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Mortgages come with different loan terms, and a short 10-year mortgage could be beneficial for some borrowers vs. the common 30-year variety. It’s important to consider your personal finances and goals, since the mortgage length affects the interest rate and monthly payment.

This guide will compare the pros and cons of different mortgage lengths and explore how to get a 10-year mortgage term. Read on to learn if paying off a home loan in a decade is the right fit for you.

How Does a 10-Year Mortgage Work?

A homebuyer or refinancer chooses a mortgage term based largely on the monthly payment they can handle and how long they plan to keep the property. In general, the shorter the term, the higher the payment.

The term length isn’t the only differentiating factor among mortgages. There’s also the choice of fixed-rate vs. adjustable-rate mortgages.

With a 10-year fixed-rate mortgage, the interest rate is set for the life of the loan. Through mortgage amortization, the monthly payment on a fixed-rate mortgage stays the same (excluding changes in taxes or insurance if included in escrow payments), making it easy to budget years worth of housing costs.

The amortization schedule determines how the monthly payment is allocated between the principal and interest. Initially, payments primarily go toward interest. Near the end of the loan term, most of the payment will be on the loan principal, with minimal interest remaining.

Adjustable-rate mortgages (ARMs) work differently. A 10-year ARM has a fixed interest rate for 10 years, followed by a fluctuating interest rate until the loan is paid off.

You might see a 10/1 ARM or 10/6 ARM. With a 10/1 ARM, the interest rate is fixed for 10 years and then readjusted every year for the remaining term (usually 20 more years). A 10/6 ARM operates similarly but readjusts every six months rather than annually.

Recommended: How a 5/1 ARM Works

Reasons to Choose a 10-Year Mortgage

No two homebuyers or refinancers have the same financial goals and situation, but there are some common reasons for choosing a 10-year mortgage.

Borrowers may prefer a 10-year mortgage to save on total interest paid. This could be a good option for buyers with higher incomes who can afford larger monthly payments with money still left over for savings and other expenses.

When interest rates are low, homeowners with an existing 20- or 30-year mortgage might choose to refinance to a 10-year mortgage to get out of debt sooner and pay less interest. This scenario could be more beneficial if you plan to remain in your home longer, allowing time to recoup the closing costs of refinancing.

A shorter mortgage term can be helpful for people who are approaching retirement, too. Paying off a mortgage while you’re still earning a salary (and in less time) allows soon-to-be retirees to save money on interest payments. After 10 years, retirees can enjoy their paid-off house or sell the property to further pad their savings and downsize.

Pros of a 10-Year Mortgage Term

Considering a 10-year mortgage term? Here are some of the potential upsides of going with a decadelong mortgage term.

•   Faster Payoff: You’ll own your home outright in just 10 years.

•   Competitive Rates: 10-year mortgage rates are often lower than rates for mortgages with longer terms.

•   Less Interest Paid: A shorter mortgage term means less interest is accrued, and thus paid, over the life of the loan.

•   Building of Equity: Putting more money toward your mortgage right away can grow home equity faster, which can be borrowed against later for home improvements or other expenses.

Cons of a 10-Year Mortgage Term

Taking out a 10-year mortgage isn’t without its drawbacks. Here are some downsides to be aware of when considering this type of home loan.

•   Higher Monthly Payments: A condensed mortgage term comes with higher monthly payments, putting borrowers at risk if they lose a job or incur emergency expenses.

•   Risk of Becoming “House Poor”: Putting more money toward your mortgage could prevent you from achieving other financial goals, such as saving for retirement or college tuition.

•   Less of a Tax Deduction: Borrowers who use the mortgage interest deduction on taxes will only be able to do so for 10 years.

•   Less Property Choice: Buyers may qualify for a smaller loan amount with a 10-year mortgage than a longer-term loan, reducing the number of homes they can afford.

10-Year Mortgage vs 30-Year Mortgage: How They Compare

It’s helpful to compare mortgage options during the homebuying process. This means looking at different lenders and mortgage term lengths.

The 30-year fixed-rate mortgage is the most popular way to finance a home purchase, with 90% of mortgages lasting 30 years. It’s also the route most borrowers using first-time homebuyer programs take.

Let’s take a closer look at how 10-year mortgages and 30-year mortgages compare.

Interest Rates

Fixed-rate mortgages keep the same interest rate over the life of the loan, helping to make payments predictable.

Lenders use a variety of factors to calculate interest rates, such as credit score, down payment, and economic conditions. Generally speaking, paying the loan back in less time is viewed as less risky for the lender. Thus, 10-year mortgages typically come with lower interest rates than 30-year mortgages.

Monthly Payment

With fixed-rate mortgages, equal installment payments are collected each month by a mortgage servicer.

While 10-year mortgages often have lower interest rates, the monthly payment is significantly higher thanks to the condensed payment schedule. Put another way, the monthly payment for a 10-year mortgage is usually double that of a 30-year mortgage.

For example, a $300,000 mortgage at a fixed rate of 5% with a 10-year term would have a monthly payment of $3,182. Meanwhile, borrowing $300,000 at a fixed rate of 5% with a 30-year term would amount to a $1,610 payment each month. This calculation excludes property taxes, homeowners insurance, and any private mortgage insurance.

You can use this online mortgage calculator tool to estimate your monthly payment.

Getting Qualified

Your debt-to-income ratio (DTI), which is calculated by dividing your monthly debts by your gross monthly income, is an important indicator of your ability to repay the loan.

A DTI of 36% or less is recommended for homebuyers, though borrowers with a DTI of 43% may still qualify for a mortgage.

When applying for a 10-year mortgage, the larger monthly payment will increase your DTI, which could affect your ability to qualify, or at least how much you qualify for. Borrowers may qualify for a larger loan amount with a 30-year mortgage because the monthly payment is lower.

Should Inflation Affect Whether You Choose a 10-Year or Longer Mortgage?

Inflation has an impact on the cost of everything. Homebuyers and refinancers need to know that rising inflation affects mortgage rates.

Choosing a longer mortgage term with lower monthly payments can help safeguard a budget from the effects of inflation.

Most borrowers have the option of making extra principal payments, as their finances allow, to repay the loan faster and save on interest. The same ideas behind how to pay off a 30-year mortgage in 15 years apply to paying it off in 10.

Borrowers can also refinance to a 10-year mortgage later if rates are lower and they have the income to manage the higher monthly payment.

Recommended: Home Loan Help Center

The Takeaway

Opting for a 10-year mortgage can help pay off your home quicker and save money on interest. On the flipside, you’ll have to dedicate more of your budget to payments, potentially at the cost of retirement savings and investments.

Still weighing your options? Check out SoFi Mortgages. Qualifying first-time homebuyers can put just 3% down; others, as little as 5% down.

FAQ

Is 10 years the shortest mortgage you can get?

Borrowers may access mortgages with terms of less than 10 years by working with their bank or credit union, since they have more flexibility and an existing customer relationship to customize a loan.

Are there 50-year mortgages?

Though uncommon, 50-year fixed-rate mortgages exist. With such an extended term, borrowers will pay significantly more in interest over the life of the loan than shorter-term home loans.

Photo credit: iStock/fizkes

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.

SOHL1022002

Land loans allow borrowers to purchase a piece of land, often with the intention of building a home there or developing it for business.

Because of the inherent risk to lenders, land loans can be challenging to find. The rate and required down payment are typically higher than those of a traditional mortgage loan, and the repayment term is often shorter.

Let’s dig into land loans and look at some alternatives.

What Is a Land Loan?

A land loan, also referred to as a “lot loan,” finances a piece of land. Borrowers may have plans to build a home or start a business on the land, but they might want to keep the plot for just fishing or hunting. Developers can also get land loans to build homes or businesses.

A land loan is different from a construction loan, which is typically a short-term loan to build or rehab a home. With a land loan, the borrower might not have immediate plans to develop the land or build the house.

A land loan can be more challenging to obtain because, unlike with traditional types of mortgage loans, there is no home to serve as collateral for the lender. Thus, lenders may have stricter requirements and higher rates attached to a land loan.

Types of Land Loans

The land loan rate and terms you get — and the down payment you’re required to make — may depend on the type of land you’re trying to buy.

Raw Land

Securing financing for raw land can be challenging. Raw land, also called unimproved land, is entirely undeveloped, meaning it lacks roads and electrical, water, and sewage systems.

To improve your chances of loan approval, it’s a good idea to have a comprehensive development plan to show lenders.

Of course raw land is generally cheaper than land that has been partially developed, but because it is virtually untouched, it is not possible to know what major issues await when you start development.

Recommended: How to Find a Contractor for Home Remodeling

Improved Land

Because improved land is developed with utilities and road access, lenders may be more willing to offer financing. But the land typically costs more than raw land.

How to Find Land Loan Lenders

Finding land loan lenders can prove to be more challenging than finding a lender for a traditional mortgage.

Potential land buyers can try these routes for securing financing:

•   Local banks and credit unions: If your personal bank doesn’t issue land loans or you’re struggling to find a big-name financial institution that offers them, you might have more luck with a local bank or credit union.

•   Online lenders: Searching online allows you to compare land loan rates from the comfort of your couch. It also means you can read reviews about the lenders before applying.

•   USDA loans for low-income borrowers: The U.S. Department of Agriculture offers Section 502 direct loans to help low- and very low-income individuals or households purchase homes or buy and prepare sites, including providing water and sewage systems, in rural areas. The rate is well under current market rates. The term is as long as 38 years. No down payment is required.

•   SBA loans: Business owners planning to use land for a business may qualify for a 504 loan through the U.S. Small Business Administration. The SBA and a lender issue loans for a combined 90% of the land purchase cost. The rate is based on market rates.

Recommended: What Is a USDA Loan?

What Are Typical Land Loan Rates and Terms?

Like any other loan, the interest rate will largely depend on your credit score. That said, land loan rates are typically higher than traditional mortgage rates, thanks to the inherent risk and only the land as collateral.

And the repayment term? A land loan from a bank often is a five-year adjustable-rate loan with a balloon payment at the end. Rarely you might find a 30-year fixed-rate loan through a financial institution in the Farm Credit System.

The Federal Deposit Insurance Corp. (FDIC) recommends loan-to-value (LTV) limits. Lenders may set down payment requirements even greater than the FDIC proposes, however.

•   For raw land, the FDIC advises a 65% LTV, meaning borrowers must put 35% down.

•   For land development, the FDIC recommends a 75% LTV, meaning borrowers must put 25% down.

•   For construction of a one- to four-family residence on improved land, the FDIC calls for an 85% LTV, meaning borrowers must put 15% down on the land loan.

If you don’t plan to develop the land, the rate and down payment could be steep.

If you do build a home on the land, you may be able to refinance the land loan into a traditional mortgage.

Alternatives to Land Loans

A land loan is not your only option when purchasing a lot. One of these alternatives to land loans may be a better choice for you:

Construction-to-Permanent Loans

If you plan to build a house in short order, this kind of loan could work. At first, you would make interest-only payments on the purchase price of the land. The loan then allows for draws until the house is done, usually 12 months from closing. The loan then converts to a permanent mortgage, sometimes with the same rate.

You may need to make a down payment of at least 20% of the total loan amount. The rate for construction loans in general is higher than a regular mortgage.

FHA, VA, and USDA single-close loans are also available to eligible borrowers.

Seller Financing

Though not as common as traditional financing, owner financing is when the current landowner acts as the lender. Also called a land contract, this type of financing does not involve a bank, credit union, or traditional lender.

While it can be beneficial for those who cannot secure a land loan, buyers have fewer consumer protections working in their favor.

Home Equity Loan or HELOC

If you have significant equity in your primary home, you may qualify for a home equity loan. Your home would serve as the collateral for the loan.

Similarly, you may be able to finance the land purchase with a home equity line of credit (HELOC) or a cash-out refinance.

How much home equity can you tap? Many lenders will let you borrow 85% of your home equity, the home’s current value minus the mortgage balance, but some allow more than that.

Personal Loan

Though personal loan rates may be higher than home equity products’ and you may need to pay off the loan in a shorter time, it might be possible to use a personal loan to finance your land purchase.

You’ll receive the funds quickly, and an unsecured personal loan requires no collateral.

What You Need to Know Before Applying for a Land Loan

Before applying for a land loan, it’s important to educate yourself about land development and to understand the details of the specific lot you’re interested in.

Survey

When buying a large plot of land, knowing the boundaries can be more challenging. Hiring a surveyor to mark the boundaries can be helpful before applying for the loan.

Recommended: Should I Lock My Mortgage Rate Today?

Utilities and Roads

Unspoiled land may be beautiful, but it can be difficult to develop. Understanding what utilities and roads are available — or how to make them available and how much it will cost to do so — is important before applying.

Zoning

When considering a land purchase, it’s a good idea to research any zoning restrictions in that area. Before purchasing land, you’ll want to know that you can actually build on it the way you envision.

Recommended: Tiny House Financing

The Takeaway

Land loans allow borrowers to purchase land to develop as they see fit. Because there is more risk involved for the lender, it can be challenging to find a land loan, and the rates and terms tend to be less favorable than those of typical mortgages.

A personal loan, cash-out refinance, home equity loan, or seller financing may also allow a land buyer to hit pay dirt.

SoFi offers fixed-rate personal loans from $5,000 to $100,000 and a cash-out refinance.

And SoFi brokers a home equity line of credit that allows qualified homeowners to access up to 95%, or $500,000, of their home’s equity.

FAQ

Is it hard to get a loan to buy land?

Getting a loan for a land purchase can be more difficult than getting a traditional mortgage. Fewer lenders offer land loans, and because there is more risk involved, they typically require a higher down payment, impose higher interest rates, and offer shorter repayment terms.

Are land loans higher interest?

Land loan rates are typically higher than traditional mortgage rates because there is no home to act as collateral for the lender. Interest rates may vary depending on credit scores and the down payment amount.

What is the first step to apply for a land loan?

First, research land loan lenders. Before applying, it’s also smart to devise a plan that shows the lender how you will develop the land, accounting for things like utilities, land boundaries, roads, and construction costs.

Photo credit: iStock/shapecharge

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.

SOHL0922026

Navigating a small kitchen can be challenging, especially if you love to entertain or have numerous mouths to feed. If your snug cooking area needs an upgrade, you might be craving ways to create more elbow room and storage areas.

Fortunately, choosing from the buffet of small-kitchen remodel ideas can help you expand your culinary space without breaking the bank.

What Is the Average Size of a Small Kitchen?

Today, the average small kitchen is considered to be 70 square feet. Many apartments in big cities have kitchens of 50 square feet or less.

Isn’t that a shame? Not always. Unsurprisingly, millennial homebuyers, who have constituted the biggest share of buyers for years, are far less likely than baby boomers and Gen Xers to cook dinner at home.

A little kitchen might suit them fine, but they still may like the idea of zhuzhing it up.

10 Small-Kitchen Remodel Ideas on a Budget

You don’t need to demo a wall or take out a reverse mortgage to improve your cozy canteen.

At an average of $150 per square foot for both materials and labor, a homeowner might spend $10,500 for a 70-square-foot kitchen remodel. Some will spend much more, and some, much less.

Here are 10 small-kitchen remodel ideas on a budget that will work for most kitchen configurations.

1. Go for a New Backsplash

Installing a festive new backsplash can range from $10 to $95 per square foot. Stick with ceramic tile, brick, or tin for more affordable options than marble or glass.

Adding a backsplash with geometric patterns can make a small kitchen seem larger.

2. Install Open Cabinets and Shelves

Open cabinets and shelves offer a contemporary feel and a chance to display your favorite dishware. The look can also be a less expensive option than traditional cabinets while lending a sense of airiness to a once-cramped kitchen.

3. Change the Flooring

Installing a new floor can be an affordable way to revamp the look of your small kitchen. Vinyl kitchen flooring comes in a variety of snazzy colors and patterns, and costs between $1.85 and $3 per square foot, or up to $10 for high-end materials.

4. Paint With Light Colors

A fresh coat of paint can give an instant facelift to any small kitchen. But dark colors tend to absorb light and constrict the space. By choosing light colors, you can brighten and open up the room.

5. Add Style and Storage Above

Maybe you bought a starter home, and the kitchen isn’t all that.

Maybe downsizing your home seems like the thing to do, little kitchen and all.

Whatever the case, small kitchens generally need more storage space. Inexpensive stylish bins or decorative baskets on top of kitchen cabinets can help.

6. Hang a Ceiling Rack for Pots and Pans

Create vertical storage for your pots and pans with a rack hung from the ceiling. Moderately priced pot racks range from modern to rustic-chic in style.

7. Hang Your Kitchen Utensils

Carve out more room in your kitchen with a magnetic knife rack. Decorate a wall with your most-used wooden spoons and cutting boards.

8. Use the Space Under Your Cabinets

To free up more counter and cabinet space, install a paper towel holder or a wine rack underneath the upper kitchen cabinets. You could also add an extra shelf for spices or coffee mugs.

9. Opt for a Single Sink

If you have a small kitchen, you probably don’t want a sink eating up a big chunk of your counter space. Single butler sinks can provide plenty of depth for dishwashing and come in a variety of prices for the budget-conscious.

10. Choose Compact Appliances

Compact dishwashers are ideal for small kitchens and can cost less than standard size options. And if you are a one- to two-person household, a slimline refrigerator can be a great space saver; they come in fun colors and retro styles.

10 Small U-Shaped Kitchen Remodel Ideas

A U-shaped kitchen, also called C-shaped or horseshoe-shaped kitchen, can provide a great layout for small kitchen spaces, giving one or more chefs more room to maneuver.

Its open configuration offers functionality, but you can lose some storage and counter space.

Here are 10 small U-shaped kitchen remodel ideas to give you a little more whisking room.

1. Implement a Triangle Workflow

To maximize the layout in your small U-shaped kitchen, a triangle workflow plan can allow for the right amount of spacing between your sink, stove, and refrigerator.

Configure your three major “work” areas at adjacent countertops, ideally placing the fridge and the stove across from each other on the peninsulas, with the sink in the connecting, middle counter.

2. Create a Breakfast Bar

Try turning one of the lengths of your U-shaped kitchen into a breakfast bar/seating area. It only needs to be wide enough to hold a cup of morning joe and a cereal bowl, and deep enough to slide in some stools underneath.

3. Install a Window Over the Sink

A window over the kitchen sink is a fantastic way to bring the great outdoors into your U-shaped kitchen. The extra light provides breath to the space and a view while washing the dishes.

4. Get Depth With Contrasting Colors

While dark paint colors aren’t typically the best choice for a small U-shaped kitchen, there are ways to create space by using slightly darker shades.

For example, if you have white cabinets, painting the surrounding walls and backsplash area a light gray can give the illusion of depth.

5. Consider a Darker Countertop

If you have light-colored cabinets, the contrast of a rich brown or black marble countertop can trick the eye into seeing more depth.

6. Install Recessed Lighting

Hanging light fixtures can break up the flow in a small U-shaped kitchen, but recessed lighting can give a chic, streamlined look while increasing the amount of light in the room.

7. Make a Statement With a Black & White Contrast

White cabinets against black countertops and flooring can make a striking design statement while adding dimension. If you choose a reflective black paint or vinyl for the floor, it will give off an illuminating effect when the light hits it.

8. Designate a Wall of Cabinets

You can stretch the space and amount of storage by dedicating an entire wall to cabinets. You’ll lose some counter space but reduce clutter. Try extending the cabinets to the ceiling for an elongated effect.

9. Choose Glass for Your Cabinets

Glass panes on your kitchen cabinets can reflect light, creating the illusion of more space. Their transparency will make it easy for you and your guests to find cookware and wine glasses.

10. Ditch the Cabinet Hardware

If you are replacing your cabinets, consider a style with no handles or knobs. Doing so could offer a sleek, modern look that won’t cramp the design flow.

Ways to Finance a Small-Kitchen Remodel

If you don’t have the cash to pay for your renovations, there are several financing options to help you get that new kitchen sink without draining your savings.

Home Improvement Loan

A personal loan for home improvements allows you to receive a lump sum, often the same day, with no collateral required. You’ll repay the money, plus interest, in monthly installments.

An unsecured loan may come with a fairly high interest rate.

HELOC

If you have enough home equity, you may be eligible for a home equity line of credit (HELOC) by using your home as collateral. The rate will typically be lower than that of a personal loan or credit card. Plus, you’ll only make payments on the amount borrowed.

But HELOCs may come with closing costs, fees, and a minimum-withdrawal requirement. Most have a variable rate, which could eventually go up. Your home could be at risk if you default on a HELOC.

Still, when rates rise, so does the popularity of HELOCs.

Cash-Out Refinance

With a cash-out refinance, you can use the equity in your home to help redo your small kitchen. You would refinance your mortgage for more than you owe and use part of the difference to cover the project costs.

The downsides of a cash-out refinance? Your overall debt on your house will increase, and closing costs will typically be 2% to 5% of the loan amount.

Credit Card

If you have a 0% or low-rate credit card and can pay off the debt quickly, it could be a smart way to pay for a kitchen remodel while earning some travel miles. But a high-interest card could result in hefty monthly payments, and missing even one payment damages credit scores.

Recommended: Buying? Learn the Different Types of Mortgage Loans

The Takeaway

A small-kitchen remodel can increase the value of your home and raise your joy factor. You can put your little-kitchen project on the front burner with a range of financing options.

SoFi offers a fixed-rate personal loan with no fees as well as a cash-out refinance.

With a HELOC brokered by SoFi, you can access up to 95%, or $500,000, of your home equity to put toward your small-kitchen remodel and other home improvements.

FAQ

What is the average cost of remodeling a small kitchen?

The average cost of a small-kitchen remodel is $10,500, given an industry average of $150 per square foot for materials and labor and an average small-kitchen size of 70 square feet.

Can you remodel a small kitchen for $5,000?

A do-it-yourselfer can remodel a small kitchen for as little as $5,000 by painting the walls and existing cabinets, installing new hardware (or none at all), laying vinyl flooring, and buying white or black appliances instead of stainless.

What is the best layout for a small kitchen?

U-shaped kitchens are popular because they maximize cabinet and surface areas. If an island won’t fit, try a peninsular breakfast bar connected to the wall. In a narrow kitchen, aim for a double galley.

Can you update an old small kitchen?

Of course you can. Plan it, budget for it, and add about 20% for emergencies.

Photo credit: iStock/martin-dm

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.

SOHL1122008

If you’re financing your home purchase, choosing the right lender could streamline the process. But there are many types of mortgage lenders: retail lenders, direct lenders, online lenders, and others.

Although many steps of the mortgage process are consistent across lenders, there are key differences that could affect the all-in cost. To help narrow your search, this guide will cover what mortgage lenders do and explore common mortgage lenders.

Mortgage Lender, Defined

A mortgage lender is a bank, credit union, mortgage company, or individual that grants home loans to borrowers. Mortgage lenders evaluate an applicant’s creditworthiness and ability to repay the loan. Based on the buyer’s qualifications, the lender sets the interest rate and mortgage term.

After closing, the loan may be managed by a mortgage servicer vs. lender. The mortgage servicer is responsible for sending statements, collecting monthly payments, and allocating funds between the loan principal, interest, and escrow account.

It’s possible that financial institutions act as both the mortgage lender and mortgage servicer.

Mortgage Lender vs Mortgage Broker

Both lenders and mortgage brokers can assist with the purchase of a home. But there are key differences to understand when comparing a mortgage broker vs. direct lender.

Mortgage brokers do not originate or approve loans; rather, they help borrowers find a home loan that best fits their financial situation. They often have connections with many lenders and find solutions for less-qualified borrowers. A mortgage broker also helps organize required paperwork and manages communication between the borrower and lender.

A mortgage broker earns a commission for these services from either the borrower or lender after the loan closes. Licensing is required to be a mortgage broker, and the Nationwide Mortgage Licensing System & Registry maintains a database of licensed professionals by state. Search for NMLS consumer access.

You can always obtain loan quotes from at least one broker and one direct lender when you shop for a mortgage.

Online Mortgage Lender vs Bank

Borrowers can work with a bank or mortgage lender to fund their home purchase.

Banks can offer mortgages along with other financial products, including checking accounts and commercial loans. A borrower may receive benefits, like a lower rate and closing costs, when applying for a bank mortgage if they’re an existing customer.

As larger financial institutions, banks tend to service their mortgage loans after closing.

On the other hand, banks may have stricter lending requirements than mortgage companies, thanks to federal regulation and compliance. Borrowers may also have fewer loan options to choose from with a bank, as a mortgage lender specializes in mortgage products.

Common Mortgage Lender Options

If you’re in the market for a home loan, there are several types of mortgage lenders and terms to become familiar with. Here are the most common.

Direct Lenders

Direct lenders like mortgage lenders, banks, credit unions, and portfolio lenders fund, originate, underwrite, process, and close the loans on their own.

They work directly with buyers and refinancers; there is no broker involved.

Retail Lenders

Banks, credit unions, and mortgage companies can also be categorized as retail lenders. Retail lenders issue mortgages directly to consumers.

Homebuyers may receive more personalized assistance from a mortgage loan originator to find a home loan that fits their situation. But because retail lenders handle loans in-house, they generally only offer their own loan products.

Besides mortgages, retail lenders provide other credit products, including savings accounts, personal loans, and credit cards.

Wholesale Lenders

Wholesale lenders offer home loans through third parties, such as retail lenders or mortgage brokers, instead of directly to consumers.

They fund the mortgage and set the loan terms, while the third party facilitates the application process and communicates with the borrower.

After closing, wholesale lenders typically sell their home loans on the secondary mortgage market.

Portfolio Lenders

A portfolio lender, such as a community bank, uses its own money to originate nonconforming mortgages — those that do not meet Fannie and Freddie standards for purchase, such as jumbo loans.

A portfolio lender has more flexible lending standards than a conventional direct lender because it holds its own home loans in a portfolio.

But portfolio loans may come with higher interest rates and closing costs.

Warehouse Lenders

Warehouse lending provides short-term funding to mortgage lenders to finance a home loan. The mortgage serves as collateral until the lender — often a small or midsize bank — repays the warehouse lender.

With warehouse lending, the mortgage lender is responsible for the loan application and approval process. After closing, the mortgage lender sells the loan on the secondary market and uses the proceeds to repay the wholesale lender. Mortgage lenders profit from this practice through origination fees and mortgage points.

A mortgage financed through a warehouse lender may provide faster funding and more flexibility than a conventional loan. For instance, borrowers could apply for construction financing with warehouse lending.

Online Lenders

With an online lender, the mortgage application process, processing, underwriting, and closing can all be completed virtually. Opting for a digital borrowing experience can get you to the closing table faster.

No overhead means online lenders can offer lower rates and fees.

On the other hand, borrowers may find it more difficult to build a working relationship with a loan officer when completing the process online.

Recommended: Prequalification vs Preapproval: What’s the Difference?

Hard Money Lenders

Hard money lenders — individuals or private companies — offer hard money personal loans based on the value of the property rather than the borrower’s creditworthiness. The property serves as collateral, and borrowers must repay the loan in just a few years.

While hard money lenders can offer faster financing, these loans usually come with higher down payment requirements and interest rates because of their risk. Borrowers may benefit from a hard money lender if they plan to flip a property.

How to Find the Right Mortgage Lender for You

While there’s no shortage of lenders, finding the right mortgage lender takes some shopping around.

When browsing options, it’s useful to consider your financial situation and needs. For instance, can you afford a down payment on your own or with help from a family member or friend?

Is your credit score high enough to buy a house?

Checking the fees and interest rate are important to determine how much you’ll have to pay upfront and over the life of the loan.

Applying to several lenders and/or working with a mortgage broker can let you compare rates and fees to negotiate better terms. Apply to all within a 14-day window to minimize damage to your credit score.

There are first-time homebuyer programs, too. The definition of first-time homebuyer is broader than it seems. It includes anyone who has not owned a principal residence in the past three years.

Recommended: Mortgage Loan Help Center

The Takeaway

There are many types of mortgage lenders to choose from. Your financial situation and goals will help you pick the mortgage lender that offers terms that fit your budget.

Ready to compare home loan options? Check out all the advantages of mortgages from SoFi. One is that qualifying first-time homebuyers can put as little as 3% down.

FAQ

What does a mortgage lender do?

A mortgage lender offers home loans to borrowers with the expectation that the loans will be repaid with interest. They set the loan terms, including the interest rate and repayment schedule.

Are mortgage underwriters the same as the lender?

Most lenders manage the underwriting process in-house. Underwriters assess a borrower’s income, assets, and debt to determine whether they are approved for a mortgage.

Photo credit: iStock/luismmolina

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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Despite the Fair Housing Act of 1968 and other federal laws, a large race gap in homeownership continues to exist across the United States. The Black homeownership rate in the fourth quarter of 2022 stood at 44.9%, compared with 74.5% for non-Hispanic whites, according to the U.S. Census Bureau.

The Black-white race gap in homeownership rates widened as the Federal Reserve attempted to bring inflation under control — going from 29.3 percentage points in the first quarter of 2022 to 29.6 percentage points in Q4. Average mortgage interest rates generally increased in 2022 after the Fed implemented a series of rate hikes.

These racial disparities are not new. Historical records confirm a large race gap in homeownership rates has existed since the abolition of slavery. Below we further examine the race gap in homeownership and identify possible solutions.

History of Racial Housing Disparities

The United States has a long history of systemic racism that presents itself in a number of ways, including housing disparities. In January 2022, the National Community Reinvestment Coalition released its home mortgage report examining racial disparities in homeownership from 1900 to 2020.

The NCRC found the gap in homeownership rates between Black and white families reached its lowest level of 23 percentage points in 1980 and its highest level of 30 percentage points in 2015.

In the fourth quarter of 2021, the Black-white race gap in homeownership rates exceeded 31 percentage points. This gap narrowed to 29.6 percentage points in the fourth quarter of 2022, according to data released by the U.S. Census Bureau.

The homeownership rate as of Q4 2022 stood at 74.5% for non-Hispanic white households; 61.9% for Asian, Native Hawaiian, and Pacific Islander families; 48.5% for Hispanic families of any race; and 44.9% among Black households, according to the Census data.

A number of factors have contributed to the race gap in homeownership, including the legacy of race-based discrimination in the housing market.

Lasting Effects of Redlining

Redlining, the discriminatory practice of denying home loans and other credit services to ethnically diverse neighborhoods based on the race, color, or national origin of the residents of those neighborhoods, is one of the factors explaining America’s long-standing race gap in homeownership.

The federal government institutionalized redlining in the 1930s when a now-defunct federal agency, the Home Owners’ Loan Corp., created “residential security maps” in dozens of cities across the country to systematically deny mortgages in neighborhoods of color.

HOLC ceased to exist in 1951, and Congress later outlawed redlining with the Fair Housing Act of 1968, but lending discrimination in the housing market has persisted.

An article published in the journal SSM-Population Health in June 2021 found that “redlining has continued to influence racialized perceptions of neighborhood value and practices that have perpetuated racial inequities in lending.”

“Decades of racism in the housing market,” the article adds, “have prevented people of color, particularly Black Americans, equal access to capital, low-cost loans, and homeownership.”

The Department of Justice continues to enforce the Fair Housing Act to address ongoing allegations of modern-day redlining.

Current Black Homeownership Gap

As mentioned, the current race gap in homeownership rates between Black and white families is 29.6 percentage points as of Q4 2022. The vast majority of white families own residential property, while the majority of Black families do not, data shows.

Homeownership is often regarded as the American dream, but not everyone who wants to buy a house is able to get financing. The overall denial rate for home-purchase loans among all applicants in 2021 stood at 8.3%, according to the Consumer Financial Protection Bureau.

Bureau data shows that 15.3% of Black applicants had their mortgage loan requests denied in 2021, compared with 6.3% of non-Hispanic white applicants.

This first-time homebuyer guide recommends downloading your credit reports before submitting any applications for home loans. Creditworthy applicants who have home loan applications denied may be victims of discrimination. You can get free credit reports at AnnualCreditReport.com and can check your credit scores in several ways.

Homeownership by Race

The below table highlights homeownership data by race as of Q4 2022

Fixing the Black Homeownership Gap

The Urban Institute, a nonprofit research organization, has a five-point framework aimed at reducing the Black homeownership gap. Here are the five points:

1. Advance Local Policy Solutions

Local policy reforms, including the removal of any discriminatory terms in homeowner and condominium associations and possible property tax relief for low-income and moderate-income taxpayers, can help reduce the Black homeownership gap.

Expanding small-dollar mortgages could also make a difference.

2. Tackle Housing Supply Constraints and Affordability

Promoting affordable housing nationwide, including new investments in historically segregated and devalued neighborhoods, may help reduce the Black homeownership gap.

Public policy leaders could also review the viability of lease-to-own programs as a pathway to homeownership.

3. Promote an Equitable and Accessible Housing Finance System

Greater access to down payment assistance programs for economically disadvantaged consumers may reduce the Black homeownership gap.

This online mortgage calculator shows how home loan seekers can lower their monthly mortgage payments and total interest charges by making a larger down payment on a home.

Recommended: Do You Still Need to Put a 20% Down Payment On a House?

4. Accelerate Outreach for Mortgage-Ready Millennials

Reaching out to mortgage-ready millennials and improving tax credit incentives for renters to become homeowners may help reduce the Black homeownership gap.

Public-private partnerships can scale up additional programs aimed at bolstering homeownership among low-income people.

5. Focus on Sustainable Homeownership and Preservation

Funded programs that prevent foreclosures in the United States may particularly help Black homeowners maintain their wealth.

Providing homeowners of color with financial literacy may also help preserve homeownership among Black families.

The Takeaway

Racial housing disparities persist, despite federal laws designed to equal the playing field. The effects of redlining echo today, when 74.5% of white families own residential property and just 44.9% of Black families do. Solving this social inequity may require significant action and reform. See how employers can help first-time homebuyers.

If you’re looking for a mortgage lender, SoFi can help you achieve the American dream. Qualified first-time homebuyers can put as little as 3% down.

Photo credit: iStock/Morsa Images

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.

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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