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If you purchased your home with a VA loan but are ready to move on, you may be able to benefit from VA loan assumption. VA loan assumption allows someone else to take over your existing VA loan mortgage — and unlike when you originated your VA loan, the new borrower doesn’t necessarily have to be a military servicemember, veteran, or surviving spouse to qualify. However, your eligibility for this program depends on a few factors, including when you took out your VA loan, and has a few caveats to understand. We’ll explain below.

What Is VA Loan Assumption?

VA loan assumption is a process in which a new borrower can “assume,” or take over, an existing VA mortgage loan. As mentioned above, you don’t have to be eligible to take out a VA loan to be eligible to assume one.

In other words, using VA loan assumption, the homebuyer could take over the existing VA loan rather than securing a brand-new mortgage to buy the home (or buying it in cash). A VA loan has some benefits vs. a conventional loan, and assuming the loan may offer the buyer a lower interest rate (as VA loans often have competitive rates). On the seller side, loan assumption could attract more buyers and help a home sell more quickly.

Eligibility for VA Loan Assumption

Even when a new buyer is taking over a VA assumable loan, the original lender will still want to see proof of the new borrower’s creditworthiness. (After all, repayment of the remainder of the balance will now fall to the new borrower.) Here’s what you need to know about eligibility requirements for VA loan assumption:

For the Assumer

The person taking over the loan still needs to prove their creditworthiness to the lender or VA. The VA doesn’t specify a minimum credit score, but most lenders want to see a score of at least 620.

The assumer’s debt-to-income ratio (DTI) also matters, and should be no higher than 41%. They’ll also need to have sufficient income and be able to pay the VA loan assumption fee, which is 0.5% of the total loan balance — and the difference, if any, between the home’s sale price and the existing loan balance.

For the Seller

Those who took out a VA loan to purchase their home anytime after March 1, 1988, are eligible to sell their home via loan assumption. Be sure to triple-check that your lender will release you from the liability of the loan — otherwise, if the new borrower fails to repay or makes late payments, it could hit your credit score. And once the deal goes through, recheck to be sure your lender has finalized the release. (If you don’t yet have a VA loan but are wondering what is a VA loan and could I get one, briefly: You may be eligible for a VA loan if you are a member of the military, veteran, Reserve or National Guard member, or surviving spouse. You’ll need to get a Certificate of Eligibility from the VA in order to apply for a VA loan.)

Recommended: VA Loan Calculator

Benefits of VA Loan Assumption

As mentioned above, VA loan assumption has benefits on both sides of the table.

For buyers, taking advantage of a VA assumable loan could be very attractive if current mortgage rates are generally higher than the rate on the existing loan. Although creditworthiness still needs to be proven to the lender, if you’re wondering how long does it take to assume a VA loan, rest assured that the underwriting process may be faster since the mortgage is already written.

For sellers, having an assumable loan could expand your pool of potential buyers and help the house sell faster. Transferring a loan may also take less time than going through the process of waiting for the buyer’s new mortgage to pay off your debt.

Risks and Considerations

While there are benefits that can make VA loan assumption worth considering, there are risks and drawbacks to consider, too.

For one thing, while the new borrower doesn’t need to be eligible for a VA loan to take one over, you won’t be able to take out a new VA loan until the loan that’s being assumed is fully paid off. (Normally, you can use a VA loan multiple times to buy a house.) Additionally, you must check with your mortgage lender to ensure you can obtain release of liability for the loan to avoid impacts to your credit score after managing the loan is out of your hands.

On the buyer’s side, assuming a loan may offer better interest rates — but require more cash up front to pay the owner for the equity they’ve stored in the home. Depending on how long the loan has been in place, that total may be higher or lower than a traditional down payment.

VA Loan Assumption Process

If you want to put your home on the market with the option to assume your VA loan, you’ll need to take these steps.

1.    First, reach out to your lender and let them know your intentions. You can also use this opportunity to ask about the release of liability once the loan has been transferred.

2.    In your home sale listing, market the fact that an assumable loan option is available. This may be attractive to many buyers and increase the speed of your sale.

3.    Once you have a prospective buyer, you’ll need to offer full disclosure about the terms of the loan. (If the buyer turns out to be a service member, veteran, or surviving spouse, inquire about a “substitution of entitlement,” which is used when one person who is VA-loan eligible takes over a loan from another.)

4.    At the time of sale, you’ll need to wait for the borrower to be qualified by your lender or the VA to ensure they’re deemed creditworthy enough to take over the loan. Closing will also involve the cash payment to make up the difference to the agreed-upon purchase price.

5.    Once the loan is transferred, ensure you have documentation of your release of liability from the VA or your lender.

VA Funding Fee for Loan Assumption

While VA loans are generally low-cost ways to buy a home, they do come with a funding fee — and assumed loans have one too. However, the fee is only 0.5% in the case of assumed VA loans, which is far lower than the 1.25%-3.3% it might cost to take out such a loan in the first place.

Recommended: VA Loan Buyers Guide

Release of Liability

We’ve said it before, but it bears repeating: As the seller, you’ll want to make sure you have a document stating your liability for the loan has been released once the loan transfer is completed. Otherwise, you may see impacts on your credit score for financial behaviors you have no control over.

Comparison: VA Loan Assumption vs. New VA Loan

Here’s how VA loan assumption vs. new VA loans compare, at a glance.

The Takeaway

Assuming a VA loan can be a valuable way for borrowers to save money on interest (and enjoy a shorter repayment period) while also allowing veterans to market their home for sale in an attractive way.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

FAQ

Who can assume a VA loan?

Anyone who can prove their creditworthiness to the lender and afford to pay the difference can assume an available VA loan. However, if that party would not be qualified to take out their own VA loan in the first place, the original lender will not be able to take out a new VA loan until the existing one is paid off by the new borrower.

Does the assumer need to be a veteran?

The assumer of a VA loan does not need to be a veteran. However, if they are not a veteran, the original VA loan borrower will not be able to take out a new VA loan for themselves until the original loan has been paid off.

Can any VA loan be assumed?

Any VA loan issued after March 1, 1988 is eligible for assumption.

Photo credit: iStock/SethCortright

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-criteria for more information.

SOHL-Q424-001

As painful as it can be to see interest rates top 7.00% when they hovered over 2.00% in late 2020, waiting for them to come down again could bite would-be homeowners. Although today’s rates mean homebuyers can expect to spend more on interest over their loan’s lifetime, they’re actually close to the 50-year average — and besides, if they plummet again, the market will once again be flooded by buyers who have been sitting on the sidelines.

Still, interest rates are a big deal when it comes to how much home you can comfortably afford — and the ongoing health of your personal finances. In an April 2024 survey of 500 would-be homebuyers, SoFi found that 45% were concerned about mortgage costs — it was one of the top concerns of prospective homeowners. One in 10 people surveyed said difficulty securing a mortgage was the biggest homebuying challenge they were facing. In this article, we’ll walk through a little bit of mortgage rate history and context, as well as offering ways to decide whether you’re ready to buy or not, regardless of the market.

Why Are Mortgage Rates So High?

Since Americans just witnessed a historic mortgage interest rate drop in 2020, today’s 7.00% and 8.00% rates seem astronomical. (And, to be fair, coupled with a median national home sales price over $400,000, they can pack a powerful punch: After interest, a 30-year mortgage could easily cost twice the amount of the loan.)

Still, it’s important to remember that when you look at the big picture, today’s rates are actually not that big a deal. Yes, they’re the highest they’ve been since the year 2000, but they’re about on par (or slightly under) the rates buyers saw in the 1990s — and less than half of the 17.00% and 18.00% interest rates buyers paid in the early 1980s.

The rise and fall of mortgage rates is tied to complicated economic factors, including inflation, the Federal interest rate, and the yield of 10-year Treasury bonds. It’s not totally predictable, but one thing’s for sure: It will continue to undulate over time. What’s more, attempting to time the market to purchase a house might not be the best financial move, even if it does save you money on interest.


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

How Low Will Mortgage Rates Drop This Year?

While no one can fully predict the future, experts do weigh in with their predictions for the mortgage interest rate. In 2024, projections suggest a mortgage interest rate drop to about 6.00%, or slightly lower — but still, we’re likely to stay far from the 2.00% and 3.00% free-for-all we saw a few years ago.

How Your Interest Rate Impacts Your Buying Power

So how much do interest rates really impact how much house you can afford? Glad you asked! Let’s do some math.

Say you’re going to buy a $400,000 home — which is just a little less than the U.S. median sale price right now. You’ve saved up a 20% down payment, or $80,000, and plan on taking out a 30-year mortgage.

With a fixed interest rate of 7.00%, your monthly payment would be about $2,129 per month, before additional costs like homeowners insurance and property taxes. At 6.50%, that payment goes down to $2,023, and at 6.00% it drops to $1,919. (So a percentage point drop equates to $210 per month in savings, or $2,520 per year.)

However, it’s over the long term that interest really has the opportunity to add up. In the exact same scenario, over the 30-year lifetime of the loan, you’d pay approximately the following amount in total interest:

•   7.00%: $446,428

•   6.50%: $408,142

•   6.00%: $370,682

As you can see, just a single percent difference can save you nearly $100,000 in the long run. So while it’s not possible to perfectly time the market, it is worth shopping around for the lowest possible interest rates you can qualify for.

(Keep in mind, too, that you can always pull your own customized numbers using a mortgage calculator.)


💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1

Should You Wait to Buy a Home?

The question of whether you’re ready to buy a home — or if it makes more sense to wait — is one that depends on far more than the going market interest rate. Here are some ways for first-time homebuyers to decide what might be the right move, right now.

Reasons to Buy

These are good reasons to consider going ahead with the homebuying process, high interest rates or no:

•   You’re financially (and emotionally) ready. Your credit score is in tip-top shape, you’ve saved up a down payment, and you’re planning to stay in your new home for at least five years — which means you could feasibly refinance once interest rates drop substantially and still break even on closing costs. (A home affordability calculator can help you figure out just how much house you can reasonably afford.)

•   The market looks good to you. These higher interest rates mean the housing market is moving far more slowly than it used to, so the amount of available inventory may give buyers who are ready to buy more time to shop around and find something they really like. This dynamic can also drive home prices down, creating more value for you as the property appreciates over time.

•   It’s time to move. Regardless of the housing market, life goes on — and if you’re expanding your family or relocating, you may not have a choice about moving. If the opportunity is presenting itself and you’re financially ready, this could be a great time to get started on building equity and generational wealth as a homeowner.

Reasons to Wait

On the other end of the spectrum, there are some good reasons to wait on buying a home, even when interest rates are low:

•   You’re not financially (or emotionally) ready. If a monthly mortgage payment would leave you cash-poor, you don’t have a substantial emergency fund saved up, your job security is in question, or you’re not quite sure you’re ready to commit to a given locale, buying a home might not be the right move for you — yet.

•   You can’t get prequalified by a mortgage lender. Perhaps you’re in a decent amount of debt or have an iffy credit history. If you can’t qualify for a loan right now, take the time to work on those factors and get ready for the future.

•   The market looks meh to you. If you can’t find a home you like, you probably shouldn’t buy one. After all, it’s a major investment — and while we’re not suggesting you have to wait for an absolutely perfect house to come along, you should be happy with your purchase!

Should Interest Rates Influence Your Decision?

While interest rates are of course a relevant factor for would-be homeowners, so long as you’re financially prepared and planning on staying in your new home for at least a few years, higher interest rates shouldn’t deter you. After all, you can always refinance once rates drop.

The Takeaway

Waiting for interest rates to drop can be a bit like waiting for Godot: You might get stuck in the in-between. If your finances are in shape and you’ve found your dream home, now could still be the right time to take the leap and become a homeowner.

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

FAQ

Is it better to wait for interest rates to go down?

Not necessarily. While lower interest rates can subtly lower a monthly mortgage payment — and save buyers potentially hundreds of thousands of dollars over the lifetime of a loan — it’s not the only factor to consider if you’re otherwise ready to buy a home. (Plus, qualified buyers can always refinance their purchase down the line when rates drop again.)

Will 2024 be a good year to buy a house?

It’s probably as good a year to buy as any. Many experts expect interest rates to drop a bit this year, from between about 7.00% and 8.00% to somewhere between 5.50% and 6.50%. And it’s unlikely that interest rates will plummet back down to 2.00% or 3.00% as they did a few years ago.

What month is the best time to buy a house?

November and December tend to be favorable times to buy a home for buyers looking for the best deal possible. That’s because the holidays and winter weather may keep some buyers from shopping during this time, which means sellers might be more motivated to make a deal. You won’t get to see your new home in the height of its summer beauty for months — but you’ll get to find out whether it’s well insulated!

Photo credit: iStock/Andrii Yalanskyi

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-criteria for more information.

SOHL-Q324-107

Choosing a mortgage is one of the biggest financial decisions you’ll make. Luckily, there are plenty of possible lenders borrowers can select from. There are online lenders, credit unions, direct lenders, and mortgage brokers with a vast array of loan programs to choose from, to name just a few. The trick is narrowing down a crowded field to find a mortgage lender you trust that offers the loan program you want.

So what’s important when choosing a lender? SoFi asked 500 would-be homebuyers what they considered to be the most important factors in choosing a mortgage lender in an April 2024 survey. Far and away, interest rates won out, with 64% of people saying rates were a key consideration. About half of borrowers ranked closing costs and fees as significant. Loan terms and conditions, the availability of incentives, and customer service and reputation were also rated highly, but interest rates still won the day.

But interest rates aren’t the whole story. Here are five tips on how to find the best mortgage lender for you.

Tips for Shopping For a Mortgage Lender

1. Decide What’s Important

Throughout the process of obtaining a loan, you’ll have a lot of conversations with a bunch of different people. Before jumping in headfirst, take some time to understand what loan programs you may qualify for, the amount of downpayment you have to work with, and if you are a veteran, what lenders offer VA loans.

Once you narrow down the type of mortgage loan program you will be shopping for you can think about what other elements are important to you.

For one thing, there’s the type of communication you’ll want to have with the mortgage lender. Good mortgage lenders should be clear and upfront about the loan process and all associated costs. They should be willing to answer all your questions — and whether you’re a first-time homebuyer or not, you should feel comfortable asking any questions you may have.

You may even want to ask about how a mortgage lender will be communicating with you so you’ll know what to expect. For instance, you could ask them: “Do you communicate by phone, email, or text?” and “How quickly do you respond to questions?”

This is important because there are multiple steps that require back-and-forth correspondence and paperwork when applying for a mortgage. Maybe it’s critical for you to have someone who responds quickly. Ask your potential mortgage lender: “What are your turnaround times on things like preapproval, appraisal, final approval and closing?”


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

2. Be Prepared

Part of knowing how to find the best mortgage lender is to learn the vital details about the mortgage you want to take out. It’s hard to choose between lenders if you don’t truly know what you’re looking for, especially when there’s as much fine print as is typically involved in taking out a mortgage loan.

First, know the costs involved in taking out the type of mortgage you need in addition to the interest rate. There will likely be various fees associated with taking out a mortgage, such as origination and application fees, appraisal fees, and other third-party fees.

Fees can vary by lender, so have some idea of what is common and what to look out for. For example, if the rate quote is lower, are the fees higher as a result?

Next, it’s smart to have an idea of how much home you can afford and how much of a down payment is required under your preferred type of loan program. Be aware that the same loan program can have different down payment requirements at different lenders.

Knowing this type of information may help you narrow your search to the lenders who best fit your needs. Also, having your financial details in order will tell you how much you have to work with so you can get down to business with the lender of your choice.

How you have managed your credit and the resulting credit scores will come into play throughout the mortgage process. Your credit score may be one of the determining factors on what mortgage lenders you can choose from based on the loan programs you may be eligible to qualify for.

You may want to take some time to make sure your credit profile is in good enough shape for the loan program you want to qualify for before starting the process of searching for a mortgage lender.

3. Know Your Options

Finding the right mortgage lender means being able to navigate who you can work with in the big world of mortgage lending. Here are some of the major types of mortgage lenders out there. Many may offer similar types of loan programs, but possibly with different fees and qualifying criteria.

Mortgage bankers: Bankers work for a financial institution that underwrites loans, but does not take deposits. Mortgage bankers can sometimes also broker out loans.

Retail lenders: Similar to mortgage bankers and also known as direct lenders, retail lenders only originate mortgage products offered by their financial institution.

Mortgage brokers: Mortgage brokers don’t generally work with one institution, but instead act as an intermediary between the borrower and a wholesale lender. For the service of pairing you with a mortgage loan from one of the lending institutions they are approved to work with, the mortgage broker will generally take a commission that is a percentage of the loan amount. The loan is approved and funded by the wholesale lender.

Online lenders: A newer option for borrowers, online lenders like SoFi offer mortgage loans and focus on competitive rates and a more streamlined application.

Correspondent lenders: Typically, correspondent lenders are local mortgage loan companies that have the capital to fund a loan, but then turn around and sell the loan to a major financial institution.

Wholesale lenders: Unlike retail lenders, wholesale lenders don’t interact with borrowers and typically rely on brokers to sell their products.

Portfolio lenders: These lenders originate and fund loans from bank deposits and do not typically resell them after closing. They typically include community banks, credit unions, and savings and loan institutions.

Still, wondering how to find a reputable mortgage lender from these options? One thing you can do is read online reviews, like those on the Better Business Bureau’s website. You can also check to make sure that your lender is registered to originate loans with the Nationwide Multistate Licensing System Registry in your state.

4. Compare Lenders

It’s a good idea to shop around for mortgage rate quotes with a number of different lenders. Check with banks, online lenders, credit unions, and other local independent lenders to compare loan terms, interest rates, fees, and closing timelines. Request quotes in writing.

You can plug offers into a mortgage calculator to get an idea of the total interest costs. With a mortgage calculator, you can also compare different down payment options.

And remember, the interest rate isn’t the only cost to take into consideration. You’ll want to account for all of the fees associated with each rate and program offer.

Third-party fees should generally be the same no matter what lender you choose, so it’s the lenders’ loan terms, (qualifying) rate, and fees to compare apples to apples.

Checking on costs isn’t the only reason to get multiple quotes. It also allows you to experience a number of communication styles, and you’ll have a look into the process for each lender.


💡 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.

5. Get Preapproved

Once you’ve narrowed it down to your chosen lender, apply for mortgage preapproval. During preapproval, you’ll be asked to provide documentation on your financials, such as your paystubs, W2s, tax returns, bank account balances, and credit information.

This step is valuable when placing an offer on a home. A preapproval letter shows that you have been vetted for the first (credit) portion of the loan process.

Once you apply with a lender you will receive a Loan Estimate laying out the down payment, fees, estimated monthly payment, and more.

This is the time to ask any lingering questions on the terms of the loan such as lending fees, rates, commissions, mortgage points, and any other fine print you may not understand.

Don’t be shy! This is a huge, important decision and you should feel welcome to ask every question twice if you need to.

At this stage, you may even want to consider negotiating your offers. If at all possible, use the competing offers as leverage to obtain better pricing. If the very thought of asking is intimidating to you, just remember that it never hurts to ask and the worst they can say is no. You might be surprised at what you can get by speaking up.

The Takeaway

Finding the right mortgage lender is one of the most important decisions you’ll make in the home-buying process. You’ll want to compare different lenders and choose one you feel comfortable working with and who will answer your questions and get back to you quickly.

The right mortgage lender can help you get the best mortgage, and the best rate, for your needs. Be sure to weigh the options and compare and contrast different loan estimates to find the right deal for you.

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.

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 .

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-criteria for more information.

SOHL-Q324-107

If you’re dreaming of owning your own home, whether that means a cute Colonial or a loft-style condo, you are likely contemplating financing, and that can mean a mortgage. A home loan can give you the funds required to purchase a property, but there can be a learning curve involved, especially if you are a first-time homebuyer. For instance, what term should you select? How do mortgage interest rates work, and is a fixed rate typically best?

In this guide, you’ll get the scoop on how home loans work, what kind of options you have, and how to assess which loan could be right for you.

What is a Mortgage?

A mortgage loan, also known simply as a mortgage, is issued to a borrower who is either buying or refinancing real estate.

The borrower signs a legal agreement that gives the lender the ability to take ownership of the property if the loan holder doesn’t make payments according to the agreed-upon terms.

Once issued a mortgage, the homebuyer will pay monthly principal (that’s the lump sum of the loan) and interest payments for a specific term. The most common term for a fixed-rate mortgage is 30 years, but terms of 20, 15, and even 10 years are available.

A shorter-term translates to a higher monthly payment but lower total interest costs. Put another way, you pay more every month, but the amount of interest over the life of the loan is lower.

💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

A Buffet of Mortgage Choices

When homebuyers apply for a loan, they’ll need to choose whether they want a fixed interest rate or an adjustable rate and the length of the loan.

Fixed-Rate Mortgage

The interest rate on the home loan doesn’t change, so the monthly principal and interest payment remains the same for the life of the loan. Whether mortgage rates increase or decrease, the loan holder is locked in for their monthly payment.

Adjustable-Rate Mortgage (ARM)

With an ARM, the interest rate is generally fixed for an initial period of time, such as five, seven, or 10 years, and then switches to a variable rate of interest. The rate fluctuates with the rate index that it’s tied to.

As the rate changes, monthly payments may increase or decrease. These loans generally have yearly and lifetime interest rate caps (or maximums) that limit how high the variable rate can adjust to.

Next, borrowers will need to decide what type of mortgage loan works best for them.

Conventional Loans

Conventional loans are loans that are not backed by a government agency and must adhere to the requirements of Fannie Mae, Freddie Mac, or other investors. Typically, conventional loans are issued with at least 3% down. However, it’s worth noting that private mortgage insurance (commonly known as PMI) is generally required on loans with a down payment of less than 20%.

The coverage protects the lender against the risk of default. Your mortgage servicer must cancel your PMI when the mortgage balance reaches 78% of the home’s value or when the mortgage hits the halfway point of the loan term, if you’re in good standing.

PMI typically costs 0.2% to 2% of the loan amount per year.

Down payment: Generally between 3% and 20% of the purchase price or appraised value of the home, depending on the lender’s requirements.

FHA Loans

Loans insured by the Federal Housing Authority, or FHA loans, can be attractive to first-time homebuyers or those who struggle to meet the minimum requirements for a conventional loan. In a SoFi survey of 500 would-be homeowners conducted in April 2024, 28% of people who had filled out a loan application had applied for this type of loan, and fully 63% of those who filled out an application had applied for some type of government-backed financing.

These loans usually require a one-time upfront mortgage insurance premium (or MIP vs. PMI), which typically can be added to the mortgage, and an annual insurance premium, which is collected in monthly installments for the life of the loan in most cases.

Down payment: Starts at 3.5%

Recommended: First-Time Homebuyer Guide

VA Loans

Loans guaranteed by the U.S Department of Veterans Affairs are available to veterans, active-duty service members, and eligible surviving spouses. SoFi’s survey showed that 12% of potential homebuyers who applied for a loan had filled out a VA loan application.

VA-backed loans require a one-time “VA funding fee,” which can be rolled into the loan. The fee is based on a percentage of the loan amount and may be waived for certain disabled vets. The current range is from 1.5% to 3.3% of the loan amount.

Down payment: None for approximately 80% of VA-backed home loans.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

How Does a Mortgage Work?

There are several components to a monthly mortgage payment.

Principal: The principal is the value of the loan. The portion of the payment made toward the principal reduces how much a borrower owes on the loan.

Interest: Each month, interest will be factored into payments according to an amortization schedule. Even though a borrower’s fixed payment may stay the same over the course of the loan, the amount allocated toward interest generally decreases over time while the portion allocated to principal increases.

Taxes: To ensure that a borrower makes annual property tax payments, a lender may collect monthly property taxes with the monthly mortgage payment. This money can be kept in an escrow account until the property tax bill is due, and the lender can make the property tax payment at that time.

Homeowners insurance: Mortgage lenders usually require evidence of homeowners insurance, which can cover damage from catastrophes such as fire and storms. As with property taxes, many lenders collect the insurance premiums as part of the monthly payment and pay for the annual insurance premium out of an escrow account. Depending on your property location, you may have to add flood, wind, or other additional insurance.

Mortgage insurance: When a borrower presents a down payment of less than 20% of the value of the home, mortgage lenders typically require private mortgage insurance. When developing a budget for owning a home, it’s important to know the difference between mortgage insurance and homeowners insurance and whether both are required.

Reverse Mortgage Loans: What Are They?

A reverse mortgage is available to homeowners 62 and older to supplement their income or pay for healthcare expenses by tapping into their home equity.

The loan can come in the form of a lump-sum payment, monthly payments, a line of credit, or a combination, usually tax-free. Interest accrues on the loan balance, but no payments are required. When a borrower dies, sells the property, or moves out permanently, the loan must be repaid entirely.

The fees for an FHA-insured home equity conversion mortgage, typically the most common type of reverse mortgage, can add up:

•  An initial mortgage insurance premium of 2% and an annual MIP that equals 0.5% of the outstanding mortgage balance

•  Third-party charges for closing costs

•  Loan origination fee

•  Loan servicing fees

You can pay for most of the costs of the loan from the proceeds, which will reduce the net loan amount available to you.

You remain responsible for property taxes, homeowners insurance, utilities, maintenance, and other expenses.

A HUD site details all the criteria for borrowers, financial requirements, eligible property types, and how to find an HECM counselor, a mandatory step.

If you’re considering a reverse mortgage, learn as much as you can about this often complicated kind of mortgage before talking to a counselor or lender, the Federal Trade Commission advises.

How to Get A Mortgage

For many people, it can be a good idea to shop around to get an idea of what is out there.

Not only will you need to choose the lender, but you’ll need to decide on the length of the loan, whether to go with a fixed or variable interest rate, and weigh the applicable loan fees.

The first step is to have an idea of what you want and then seek out quotes from a few lenders. That way, you can do a side-by-side comparison of the loans.

Once you’ve selected a few lenders to get started with, the next step is to get prequalified or preapproved for a loan. Based on a limited amount of information, a lender will estimate how much it is willing to lend you.

When you’re serious about taking out a mortgage loan and putting an offer on a house, the next step is to get preapproved with a lender.

During the preapproval process, the lender will take a closer look at your finances, including your credit, employment, income, and assets to determine exactly what you qualify for. Once you’re preapproved, you’re likely to be considered a more serious buyer by home sellers.

When shopping around for a mortgage, it can be a good idea to consider the overall cost of the mortgage and any fees.

For example, some lenders may charge an origination fee for creating the loan, or a prepayment penalty if you want to pay back the loan ahead of schedule. There may also be fees to third parties that provide information or services required to process, approve, and close your loan.

To compare the true cost of two or more mortgage loans, it’s best to look at the annual percentage rate, or APR, not just the interest rate. The interest rate is the rate used to calculate your monthly payment, but the APR is an approximation of all of the costs associated with a loan, including the interest rate and other fees, expressed as a percentage. The APR makes it easier to compare the total cost of a loan across different offerings so you can assess what is a good mortgage rate for your budget.

The Takeaway

If the world of mortgages feels like a mystery to you, you are not alone. Before taking on this colossal commitment, it can be best to soak up as much as you can about how mortgage loans work, what kinds of mortgages are available, potential challenges, and steps to qualify. You’ll be better prepared to take on what can be a major step in your personal financial journey.

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.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
^‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.

*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.

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