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Mortgage rates have risen considerably recently, from an average of 2.96% for a 30-year fixed-rate loan at the end of 2021 to around 6% to 7% at the midpoint of 2023. But despite it being more expensive to borrow money for a home, refinancing is still an attractive option for many homeowners. It allows you to replace your current mortgage with a new, potentially more advantageous one.

Perhaps you decided that you’d like to change your loan term, or you received a windfall you’d like to put toward lowering your mortgage ASAP. Another possibility is that you’ve built up equity and would like to tap it in a cash-out refinance.

Whatever your situation may be, here’s what you need to know about refinancing a home mortgage loan, from whether it’s right for you to what steps are involved to how much it will cost.

What Is Mortgage Refinancing?

Mortgage refinancing occurs when you replace one home loan with a new one. You might do so for such reasons as:

•  To get a different loan term (say, 15 years instead of 30, or vice versa)

•  To get a better interest rate

•  To tap your home equity

•  To make a switch between a fixed- and adjustable-rate loan

•  To get rid of mortgage insurance on an FHA loan.

You need to go through the loan application process, underwriting, and closing again and pay the related costs. The new loan will pay off the old one. Then, going forward, you pay the new lender every month instead of your previous one.

Mortgage Refinancing Costs

Refinancing will generally cost from 2% to 5% of your loan’s principal value in closing costs. That’s a significant range, so it can be wise to shop around to make sure you’re getting the best deal.

Since you’re essentially applying for a new loan, you will likely need a chunk of cash at the ready if you choose to refinance. For this reason, it’s important to consider those refinancing costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years — which means you shouldn’t have immediate plans to move.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this will only be an estimate, and each lender will be different. As you do your research, lenders can provide final closing cost information alongside a quote for your new mortgage rate.

When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a history of managing credit well and a strong financial position, there are some mortgage refinancing lenders that will probably reward you by offering a better rate than they would charge those with lesser credentials.

Recommended: Home Affordability Calculator

How Long Does a Mortgage Refinance Take?

The process can take anywhere from 30 to 45 days or longer to complete. Factors that impact timing include the complexity of the loan, your ability to submit materials in a timely fashion, and the efficiency of the lender and/or broker.

If you want the process to move quickly, you may want to look for mortgage lenders who offer more streamlined service and a better customer experience. This may mean working with an online lender versus, say, a brick-and-mortar bank.

How to Refinance a Home Mortgage Loan

When you refinance a home mortgage, you are essentially repeating the same process as when you originally bought your property. This time, however, instead of the loan going to the homeowner you are buying a house from, funds will first go to the financial institution that holds your current mortgage. Once that loan is paid off, your newly refinanced loan kicks in. You start making payments to the new lender.

Because you are replacing one mortgage with another, you can expect the steps to be similar as they were when you got your original loan, from shopping around for the best loan for your situation to providing the necessary documentation to closing.

Steps in the Mortgage Refinancing Process

Here’s a closer look at the process:

1.   Determine your goal. The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage refinance types, but “rate and term” and “cash-out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch between an adjustable- vs. a fixed-rate loan.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan term from 15 to 30 years, you may lower your monthly payment, but you could end up paying more money in interest over the course of your loan.

Once you determine your goal, your primary focus will be determining whether the fees are worth what you’ll gain.

With a cash-out refinance, you are using increased equity in your home to take out additional money on your mortgage.

This is usually done to fund common home repairs or pay off other, higher-interest debt. While this kind of loan can be an excellent tool if you use it wisely, as with all loans, it’s rarely advisable to take out more than you absolutely need.

2.   Check your credit score and credit history for errors. Your credit score is an important factor in determining whether you get a better rate. Make sure you take time to clear up anything that’s been reported erroneously on your credit report. You might also want to remedy, say, an unpaid bill that was forwarded to a collection agency. These are factors that can lower your score.

3.   Research your home’s approximate value. Check comparable sale prices — not just listing prices — in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.

4.   Compare refinance rates online. It’s wise to shop around and see what at least a few lenders offer. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.

5.   Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.

6.   Have cash on hand. Refinancing brings charges, and at closing, such items as overdue property taxes can need to be paid, too. Make sure you can cover these costs.

7.   Track the lender’s progress. Once the process is underway, keep an eye on how well things are moving ahead. What typically happens: The lender will likely send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and your attorney.

Reasons to Refinance

As mentioned above, there are several typical reasons to refinance:

•  Reducing your monthly payment

•  Paying off your loan sooner

•  Changing the loan terms or type (fixed- vs. adjustable-rate)

•  Tapping your home equity

•  Eliminating mortgage insurance on an FHA loan.

Benefits of Refinancing

By refinancing your home loan, your monthly mortgage payments might be reduced. This in turn could free up money in your budget to go toward other goals, like paying down credit card debt or pumping up your emergency fund.

In addition, you might pay off your loan sooner, which could save you a considerable amount in interest over the life of the loan.

Refinancing your mortgage might also allow you to tap equity in your home. This could be useful if, say, you need those funds for educational or other expenses coming your way.

Also, some people who switch from an adjustable- to a fixed-rate loan may feel more secure with a set, unwavering payment schedule.

Recommended: First-Time Homebuyer Programs

Tips to Refinance a Mortgage

Beyond the tips mentioned above, you may also benefit from keeping these points in mind:

•  Think carefully about no-closing-cost loans. Yes, not paying closing costs can sound appealing, but there’s a good chance you will wind up with a higher interest rate and paying more over the life of the loan.

•  Make your appraisal a success. It can be distressing to have an appraisal come in low and throw a wrench into the works as you try to refinance. If there’s a glaring issue (rotting porch posts, for instance), it might be wise to fix it before the appraiser visits.

•  Prioritize requests for paperwork and documentation when your file is moving through underwriting. Not doing so can cause the process to drag on for longer than anyone might want.

The Takeaway

Depending on your financial situation and goals, refinancing your home loan can be a wise move. You may be able to lower your monthly payments, or you might shorten your loan term, thereby saving a considerable amount in interest. Another reason to refinance: To tap the equity you have built up in your home and use that cash elsewhere. The process is very similar to shopping for, applying for, and closing on your current mortgage. It will involve doing your research, providing documentation, and paying closing costs.

If refinancing is right for you, see what SoFi offers. With a SoFi Mortgage Refinance, you’ll find competitive rates, flexible terms, and a streamlined process, all of which can help you find just the right loan for your life.

FAQ

What is the average refinance fee?

Typically, you can expect to pay between 2% to 5% of the loan’s principal in closing costs when refinancing a mortgage.

Is it expensive to refinance?

The cost of refinancing will typically vary with the amount of the loan you are seeking. If closing costs are, say, 3.5% of the loan principal, that will be $3,500 on a $100K loan and $35,000 on a $1 million loan. It can also be helpful to compare these closing costs to the benefits of refinancing. For instance, you might free up more money every month to pay down pricey credit card debt, or you might shorten your loan term and pay less interest over the life of the loan when refinancing.

Why is it so expensive to refinance a mortgage?

When you refinance a loan, you are replacing your current loan with a new one. Closing costs are assessed to cover the expenses involved, including appraisal fees and other charges.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Recommended: How Much Are Closing Costs on a New Home?

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 3% to 6% of the loan principal on your mortgage. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.

Recommended: Home Buyer’s Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500 or more, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: Home Improvement Calculator

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%
•   Up to 6% when the down payment is 10-25%
•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.

SoFi offers home mortgages with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.

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.

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.

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Those who find that they can no longer make their mortgage payments have options to explore, including a short sale, which is when a home is sold for less than the borrower owes.

A short sale is a way to avoid foreclosure. It works much like a traditional home sale, except that the lender must approve the offer.

The Short Sale, in Short

If the borrower is able to negotiate a short sale, the lender agrees to take the money from the sale proceeds — even though that sum is lower than the balance of the loan — in lieu of foreclosing on the home.

Short sales were common a decade or so ago, when the housing crisis and Great Recession left many homeowners underwater on their mortgages. Since then, the percentage of short sales has dropped significantly, as housing values and employment have risen.

During a mortgage foreclosure, a lender repossesses and sells a property to satisfy outstanding debt.

In a short sale, the lender agrees to allow the borrower to sell the property for less than the mortgage balance and costs of the sale.

How Does a Short Sale Work?

A short sale is a viable option if the remaining balance on a home loan is greater than the amount the property can fetch on the open market. Otherwise, a borrower could repay the full amount of the mortgage by selling the home.

Here’s how the short sale process generally goes:

1.   Borrowers typically send their lender a hardship letter, proving that they are facing a long-term financial challenge.

2.   The lender decides whether to approve the sale or work out a plan, like extending the loan term or allowing the borrower to make interest-only payments for a set amount of time.

3.   If a short sale plan is accepted, the homeowner works with the lender to determine the schedule for the sale. If the lender is already on the path to foreclosure, a short sale will typically need to happen rather quickly.

4.   The sellers and their real estate agent will review the number of liens (such as a home equity line of credit or second mortgage) against the property. Having several of these can sometimes get in the way of a short sale, since all lenders must approve the sale. Buyers should be sure to ask about liens, as well.

5.   The owner puts the home up for sale and selects among competing offers. Once an offer is chosen, the lender must approve the sale and agree to accept the sale price in lieu of full payment of the loan.

Who Benefits from a Short Sale?

For the buyer, a short sale can be an opportunity to get a home at a fair market price or lower.

And because the lender has an incentive to sell the property quickly and prevent further costs, the lender might offer attractive financing to the buyer, such as a lower interest rate or credit toward closing costs.

For the seller, a successful short sale can mean avoiding foreclosure and the challenges that come with it.

Are There Drawbacks to a Short Sale?

Mortgagors may want to look at a short sale as a last resort. Short sales still have a significant negative effect on an individual’s credit, affecting the ability to take out a home loan or other forms of credit in the short term.

A short sale may show up on your credit reports as “not paid as agreed.” As both short sales and foreclosures fall under that category, most lenders won’t distinguish between them, according to Equifax, and both stay on your credit reports for seven years.

Short sellers may want to get written confirmation of the sale from their lender, along with a copy of the final settlement statement, in case future lenders have trouble distinguishing a short sale from foreclosure or have questions about amounts or dates.

Someone with a foreclosure on their record generally needs to wait two to eight years before qualifying for a new mortgage.

Is the Deficiency Completely Forgiven?

After a short sale, in some states, the lender can seek a personal judgment against the borrower to recover the deficiency amount. If a lender agrees to waive the deficiency, that provision must be included in the short sale agreement.

How a Short Sale Affects Buyers

A short sale can be risky for buyers as well. Home sales are usually closed “as is.” If a property inspection did not catch a needed repair, that can lead to unpleasant surprises.

Buyers may also be responsible for fees they wouldn’t pay during a typical sale. For example, if the seller employs a short sale negotiator to reach a deal with the lender, the buyer may be asked to pay this charge.

How Long Does a Short Sale Take?

Short sales can be time-consuming transactions, taking anywhere from a few weeks to a few months or more.
It can take a while for lenders to review a buyer’s short sale application for approval, especially if multiple lienholders are involved.

How Often Do Short Sales Fall Through?

Because short sales are often slow and complicated, with many steps before a house can be sold, they fall through fairly frequently.

For example, a lender may reject a borrower’s qualifications or the price offered by a buyer. Foreclosure proceedings or a declaration of bankruptcy could throw a wrench into a short sale. Or sellers could get their finances in order and decide they want to keep their house and continue paying their mortgage.

The sale can also fall apart if the seller declines to pay certain fees in order for the lender to approve the transaction.

Both sellers and buyers in a short sale may want to practice patience when entering into this kind of transaction and know that all their hard work could come to naught.

The Takeaway

If a mortgage becomes too heavy a burden, a short sale can be a lifeline. Still, leaving a lender short will hurt a borrower’s credit and can be a drawn-out process. Savvy buyers may find a short sale a way to get a deal.

An option short of a short sale could be refinancing your mortgage. With SoFi, refinancing may result in a more favorable interest rate or loan terms.

Refinancing may result in a more favorable interest rate or loan terms.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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VA loans are available to active-duty military members, veterans, reservists, National Guard members, and certain surviving spouses. They require no down payment or mortgage insurance and typically come with lower interest rates than other types of mortgages. If you think you might qualify for a VA loan, it’s worth comparing the costs to those of a conventional loan.

What Is a VA Home Loan?

VA loans were created in 1944 as part of the G.I. Bill, and they have grown in popularity since. They are one way to buy a house with no money down.

Most VA loans are VA-backed loans. Approved private lenders issue the loans, part of which the U.S. Department of Veterans Affairs agrees to repay if the borrower stops making the payments. That guarantee incentivizes lenders to offer VA loans with attractive terms.

The VA issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. The agency also refinances VA and other mortgages.

How Does a VA Home Loan Work?

To receive a VA loan, a veteran, service member, reservist, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. Once you have your COE and have decided what you wish to spend on a home, you’ll seek out a lender. Most lenders charge a flat 1% fee for VA loans but there may be other fees as well.

Once you have a lender and find a home to purchase, you’ll need to have the home appraised by a VA-approved appraiser to ensure it meets the minimum qualifications for a VA loan. If it does, you’re on your way to moving day.

Types of VA Home Loans

VA loans are available to help eligible borrowers buy, build, renovate, or refinance. Here are the main programs.

VA-Backed Loans

VA-backed home loans are full of advantages. They require no down payment or mortgage insurance, and have fairly loose rules about qualifying.

The home must be a primary residence, but up to a four-unit multifamily property may be purchased if one unit will be owner-occupied.

Approved condos and manufactured homes classified as real property are eligible.

VA Direct Home Loans

If either a veteran or their spouse is Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.

The VA issues these loans directly to borrowers who meet credit standards and whose tribal government has an agreement with the VA.

VA Refinancing

The VA offers an interest rate reduction refinance loan (IRRRL) and a cash-out refinance.

An IRRRL, or VA Streamline Refinance, refinances an existing VA-backed home loan. No verification of credit, income, or employment is required, and you might not need a home appraisal.

The VA-backed cash-out refinance can be used to convert any type of home loan to a VA mortgage with cash back at closing. (Cash back is optional: You can also use a VA cash-out refi to switch to a VA loan, shed mortgage insurance, and possibly lower your mortgage rate.)

VA Renovation and Construction Loans

The VA renovation loan is Veterans Affairs’ answer to the FHA 203(k) loan. It allows eligible borrowers to purchase and repair a property using a single VA loan with no down payment.

VA construction loans can help borrowers finance land and the construction of a home without a down payment. The hitch is, few lenders offer these loans.

Some states also administer their own loan programs for qualified veterans. California, for example, may have a high cost of living but it does offer its own home loan program to veterans.

Who Should Apply for a VA Home Loan

Eligible applicants for a VA loan are:

•   Current service members who have served for 90 consecutive days.

•   Veterans who served after 1990 for 24 continuous months or for the full period (at least 90 days) when called or ordered to active duty. (Those who served prior to 1990 may also be eligible; check VA.gov for detailed requirements.)

•   Service members who served at least 90 days of active duty in the Reserves or the National Guard after 1990. (Those who served prior to 1990 may also be eligible; visit VA.gov for details.)

•   Spouses of service members who died in the line of duty or from a service-connected disability, or who are missing or are prisoners of war.

VA Home Loan Requirements for Buying a House

If you apply and meet the requirements for a VA loan, you’ll receive a certificate of eligibility. Approved lenders can check eligibility quickly, or potential borrowers can contact va.gov.

The document indicates “full entitlement.” For full entitlement, at least one of these must be true:

•   You’ve never used your home loan benefit

•   You’ve paid a previous VA loan in full and sold the property

•   You’ve used your home loan benefit but had a foreclosure or short sale and repaid the VA in full

Credit, Income, Debt

For a VA loan, the lender will determine how much of a mortgage you can afford based on your credit history, income, debts, and assets.

The VA does not have a minimum credit score, but most mortgage lenders will want to see a FICO credit score above 620. Some may go lower.

According to VA residual-income guidelines, borrowers should have a certain amount of discretionary income left over each month after paying major expenses.

The VA does not name a maximum debt-to-income ratio, but it does suggest placing more financial scrutiny on borrowers with a DTI of more than 41%, which includes the projected mortgage payments.

VA Loan Rates

For VA-backed loans, approved private lenders set their own VA loan rates and fees. It’s smart to contact more than one lender when shopping for a mortgage and compare offers.

VA Funding Fee

There will be no mortgage insurance on a VA loan, but most borrowers will pay a one-time funding fee for a VA-backed or VA direct home loan. The fee can be rolled into the loan.

For the first use of a VA-backed purchase or construction loan, the funding fee is 2.3% of the loan amount if the borrower is putting less than 5% down.

The NADL funding fee for a home purchase is 1.25%.

A few borrowers, including those who are receiving VA compensation for a service-connected disability, do not have to pay the funding fee.

Benefits of VA Home Loans

Here are the main selling points of VA loans:

•   No down payment.

•   More attractive interest rates and terms than loans from some mortgage lenders.

•   Possibly lower closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs. Sellers can pay all of your loan-related closing costs, but yes, that’s a big ask. VA loans have an appraisal fee that is set by area. Buyers may purchase mortgage points to reduce the interest rate.

•   There’s no limit to the amount that can be borrowed with a VA home loan. However, there is a limit to the amount of the loan that the VA will guarantee.

•   No minimum credit score requirement (although some lenders may still not lend to those with lower credit scores).

•   A VA home loan can be for first-time homebuyers or repeat buyers.

•   VA loans are assumable, meaning the loan could be taken over by the home’s next purchaser.

Downsides of VA Home Loans

Although there are many benefits to VA loans, there are a few potential pitfalls to keep in mind.

The main one is the funding fee. If rolled into the loan, this increases monthly payments as well as total interest paid over the life of a loan.

Others:

•   VA loans can’t be used to purchase investment properties or vacation homes.

•   Some approved condos are eligible, but co-op properties are not.

•   Zero down payment is a nice option, but if the housing market falters, borrowers may be paying more on their home than it’s worth.

What Is the VA Loan Limit?

As of 2020, if you have full entitlement, you don’t have a VA loan limit.

If you have a remaining entitlement (e.g., you have a VA loan you’re still paying back), you can use your remaining entitlement — on its own or with a down payment — to take out another VA loan.

In that case, the VA loan limit is based on the county conforming loan limit where you live. (In most of the country, the 2023 conforming loan limit for one-unit properties is $726,200.)

VA Loan vs Traditional Mortgage

After comparing the pros and cons of VA loans, some borrowers may find that a conventional loan with a low down payment is a better fit for their long-term financial goals. Even if they save money upfront, in the long term, VA loan borrowers often end up paying more.

Conventional loans can be used for vacation homes or investment properties. They don’t include the VA funding fee.

And some borrowers who put less than 20% down may be able to avoid PMI.

The Takeaway

VA loan requirements are more flexible than some others, and VA loan rates may be slightly lower. VA loans have benefits, but it might pay to get loan estimates for conventional loans, too, and compare. For one thing, nothing down means starting out with no equity.

Applying for a home mortgage loan with SoFi requires as little as 3% down for qualifying first-time homebuyers. The fixed rates are competitive. SoFi finances primary homes, second homes, and investment properties.

FAQ

What are the disadvantages of a VA loan?

The main downside of a VA loan is its funding fee. VA loans also can’t be used to purchase investment or vacation properties, or co-ops (although some condos are eligible).

What is the difference between a VA loan and a regular loan?

The main difference between a VA loan and a conventional loan is that VA loans do not require a down payment or mortgage insurance. And, of course, VA loans are only available to qualified service members, veterans, and certain spouses.

Do you pay a VA loan back?

Yes. A VA loan is a loan, not a gift, and It must be repaid. A homeowner who doesn’t make payments could lose their home and any equity they had built up in it.

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.

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Buying a home is a major life moment. It’s exciting, but also potentially stressful and confusing. Luckily, there are real estate agents to guide you through the process.

Finding a real estate agent who is well connected, hard working, and trustworthy can save consumers time and offer some much-needed peace of mind.

Benefits of Hiring a Good Real Estate Agent

A skilled real estate agent can help a buyer locate their dream home, navigate negotiations, and wrap up all that tedious paperwork. An agent with a strong professional network and familiarity with the housing inventory where you’re hoping to buy may even get early word of so-called “whisper listings” — properties that are about to come on the market.

First-time home buyers may find an agent’s guidance to be especially helpful. But even seasoned buyers can benefit from expert advice. (If you do feel confident you have the skills to go it alone, buying a house without a real estate agent is possible.)

How to Find a Good Real Estate Agent

In many housing markets, a dizzying number of professionals are standing by to help with your home purchase. Take these steps to choose smartly.

Learn the Terms

Before launching a search for the perfect real estate agent, it can be helpful to brush up on the job titles you may encounter.

Most commonly, consumers will come across real estate agents, Realtors®, and brokers, all of whom can act as agents, but who can have varying levels of experience, education, and certifications.

•   Real estate agent: Holds a license to practice real estate.

•   Realtor: To have this designation, an agent must be a member of the National Association of Realtors, which is a trade association.

•   Broker: A real estate agent must complete a certain amount of working hours, have additional education, and may have demonstrated leadership abilities among other agents in order to qualify as a broker.

Keep It Personal

A little networking can go a long way when looking for a good real estate agent.

Asking trusted friends, family members, or neighbors which real estate agent they worked with is a great place to start. Additional avenues that can lead to finding a good real estate agent may include:

•   Checking out local magazines and area “best of” lists featuring real estate agents.

•   Reviewing local real estate association websites.

•   Considering agents who are listed often on for-sale signs in the area.

How to Choose a Real Estate Agent

Once you’ve made a list of possible agents, you’ll want to do your homework.

Leave No Stone Unturned

Just as “location, location, location” is an important factor in buying property, research, research, and more research will help in the search to find a good real estate agent. This is also the time to think seriously about your finances and to start the process of lining up a home mortgage loan, as your real estate agent will ask about your price range.

Recommended: How to Get a Mortgage in 2023

Looking up reviews on websites like Zillow or Realtor.com can be a good place to find a good real estate agent.
When reading reviews or considering references, it can be helpful to seek answers to the following questions:

•   Does the agent have good communication skills?

•   Is the agent easy to touch base with and have ample availability?

•   Did they show interest in the process even after a deal was under contract?

•   Are they known to regularly have disagreements with other agents?

If you find a real estate agent online or as a result of the agent’s marketing efforts, ask for references before making a decision.

Following a Hiring Process

Narrow the field to a handful of possible agents, then interview them before making a decision.

This process can feel similar to hiring an employee. The interview can give you an idea of what it will be like to work with an agent. Here are some sample questions to ask when interviewing agents:

•   How long have you worked as a real estate agent? Experience is key, especially for first-time buyers or sellers who need extra guidance in a hot market.

•   How many clients do you usually have at once? Their answer will help determine how much time they have to devote to each client and how accessible they will be.

•   Do you work with a team? For busier agents, having team members who can provide assistance can be helpful.

•   What areas do you cover? Finding an agent who is familiar with the area you’re looking in can give you a leg up in your search.

•   How do you prefer to communicate? Make sure your communication styles mesh well together, whether that be over text, phone, or email.

(Selling a home? The interview questions are different. You’d want to ask how the agent would market the home, what fees might be included, and how they would price the home based on recent sales in the area.)

Recommended: 15 Questions to Ask When Interviewing Realtors

When It’s Time to Buy

Some real estate agents may request that home buyers sign a contract known as an agency agreement. Before making any real estate working relationship official, take a close look at the contract to ensure there are no unpleasant surprises down the road.

The agreement may obligate you to only work with the agent for a set period of time. These contracts are not always required, but they provide the real estate agent with more assurance that they will be paid for their services.

Those selling a home also sign a contract, known as a listing agent contract, with the real estate agent who is listing their home. Typically, these agreements include the commission amount, listing duration, cancellation clause, responsibilities, disputes, ownership, expiration date, and details regarding dual-agency restrictions in the states where it is allowed.

Good Real Estate Agents’ Tips

Once you find a real estate agent to buy a house, a good agent will accompany you on home tours, advise you when you are ready to make an offer, and recommend other professionals such as a home inspector.

The homebuying process can be complicated and a good real estate agent should hold your hand every step of the way. Your agent will submit your offer on your behalf and provide you with a list of the documents you need to buy a house, including mortgage documents, that you will need for the closing.

The Takeaway

Finding a good real estate agent can be key to closing the best deal as a buyer. A thorough research and interview process can help you land an agent you feel, well, at home with — and who will work hard for you.

Getting preapproved for your mortgage loan is another important step in the buying process. SoFi strives to make the process simpler with a quick online digital application and access to representatives ready to help. SoFi Mortgage Loans offer competitive rates, and require as little as 3% down.*

Review potential rates with SoFi in a matter of minutes.

FAQ

What buyers want most from real estate agents?

Buyers most want an agent who will help them find the right home, so a well-connected agent familiar with the community and its housing inventory is a top priority.

What is an offer to purchase a home called?

An offer to purchase contract, also called a real estate purchase agreement, contains the address and description of the property, as well as the purchase price, down payment information, other deal terms, and an expiration date. It helps ensure that the buyer and seller are in agreement about the deal.

How do I get the best out of my real estate agent?

Knowing what you are looking for in a home, knowing your budget, and communicating openly about what you like and dislike can help ensure best results. Keep in mind that your real estate agent works on commission: Be organized, only visit properties you are truly interested in, and come to appointments on time.

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

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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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

**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.

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.

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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