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If you’ve made the decision to buy a home—or sell the one you have—you also may be thinking about hiring someone to help things go as smoothly as possible.

A real estate professional can assist in assessing how much to list or bid on a home for, help with negotiations, hold your hand while you make important decisions, and help you understand the complicated paperwork.

The right agent can help you buy your dream home or sell the home you have now. The wrong agent might not focus on your needs or price your house incorrectly, leaving you angry or disappointed.

But how can you know who to hire when the pros often have different job experience or expertise and go by different job titles? Are all real estate agents also Realtors®? Is that the same thing as a sales associate? What’s the difference between a buyer’s agent and a listing agent? And what does a real estate broker do?

What’s in a Name?

Though the terms Realtor and real estate agent are often used interchangeably, there are important differences you should know when it’s time to buy a house. Here’s a breakdown of the various titles real estate professionals use and what they mean:

Real estate agent: This is the most common term used for professionals who help clients buy and sell real estate. (Some firms may call their real estate agents “sales associates” or “salespeople.”) But a person can’t just slap their name on a business card and start selling homes.

A real estate agent must have a professional license to help residential or commercial clients buy, sell, or rent real estate. And to get that license, aspiring agents must take the required hours of pre-licensing training and any written exams mandated by their state. There are also continuing education requirements for license renewal. States also have different age, education, and residency requirements, and some jurisdictions also require a background check.

Realtor: This term is trademarked by the National Association of REALTORS (NAR), the largest trade organization in the U.S., and it should be used only to refer to that organization’s dues-paying members.

Members of the NAR are licensed professionals who expect to be held to a higher standard of practice, and they have their own strict code of ethics which is made up of 17 articles, meant to protect clients, the public, and other real estate agents. According to the NAR, 67% of its members are licensed sales agents, 21% hold a broker license, and 14% hold a broker associate license.

If you’re looking at hiring a Realtor vs. an agent, one of the big perks of NAR membership is access to additional research, market data, and transaction management services.

Broker: Brokers are professionals who take their real estate education and licensing to the next level — and they often manage other agents. (Think of it like a school principal who still may teach, but also has management responsibilities.)

Because of this elevated role, a broker’s pre-licensing coursework usually dives deeper into complicated topics such as contracts, taxes, insurance, and other legal issues.

Real estate brokers can work as independent agents or have other agents working for them — in the latter situation, they typically receive a percentage of their agents’ commissions as payment for overseeing their transactions. Agents who pass the broker exam but choose to work under another broker may be referred to as associate brokers.

Listing agent: Some agents prefer to work only with sellers. Others work only with buyers. But many agents do both. Real estate agents who represent someone selling a home are called “listing agents.”

In that capacity, their duties may include pricing the home, suggesting improvements, marketing and holding open houses, coordinating showings with other agents, recommending renovations or offering staging tips, and negotiating with potential buyers.

Buyer’s agent: Agents who represent homebuyers are called “buyer’s agents,” and it’s their job to help their clients find potential homes to tour and show those homes, offer references for other professionals that may be needed (inspectors, mortgage brokers, etc.), negotiate house prices, and help their clients through the closing. Listing agents and buyer’s agents typically split a 4% to 6% commission on a home’s sale price — and that money is typically paid by the seller from the sale proceeds of the home.

Recommended: How to Make an Offer on a House

Looking Beyond the Job Title

Besides understanding the credentials, duties, and level of education each real estate professional involved in your home sale or purchase may have, here are some other factors to consider when finding a real estate agent:

•   Do you want to work with a team or an individual? With a team, you’ll have multiple agents looking out for you — and there might always be somebody to sub in if your agent is unavailable for a showing or to answer a question. With an individual agent, you’ll have just one person to go to for all your needs, but you’ll get to know that agent, and they’ll get to know you. That personalized approach might be helpful during what could be a stressful process.

•   How much experience does your potential agent have? Not that there’s anything wrong with a sharp, gung-ho newbie, but given that your home purchase may be the biggest financial transaction of your life, it’s important to get it right. A seasoned agent can draw from past experiences when negotiating and problem-solving. You also may want to ask if the agent considers real estate to be a full- or part-time job. If this is a major purchase for you, you may want to know that you have the person’s full focus.

•   How familiar is the real estate agent with your current neighborhood (if you’re selling) and desired neighborhood (if you’re buying)? Knowledge of the area can be a plus when you’re looking at “comps” or “comparables” to determine the fair value of a home. Your agent should also be able to help if you need information about schools or crime. Of course, anyone can look up this information, but an agent’s insider knowledge (school zones that might slow your commute? A big new development planned nearby but not yet constructed?) may give you an edge in decision-making.

•   Where did you hear about the professional you’re considering? The agent with the biggest advertising budget may or may not be the right person for you. If you have family and friends in the area, they might be able to help with recommendations. (Don’t just ask who they used—ask if they’d use that person again.) Plan on interviewing your top prospects, ideally in person, to be sure communication is easy.

Recommended: First-Time Homebuyer Guide

What’s Next?

Finding a qualified, experienced real estate professional to work with a major step in the home buying or selling process. The right person could help you with everything from figuring out how much house you may be able to qualify for, to getting you into the home you want with as little financial and emotional pain as possible.

Once you’ve found that person, you may want to look for a lender, as well — and a SoFi Mortgage Loan could be a good place to start. Applying for a loan with SoFi is easy — choose the loan option that best fits your needs with a quick online prequalification process.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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Selling your home? If so, you likely want to do everything in your power to make it look great and trigger solid offers ASAP. Staging your home can be one key contributing factor to achieving that.

When you stage your home, you optimize its look and design. This allows potential buyers to visualize the house as their own. It makes it look like a place they aspire to put down roots. (Yes, decluttering and removing some of your personal mementos may be involved.)

According to a National Association of Realtors® survey, 89% percent of buyers’ agents said staging a home made it easier for a buyer to visualize the property as a future home.

Want to learn more? Here’s a step-by-step guide to how you can stage your home.

8 Steps to Stage a House for Sellers

Follow these tips for staging your home and impressing prospective buyers.

1. Take Stock of Needed Fixes

If a house requires considerable repairs, a seller may face a lengthy negotiation process with buyers that results in concessions and contingencies. Any issues flagged by an inspection will also need to be addressed with prospective buyers.

Deciding whether to make these fixes beforehand will affect how a home is staged and perceived by buyers. Even relatively small issues like cracks in a ceiling and a dripping faucet can raise concerns and influence a buyer’s impression. That’s something to be wary of, especially in a hot housing market when many buyers want to snag a home quickly.

Taking care of these common home repairs before house staging can show buyers that you’ve maintained the property and keep their focus on its strengths.

💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

2. Enhance Curb Appeal

Before buyers walk through the door, they’ll have already formed an impression from the home’s curb appeal, the attractiveness of a property from the sidewalk or street.

Buyers may even do a drive-by before setting up a showing to narrow down their search. Thus, sprucing up a home’s exterior, lawn, and landscaping is essential to any plan for how to stage a house. Even in winter, curb appeal matters.

Any eyesores, such as chipped paint, cracked windows, or clogged gutters could discourage buyers from taking a closer look. Power-washing any siding and applying a fresh coat of paint where needed are some possible quick improvements.

Thinning out lawn decor, replacing burned-out lights, and tidying up gardens and landscaping are also low-cost ways to increase curb appeal.

For many prospective buyers, their first look into your home will be digital. High-quality photos can be helpful in attracting buyers.

Staying on top of things like lawn care while the home is listed could make a difference in getting more showings and securing a higher offer. In fact, 98% of NAR members say they believe curb appeal is important to potential buyers.

3. Remove Clutter

While working on house staging, you may also be encumbered with the home-buying process or figuring out what to do with all your stuff after it’s sold. In either case, staging is an opportunity to jumpstart the moving process and declutter the house.

Removing clutter is a popular staging tactic to make the interior of a home appear more spacious. A home’s square footage can’t be fabricated, but curating a more open layout can give the impression of a larger space.

Begin by packing away items that you don’t use daily, like seasonal clothes, knickknacks, sports equipment, and other odds and ends. This is also a chance to identify anything you want to sell, donate, or dispose of.

Storage space of a home can also be a major selling point. Instead of loading up the basement, garage, and closets, sellers may want to consider asking family members or friends to store their belongings, hosting a garage sale, or renting a storage unit.

Recommended: How to Refresh Your Home Room by Room

4. Depersonalize the Space

Cutting back on personal items is an important step in staging a house. While decluttering the home, stowing away family photos and clothing is a good place to start. Removing subtler items like personal toiletries can further neutralize the space.

That lavender paint in one room and turtle-themed wallpaper in another? It might be best to create a more basic canvas.

The point is to show that the home is move-in ready and an open book for buyers to add their personal touches. With just the integral furniture and furnishings remaining, it’s easier for buyers to imagine themselves moving in and living there.

5. Do a Deep Cleaning

Once the decor and furnishings have been minimized, it’s time to get the house squeaky clean. While this is one of the more cost-effective ways to stage a house, it can take significant time and energy.

To streamline the process, consider starting with the highest surfaces and working your way down. Overhead fixtures like lighting and ceiling fans are often overlooked in regular cleaning routines, and thus accumulate lots of dust and grime. It’s likely that cleaning these hard-to-reach places will bring debris down on countertops and floors.

Bathrooms and kitchens are key rooms to focus on. Water stains and mildew in sinks, tubs, and showers are obviously a no-no. Making sure appliances sparkle and that countertops are spotless can give the kitchen a fresh new look.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.

6. Define Every Space

While the kitchen, bathroom, master bedroom, and garage are straightforward in their purpose, some spaces in a home may not have an obvious use to prospective buyers.

Thinking about how to stage spare rooms and unconventional spaces is important. For example, staging such a space as a home office or workout room could appeal to a larger segment of buyers.

7. Stage Where It Matters Most

Not every room holds equal weight from the homebuyer’s perspective. Prioritize the living room, primary bedroom, kitchen, dining room, and yard; real estate agents say these are of most interest to buyers.

The kids’ rooms and basement? Spend less time and energy there.

Recommended: Home Appraisals: What You Need to Know

8. Don’t Forget Outdoor Space

While the front of a house determines curb appeal, the yard, porch, or patio space can sell buyers on the lifestyle they could enjoy there.

The backyard is a popular place for entertaining and socializing, especially for families with kids. Tidying up the yard and addressing any safety issues like a wobbly porch railing or broken fence could be easy fixes.

Setting up a focal point, such as an outdoor seating area, fire pit, or grill, can make the space more inviting. Even if it’s a limited yard or patio space, brightening it up with flowers and comfy outdoor furniture can change the perception from confined to cozy.

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

The Takeaway

How to stage a house? It can take time and energy, but emphasizing a home’s strengths and creating an inviting atmosphere can be done with some thorough cleaning, decluttering, and rearranging.

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

*SoFi 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.

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.

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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People often use the terms “pending offer” and “contingent offer” interchangeably, but there is actually a difference when you are talking about real estate.

When a property is said to be contingent, that means the seller accepted an offer that is contingent on particular conditions requested by the buyer. These conditions could involve anything from an inspection to financing.

If, however, you see a house on the market switch to pending, there’s a different status involved. The seller has accepted an offer, and all contingencies have either been waived or addressed.

Yes, the distinction may be subtle. However, the bottom line is, neither status actually means a property is sold. If you have found your dream home and it says “contingent” or “pending,” there is still a chance you could snag it.

Contingent Offers vs. Pending Offers

Here’s a closer look at the difference between contingent and pending offers.

What is a Contingent Offer?

When a home’s status switches to contingent, it means contingencies stand in the way before the deal is done. If closing on a home is a race, then buyers still have miles ahead of them when they enter the contingency process.

There are many types of contingencies buyers can include in their offer that make it easier for them to back out of a real estate deal, but these are some of the most common:

•   Financing contingency. The buyers put some money or the promise of a mortgage behind their offer, right? This condition ensures that if the buyers aren’t approved for a mortgage, they’re not on the hook for finding cash to buy the property.

Some buyers choose to have a preapproval letter in hand to make the financing contingency move faster.

•   Inspection contingency. A home inspector is paid to search the property top to bottom to uncover any issues. With a home inspection report in hand, buyers can ask the sellers to solve the issues or give them a credit against the purchase price of the home.

With this contingency, buyers can also walk away from a deal based on the findings of the inspection. Alternatively, if both parties don’t come to an agreement on repairs or credits, they can terminate the deal.

•   Appraisal contingency. In order to secure financing for a home, it must be professionally appraised for the value of the offer or more. If the home appraises for less than the offer, the buyer can either make up the difference in cash, negotiate with the seller for a lower offer, or walk away from the deal.

Recommended: What Is a Mortgage Contingency?

•   Home sale contingency. If buyers need to sell their existing home to help finance the purchase of a new home, they may include a home sale contingency in the offer. That means if an offer on their home falls through, they’re no longer on the hook to buy the home they made an offer on.

Contingencies are in place to protect buyers and sellers in the event of snags throughout the negotiation process.

Prospective buyers can include as many contingencies as they like in an offer, and if the sellers agree, the buyers will need to work through each one before they make it to closing.

For people salivating over a hot property that looks taken, contingencies may signal opportunities for a deal to fall through. If you have your heart set on a home that’s contingent, you can hold out hope. Thanks to contingencies, there’s a chance the existing offer will fall through.

💡 Quick Tip: Don’t overpay for your mortgage. Get a great rate by shopping around for a home loan.

What is a Pending Offer?

Just because a home is pending doesn’t mean the deal is done. A home often enters pending status once buyer contingencies are cleared, but it can also enter pending status immediately if a buyer makes an offer without contingencies.

A pending home sale may still fall through, but the buyer and seller have worked through most of the contingencies. For a pending sale to fall through, there likely has been an unexpected issue with the inspection or financing.

In fact, a pending home is still on the market. The listing agent and seller can choose to continue showing the home and even accept other offers, even if its status is pending. However, this is largely up to the sellers and their agents.

Recommended: First-Time Homebuyer Guide

Can Pending and Contingent Homes Take Other Offers?

If a home is contingent and the buyers are still working through the inspection, financing, or selling their current home, a competing buyer can make a backup offer on the property. If the initial offer falls through for any reason, the seller can take the other buyer up on their offer.

It’s up to the sellers whether they will accept a backup offer or not, but if the buyer loves the property, it can’t hurt to ask.

In many markets, a home with pending status means it’s not open to additional offers, but the deal isn’t sealed. It’s not over till it’s over, so the buyers could still back out based on their contingencies, as outlined above.

(A home could be marked “pending, taking backups,” indicating that the seller is still showing the house and accepting backup offers.)

When a home is pending or contingent, it’s not against the law for another buyer to ask for a tour, express interest in the home, or even make a competing offer. But compared with a home that is not under contract, it is less likely that a competing buyer will get the property.

While you may make offers on these properties, buyers don’t get your hopes up. Depending on how close the buyer and seller are to closing, it’s not legally possible for the seller to accept another offer.

Additionally, the closer a home gets to closing, the more complicated competing offers can be. This is when a seasoned real estate agent may come in handy. They will understand the market, process, and legalities better than most first-time buyers do and how to navigate a hot housing market.

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

The Takeaway

Contingent vs. pending: Though some use the words interchangeably, the two statuses are different. A contingent deal may have a long way to go, as buyers firm up financing, await an appraisal, or sell their current home. A pending property is nearer to closing, but the deal still isn’t final.

Buyers eyeing a dream property may hold out hope that contingent or pending deals fall through. In that case, having everything set up for a backup offer could pay off.

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

*SoFi 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.

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.

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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A reverse mortgage is a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment, or a line of credit, which can then be used to fund home renovations, consolidate debt, pay off medical expenses, or simply improve one’s lifestyle.

While older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool, reverse mortgages aren’t for everyone. Find out how they work, their advantages and disadvantages, and alternatives you might consider instead.

How Does a Reverse Mortgage Work?

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM). That being said, there are two other types of reverse mortgages (more on those below).

Note: SoFi does not offer home equity conversion mortgages (HECM) at this time.

To qualify for an HECM, all owners of the home must be 62 or older and have paid off their home loan or have a considerable amount of equity. Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed. The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•   Income, assets, monthly living expenses, and credit history

•   On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or the age of an eligible non-borrowing spouse, and current interest rates. Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house, or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Loan Costs

An HECM loan may include several charges and fees, such as:

•   Mortgage insurance premiums

◦   Upfront fee (2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit, whichever is less)

◦   Annual fee (0.5% of the outstanding loan balance)

•   Third-party charges (an appraisal fee, surveys, inspections, title search, title insurance, recording fees, and credit checks)

•   Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000; the origination fee cap is $6,000)

•   Servicing fee (up to $30 per month if the loan interest rate is fixed or adjusted; if the interest rate can adjust monthly, up to $35 per month)

•   Interest

Your lender can let you know which of the above fees are mandatory. Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

The servicing fee noted above is a cost you could incur from the lender or agent who services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements, and disburses loan proceeds to you.

💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

What Is the Most Common Kind of Reverse Mortgage?

The most common type of reverse mortgage is the HECM, or home equity conversion mortgage, which can also be used later in life to help fund long-term care. HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD). The current loan limit is $1,089,300.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor, which you can find through the HUD site. When you meet with the counselor, they may cover eligibility requirements, potential financial ramifications of the loan and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable. The counselor may also share alternatives.

The reverse mortgage loan generally needs to be paid back if the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, and if no other borrower is listed on the loan.

However, a new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as they continue to occupy the home as a principal residence, are still married, and were married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021, HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. Now they will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more information about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($1,089,300), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums. In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

💡 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.

Pros and Cons of Reverse Mortgages

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing. Here are some of their pros:

•   Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses, or buying a vacation home (although this is not true for the single-purpose variety).

•   How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit or some combination of the three.

•   You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

•   The money from a reverse mortgage counts as a loan, not as income. As a result, payments are not subject to income tax. Social Security and Medicare also are not affected.

•   An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again, here are some cons of reverse mortgages to consider:

•   Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

•   Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

•   You’ll need to keep up property taxes and insurance, repairs, and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

•   Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate and loan fees, as well as whether they choose a lump sum, line of credit, monthly payment, or a combination of those options.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash, including:

Cash-out refi: If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan: A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC): A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Sometimes a lender will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

💡 Recommended: What Are Home Equity Lines of Credit (HELOC)?

Home equity loan: A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage may make sense for some older people who need to supplement their cash flow. But many factors must be considered, including the youngest homeowner’s age, home value, equity, loan rate and costs, heirs, and payout type. As homeowners are weighing the pros and cons, remember there are other options.

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

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

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.

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When homebuyers take out a conventional mortgage but don’t have a 20% down payment, they will likely need to get private mortgage insurance. PMI is usually required when the down payment is less than 20% of the home’s value.

In some situations, a lender may arrange for PMI coverage. It then becomes known as lender-paid mortgage insurance. For some homebuyers, LPMI can work in their favor. But for others, having a lender secure private mortgage insurance can end up costing them.

Read on to learn more about LPMI and the pros and cons for homebuyers.

How Does Lender-Paid Mortgage Insurance Work?

Unless 20% or more of a home’s value is paid upon closing, homebuyers can typically expect to be required to purchase private mortgage insurance, or PMI.

While government-back loans tend to have their own insurance programs (for instance, most FHA loans require a mortgage insurance premium for 11 years or the life of the loan), most loans not provided by the government with a loan-to-value ratio higher than 80% require PMI to protect the lender in case of default.

PMI is typically purchased in one of four ways, and it’s a home-buying cost you’ll want to budget for. PMI can be paid:

•   Along with monthly mortgage and insurance payments

•   In one annual premium

•   With one large payment and corresponding monthly payments

•   By the mortgage lender in a LPMI policy

While it may seem that the last option, LPMI, eliminates a task on a homebuyer’s to-do list, there is some fine print to be aware of.

Having LPMI for a loan doesn’t mean the cost is absorbed by the lender. A homebuyer will still pay for the coverage in one of two ways:

•   A one-time payment due at the beginning of a loan.

•   A slightly higher interest rate — usually 0.25% — which increases the monthly mortgage payment. This is the more common arrangement of the two.

So while many homebuyers accept an LPMI arrangement in hopes of saving money, that isn’t automatically the case. Sometimes LPMI is more about convenience than savings.

In fact, unless they’re paying a one-time lump sum, homebuyers could end up spending more for LPMI over the life of their loan than if they had chosen a traditional PMI route. That’s a potential home-buying mistake you’ll want to avoid.

LPMI might be a good choice for a homebuyer planning to keep the mortgage for five to 10 years or stay in the home. It usually takes 11 years to build enough equity to cancel a borrower-paid PMI policy.

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

A Pro of LPMI

Before a homeowner writes off lender-paid mortgage insurance altogether, it’s best to look at a potential benefit the arrangement offers over traditional monthly mortgage insurance.

More Affordable Monthly Payment

With LPMI, the monthly payment could be more affordable because the cost is spread out over the entire loan term rather than bunched into the first several years.

Here’s an example. If Sarah buys a home with a 10% down payment and it takes her 10 years to get the loan-to-value ratio down to 78% (a lender automatically drops PMI payments at this percentage if the borrower is in good standing), those 10 years of payments could all include several hundred dollars in addition to her premium and interest payments.

While LPMI may not save Sarah money overall, she may have smaller monthly payments because the additional payments for coverage are stretched out equally over the entire life of her loan rather than the start.

Recommended: How to Get a Mortgage in 2023

… and Potential Cons

In the right situation, LPMI can make sense. But there are potential downsides homebuyers should know about as well.

Rate Never Drops

While having mortgage insurance stretched out over the life of a loan can save some homebuyers money, it can cost others. The higher interest rate — as mentioned, a 0.25% rate increase is common — will never drop, even once the loan balance is less than 80% of a home’s purchase price.

LPMI can end up costing homebuyers more than if they had bought PMI on their own. Much depends on how long the borrower expects to hold the mortgage.

Refi Costs

Some homebuyers navigate toward LPMI because of the initial savings and hope they can refinance in the future.

While this may be a possibility, they must consider the sizable out-of-pocket costs that go along with refinancing, and that refi rates may be higher in the coming years.

No Itemizing

LPMI can’t be itemized if you deduct mortgage interest at tax time.

💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.

PMI vs LPMI

There are several numbers to take into consideration when choosing between traditional PMI and LPMI, including:

•   the down payment

•   remaining mortgage

•   interest rate (for LPMI, a 0.25% rate increase is common)

•   average mortgage insurance rate (PMI is typically 0.5% to 1.5% of the loan amount per year)

•   anticipated life of the mortgage loan

•   monthly budget.

A borrower may want to not only consider the monthly payment but also the lifetime loan costs.

The difference between PMI and LPMI is different for every homeowner and situation. Taking the time to crunch the numbers is the only way to fully understand the pros and cons of each option.

LPMI Alternatives

LPMI isn’t always the clear winner when choosing between mortgage insurance options. There are alternatives to consider.

Put More Down

A down payment of at least 20% will eliminate the need for PMI entirely. There are several other benefits that go along with larger down payments as well, such as a better loan rate, making this a great option for those who can afford it.

Shop Around

One main disadvantage of LPMI is that the homeowner has little to no control over the price and provider. So when homeowners are responsible for their own PMI, shopping around for the best price becomes an option.

Piggyback Mortgage

A piggyback mortgage makes it possible to avoid PMI with a combination of loans.

It’s important to understand the pros and cons of a piggyback mortgage before deciding on one as an alternative to LPMI to avoid potential financial pitfalls.

Recommended: Second Mortgage Explained: How It Works, Types, Pros, Cons

The Takeaway

If mortgage insurance is necessary to secure a loan, understanding all the options is the first step any house hunter should take. This includes lender-paid mortgage insurance vs. PMI. While LPMI may serve as an overpriced convenience for some, it can be the financially smarter option for others.

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

*SoFi 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.

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.

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