incur costs for damages caused to the property by the subtenant.

•   You may need to pay rent if the subtenant is unable to.

Recommended: First-Time Homebuyer Programs and Loans

Examples of Subleasing an Apartment

Here’s an example of how subleasing an apartment works: Let’s say you take a hard look at whether you should buy or rent, based on your budget, and you decide to buy or build a house. You find your dream home unexpectedly quickly. Paying for both rent and a mortgage is costly, so you want to find a subtenant to take your spot at the apartment.

You check your lease and there’s nothing in there that disallows it. You advertise, people call you, you meet, and eventually find someone you think would be good. You get them to fill out an application and check their income, credit, and background.

Once everything looks good, have them sign a sublease agreement with you. You move out of the apartment and into your new home. They move in, they pay you, and you pay the landlord. Once your lease is up, assuming you do not renew it, the subtenant will need to work out a new lease with the landlord if they want to stay in the rental.

How to Sublease Your Apartment

So, exactly how does subleasing an apartment work? When it comes to the nitty-gritty details, the process looks something like this:

1. Find a subtenant. Since you’re assuming the role of landlord, you’ll want to advertise and vet the subtenant fully. A landlord will often complete a background check, credit check, and verify income on a tenant — you should do the same with your subtenant.
2. Sign a sublease. Creating a sublease that protects you is key. You’re still responsible for the lease agreement you signed with the landlord, so you’ll need to be as specific as possible about what the situation and rights of the sublease entail.
3. Collect rent from the subtenant. Now that you have a subtenant, you’ll need to collect rent from them and pay your landlord. You’re still responsible for filling the terms of your original lease, after all.
4. Continue paying rent to the landlord as per the original lease agreement. As the primary tenant, you’re responsible for rent to the landlord. If your subtenant doesn’t pay it, you may need to figure out a way to pay the landlord so you’re not in breach of your contract.
5. When your lease and contract ends, the subtenancy will end. The subtenant will no longer have any rights once your lease ends. In apartment complexes, it’s common for the subtenant to apply for a new lease with the landlord and become the tenant.

Recommended: How to Rent an Apartment with No Credit

Tips to Subleasing an Apartment Your First Time

Subleasing an apartment isn’t easy, but it may be the right move to allow you to move on. If it’s your first time, you’ll want to keep these things in mind:

•   Make sure subleasing is allowed in your lease agreement. The last thing you want is to breach your contract. That gives your landlord justification for keeping your deposit and pursuing legal action against you. While this sounds extreme, it’s also not outside the realm of possibility.

•   Screen your subtenant carefully. Since you’re acting as landlord, you’ll want to ensure the subtenant is able to pay and maintain the property. Consider running a background check and credit check, and verifying income. Don’t go off your gut — every rookie makes this mistake — but instead, verify the information the prospective tenant gives you. A good subtenant will make your life 100% easier.

•   Get a professional to create a sublease contract. The contract between you and your subtenant should be strong, or you open yourself up to legal and financial trouble. A professional can help. Some items that may need to be included in the sublease are:

◦   Name of the sublessor

◦   Name of the sublessee

◦   Location of the property

◦   Beginning and end dates of the sublease

◦   Rent and deposit amounts

◦   Due date of rent

◦   Terms and conditions of the original lease

◦   The document should be signed by both parties and possibly by the landlord if it is required

💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

The Takeaway

Subleasing can help you cover the cost of a lease you need to get out of, but it’s not easy and it’s not without risk. Even if you do a great job finding and screening the new tenant, there’s no guarantee they will pay and keep the property in tip top shape. But it’s also possible you’ll find a great subtenant and help you get to the next stage of your life, whether it’s moving in with your partner or buying your first home.

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

FAQ

What is the difference between a lease and sublease?

A lease is a legal contract that grants rental rights for a tenant directly with the landlord. A sublease is a contract between the initial tenant and a second tenant.

Is subleasing easier?

With subleasing, you take on the role of landlord with a new tenant while maintaining a contract with your landlord, so it’s not an easy path. You collect rent from the subtenant and pay the landlord. Along with this, you assume the risk of another tenant damaging the property or not paying.

How does subleasing work in California?

In California, you simply can’t sublease legally without your landlord’s written permission. First, you’ll want to check your lease agreement to make sure subleasing is permitted. Then, if it is allowed, you’ll still need to get written consent from your landlord before subleasing.

Photo credit: iStock/StockRocket

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.

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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