What does it mean to be prequalified or preapproved for a mortgage? One lets a future homebuyer dream, and the other takes that homebuyer one giant step closer to reality. Here’s a look at how these two steps vary, how each can play a part in a home-buying strategy, and how one in particular can increase the chances of having a purchase offer accepted.
What Does Prequalified Mean?
Getting prequalified is a way of finding out how much you might be able to borrow to purchase a home, using the most basic information about your finances. Getting prequalified by phone or online usually takes just minutes.
Here’s how it goes: You provide a few financial details to mortgage lenders. The lenders use this unverified information, usually along with a soft credit inquiry, which does not affect your credit scores, to let you know how much you may be able to borrow and at what interest rate.
Getting prequalified can give homebuyers a general idea of loan programs, the amount they may be eligible for, and what monthly payments might look like, the way a home affordability calculator provides an estimate based on a few factors.
You might want to get prequalified with several lenders to compare monthly payments and interest rates, which vary by mortgage term. But because the information provided has not been verified, there’s no guarantee that the mortgage or the amount will be approved.
What Does It Mean to Be Preapproved?
After you get prequalified, you can consider the options before you from a range of lenders. You’ll want to brush up on types of mortgage loans, and then zero in on the lender — and loan — you feel is the best fit. Then you’ll face the probe known as mortgage preapproval.
Preapproval for a mortgage loan requires a more thorough investigation of your income sources, debts, employment history, assets, and credit history. Verification of this information, along with a hard credit pull from all three credit bureaus (which may cause a small, temporary reduction in your credit scores) allows the lender to conditionally preapprove a mortgage before you shop for homes.
A preapproval letter from a lender stating that you qualify for a loan of a specific amount can be useful or essential in a competitive real estate market. When sellers are getting multiple offers, some will disregard a purchase offer if it isn’t accompanied by a preapproval letter.
When seeking preapproval, besides filling out an application, you will likely be asked to submit the following to a lender for verification:
• Social Security number and card
• Photo ID
• Recent pay stubs
• Tax returns, including W-2 statements, for the past two years
• Two to three months’ worth of documentation for checking and savings accounts
• Recent investment account statements
• List of fixed debts
• Residential addresses from the past two years
• Down payment amount and a gift letter, if applicable
The lender may require backup documentation for certain types of income. Freelancers may be asked to provide 1099 forms, a profit and loss statement, a client list, or work contracts. Rental property owners may be asked to show lease agreements.
You should be ready to explain any negative information that might show up in a credit check. To avoid surprises, you might want to order free credit reports from www.annualcreditreport.com. A credit report shows all balances, payments, and derogatory information but does not give credit scores.
Those who have filed for bankruptcy may have to show documentation that it has been discharged.
Calculate Your Potential Mortgage
Use the following mortgage calculator to get an idea of what your monthly mortgage payment would look like.
Do Preapproval and Prequalification Affect Credit Scores?
Getting prequalified shouldn’t affect your credit scores. Only preapproval requires a hard credit inquiry, which can affect scores. But the good news for mortgage shoppers is that multiple hard pulls are typically counted as a single inquiry as long as they’re made within the same 14 to 45 days.
Newer versions of FICO® allow a 45-day window for rate shoppers to enjoy the single-inquiry advantage; older versions of FICO and VantageScore 3.0 narrow the time to 14 days.
You might want to ask each lender you apply with which credit scoring model they use.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Do I Have to Spend How Much I’m Preapproved for?
No! The preapproval amount is your maximum house-hunting budget. Staying well under that number can’t hurt and might free up money for, say, a college fund, retirement, or — groan — emergency home repairs.
Are Prequalification and Preapproval the Same Thing?
By now you know that they are not one and the same. Here’s a visual on what’s needed for each:
Prequalification
Preapproval
Info about income
Recent pay stubs
Basic bank account information
Bank account numbers and/or recent bank statements
Down payment amount
Down payment amount and desired mortgage amount
No tax information needed
Tax returns and W-2s for past two years
Do I Need a Prequalification Letter to Buy a House?
No. Nor do you have to have a preapproval letter when making an offer on a house.
But getting prequalified can allow you to quickly get a ballpark figure on a mortgage amount and an interest rate you qualify for, and preapproval has at least three selling points:
1. Preapproval lets you know the specific amount you are qualified to borrow from a particular lender.
2. Going through preapproval before house hunting could take some stress out of the loan process by easing the mortgage underwriting step. Underwriting, the final say on mortgage approval or disapproval, comes after you’ve been preapproved, found a house you love and agreed on a price, and applied for the mortgage.
3. Being preapproved for a loan helps to show sellers that you’re a vetted buyer.
The Takeaway
Prequalified vs. preapproved: If you’re serious about buying a house, it’s important to know the difference. Getting prequalified and then preapproved may increase the odds that your house hunt will lead to a set of jangling keys.
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 Mortgages: simple, smart, and so affordable.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*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.
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.
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.
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.
You may not think of saving money as being a creative pursuit, but with a little effort, you can find fresh (and even fun) ways to help you stash away some cash. This can make the pursuit more engaging and motivating.
Perhaps your goal is to save for the down payment on a house or build up your kid’s college fund or simply take a great vacation next year. You can try some clever methods to make saving money more interesting and maybe a bit exciting.
Read on to learn such tactics as partnering up with a savings buddy and tapping your DIY skills. You’ll also learn ways to make the most of the cash you sock away. Get set to save more.
15 Creative Ideas to Save Money
You are probably familiar with some of the usual tactics for saving money, such as comparison shopping and clipping coupons. If you’re ready to mix things up and try some less common tactics, consider the following 15 quirky but effective ideas.
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.00% APY, with no minimum balance required.
1. Identifying Your Saving Goals
Not sure how to make saving money fun or prioritize it? You could start by identifying your goals. Are you saving up for a big purchase, like a down payment on a house? Are you saving for your child’s future education?
Once you’ve figured out what you want to accomplish, you could determine a target amount of money you’d like to save. While this number might change over the course of your savings journey, you can always readjust your plan.
If you have an idea of how much money you’d like to work toward saving, you can consider diving deeper into your finances to pinpoint realistic objectives. You can use a tracking and budgeting tool, such as SoFi Financial Insights, to get a big-picture snapshot of your money and drill down on ways to save.
Once you’ve reviewed your individual financial circumstances and have a better idea of your savings goal(s), you could try these fun ways to save money.
2. Finding a Saving Buddy
With the right company, even the most mundane tasks can be enjoyable. You could talk about your savings goals with your friends and family members to potentially identify a saving buddy with similar objectives.
An ideal saving buddy will be supportive of your financial goals, offer good advice, and have a positive money mindset.
Checking in with your buddy regularly could help keep you both stay on track and you can celebrate each other’s accomplishments. This person might also be able to talk you down if you’re on the verge of making a big impulse buy. If you’re stressed about how to make saving money fun, you could brainstorm creative tactics with your saving buddy and implement them together.
3. Seeking Out Free Activities
Saving money does not have to be synonymous with missing out on exciting opportunities around you. You could enjoy free activities offered in your area.
Perhaps your local park offers free theater performances or concerts in the summer, or your area bookstore hosts interesting literary panels and author discussions with no attendance fee. Think about the resources provided by your local library, such as book clubs, language exchange programs, craft nights, and movie screenings.
This can be a great option to pricey movie or concert tickets. And here’s a way to save money on streaming services: You could try a free service like Hoopla or Kanopy, which are offered at no cost to library card holders.
4. Getting Creative and DIY
Here’s another clever way to save money: Adopt a DIY (do-it-yourself) attitude. You could create things using materials you already own instead of buying new products. You can save money on food by meal-prepping for the week ahead; think about recipes that incorporate ingredients you already have in your pantry.
You could make your own household cleaners out of vinegar, lemon rinds, and herbs or face masks using fresh ingredients like avocado, tea, honey, and oatmeal. There are ways to reuse materials that might otherwise be thrown out or recycled: Newspapers and coupon booklets could make fun wrapping paper, for instance.
5. Gamifying Savings
If you’re looking to break up the monotony of saving, you could consider incorporating games and challenges into your overall savings plan. A friendly competition with your saving buddy could be seeing who can save the most money every week, month, and/or year.
Creating small rewards for reaching your goals might be an incentive, too. (Bonus points if these rewards are free!) No-spend weeks, where you refrain from spending any money for seven days, also might help with saving. If you succeed at that, you might want to ramp up to a 30-day no-spend challenge. You can tailor this to cut down on all discretionary spending or just a single category, such as dining out.
6. Swapping Goods and Trading Skills
Getting serious about saving money doesn’t mean you need to give up “luxuries” such as exercising, new clothes and accessories, or home goods. Trading skills and swapping goods are two potential examples of how to make saving money fun while not depriving yourself of the things you want.
You could go to your favorite yoga studio and ask if they have a work-trade program where you can do administrative duties in exchange for classes. A clothing swap with your friends could refresh your closet at no cost.
You might also consider an informal exchange with skilled friends. For example, if you’ve been eyeing an original painting from your artist pal but don’t have the funds to pay her, you could offer your website design services (or some other helpful skills) for the painting.
7. Increasing Income
Sometimes, cutting down on expenses might not be the most effective way to reach a savings goal. It might be easier, in some cases, to make a bit more money than to reduce costs, especially if you are spending more than 50% of your income on non-discretionary expenses like groceries and debt payments. (That’s the figure established by the popular 50/30/20 budget rule, that half of your take-home income goes toward necessities.)
You could reflect on your particular skills and/or hobbies to see if there is a way to translate one of them into an income stream. For example, if you love to knit, you could start an online store for your yarn creations. Or you could offer your writing or editing services in a freelance capacity. A successful low-cost side hustle could help bring additional money into your bank account and add more fun and enjoyment in your life.
If your financial institution seems to be charging you endless fees and offers little interest on your savings account, consider switching banks.
You might consider an online bank. Because these institutions don’t have brick-and-mortar locations to fund, they can pass those savings along to customers in the form of lower or no fees and higher interest rates.
You might also consider a credit union instead of a big name bank. Credit unions are run as financial co-ops, meaning each member has a stake in business. As nonprofits, they are designed to serve their members, typically paying higher interest rates on deposits and charging lower fees.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
9. Split Your Direct Deposit into Checking and Savings
If you have regular paychecks, one of the easiest ways to start saving a bit more money is to guarantee some automatically ends up in a separate savings account, making it that much harder to spend. If you have a checking account, odds are you have a savings account too, or at least access to one.
Maybe you find it hard to remember to put some money away into savings or harder still to force yourself to part with it. If so, splitting your direct deposit into two accounts helps make sure your savings grows every paycheck, without you needing to worry about transferring the money. Check with your HR department or your online pay system to see if you can add a bank account and designate a certain amount of each paycheck to go into your savings account as part of your direct deposit.
Most banks also have the option to set up recurring transfers yourself between your accounts. If you don’t have the option to split up your paycheck or would prefer not to, your bank can likely automate your savings with a transfer the day after you get paid. You won’t have to think twice about stashing money away.
💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
10. Change Your Due Dates for Bills
Having extra money in your savings account doesn’t help if you are constantly pulling from it to pay bills.
If you are overdrafting frequently or borrowing from savings, especially at certain times of the month when big payments are due, consider this unique way to save money: Change the due dates of some of your bills. Sometimes spreading out your larger payments — like credit card bills or student loans — throughout the month can help when those more inflexible due dates, like rent, roll around.
By changing the date of some of your bills, you will hopefully avoid overdraft or NSF fees. This will encourage you to not touch your savings account, as opposed to pulling from it every time your checking account balance gets precariously low.
11. Save Every $5 Bill
This is a classic adult remix of the piggy bank you had as a kid. Only this time, instead of squirreling away quarters, take every $5 you get and put it in a separate drawer at home. Keep all of these $5 in the back of a closet somewhere, tucked away and out of sight.
Once you get into the habit of identifying $5 as “no spend” bills, you’ll find it can really be a creative way to save money — depending on how much cash you use in a typical day, of course.
The benefit of this method is that $5 isn’t really enough to miss if you are just putting away a bill or two, but that at the end of the year, it can easily add up to enough cash to help with holiday shopping, a loan payment, or even a nice charity donation without having to touch your savings in the bank.
12. Take Advantage of Cash Back Credit Cards
Need another clever way to save money? Simply put, if you have a credit card that has a decent rewards program, you can likely get your rewards in cash. While getting cash back won’t boost your savings directly, it can allow you to spend rewards points instead of your savings.
However, if you tend to carry over a balance on your credit card, cash back cards may not be a good solution for you right now.
13. Round Up Your Purchases Automatically
There are plenty of apps available to round up your purchase to the nearest dollar and then save the change for you. Your bank may offer this kind of savings tool, which can be an easy way to save money automatically.
The amount these apps save for you is small, so you aren’t likely to notice $1 or even a few cents when it transfers, but it can add up to hundreds stashed away per year.
14. Consolidate Credit Card Debt with a Personal Loan
If your credit card debt is preventing you from saving as much as you would like, you might use a personal loan as a creative way to shake up your finances.
If you owe money on more than one credit card or have a high balance relative to your credit limit, the rates on a personal loan could help lower your monthly payments. Often, taking out one personal loan to pay off credit cards can help you with savings in the long run. While you’ll still be paying off the personal loan, the interest rate is likely to be significantly lower than that of the credit cards. That means you can probably pay off the total sooner, leaving more cash free for savings.
15. Automate Your Savings into an Investment Account
It’s the age-old financial advice worth repeating here: If your company offers a match on your 401(k) savings, take advantage of it! If your company match is 6%, you should set your contribution for at least 6% to get the most out of your retirement funds.
It can be simple to creatively save money using the following technique. Most company wealth management accounts can be set to automatically deduct contributions from your paycheck, but you can schedule other automatic investments too. You can make scheduled, recurring transfers between your bank account and your wealth management account.
You get to select the dollar amount, the date and the frequency you want. This is a great way to put your savings to good use — send it into an investment account. There are plenty of other technologies available to help make this easy, too.
Why Is Making Saving Money Fun Important?
Trying tactics like the ones above can help make it fun to save money. That’s important for a couple of good reasons. Shaking up your savings routine can make socking away cash seem fresh and more engaging, meaning you are more likely to get the job done. Basically, it can rev up your motivation to save money.
Also, when you find a technique that is fun, such as a no-spend challenge, it can help encode the new savings behavior in your routine. If it’s enjoyable, you are more likely to keep up the good work.
How Can You Make the Most of the Money You Save?
When you save money, you likely want it to grow over time, not just sit there. One good way to do that is to stash your money in an interest-earning account. This will be especially effective if the financial institution where you save charges low or no fees and doesn’t have high minimum opening deposit or balance requirements.
You might look for a high-interest or high-yield savings account. These can pay a significantly higher rate than standard savings accounts, and your money will be accessible and likely insured by the Federal Deposit Insurance Corporation, or FDIC, or NCUA (the National Credit Union Administration).
Optimizing Your Savings
Beyond the creative ways to save that you just learned, there are other important ways to optimize your savings.
• Budgeting wisely can help you better understand your personal finances. It can help you get a grip on your earnings, spending, and savings. When you see where your money goes, you can tweak your spending to help funnel more towards savings.
• Putting a spending limit on your credit card (or cards) can help you rein in spending, which can reduce high-interest credit card debt and allow you to save more.
• Lastly, it you are struggling to put away money, one dramatic move that can help you save more is to move to an area with a lower cost of living. Whether that means moving across town or across the country, it could make a major difference in your finances.
The Takeaway
Putting away money for your future does not need to be a boring task; there are countless fun ways to save money that could be customized to your specific financial needs and wants. From finding a savings buddy to gamifying your saving, creative tactics can help enhance your motivation and your ability to put away cash.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
What is a clever way to save money?
There are several clever ways to save money. Automating savings so you don’t have to remember to transfer funds is one good tactic; so is giving yourself a no-spend challenge, finding free activities, and doing a skills swap to reduce spending.
How can you save $1000 in 30 days?
To save $1,000 in 30 days, you can try a spending freeze, a savings challenge, and/or use a card that gives you cash back. Make sure you are keeping the money you save in a high-yield savings account.
What is the 50 30 20 rule?
The 50/30/20 budget rule is a popular technique for managing your money. It advises spending 50% of your take-home pay on the needs of life (housing, food, healthcare, etc.), 30% on the wants in life (such as dining out, Ubers instead of public transportation, travel, and so forth), and 20% goes into sayings.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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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If you’re in the market for a mortgage, you may be overwhelmed by all the different options — conventional vs. government-backed, fixed vs. adjustable rate, 15-year vs 30-year. Which one is best?
The answer will depend on how much you have to put down on a home, the price of the home you want to buy, your income and credit history, and how long you plan to live in the home. Below, we break down some of the most common types of home mortgages, including how each one works and their pros and cons.
Fixed-Rate vs. Adjustable-Rate Loans
When choosing the best type of mortgage for your needs, it helps to understand the difference between adjustable-rate mortgages and fixed-rate mortgages. Each option has advantages and disadvantages. Here’s a closer look.
Pros
Cons
Fixed-Rate Mortgage
Your monthly payment is fixed, and therefore predictable.
If rates drop, you have to refinance to get the lower rate.
Adjustable-Rate Mortgage
The initial interest rate is usually lower than a fixed-rate mortgage.
Once the intro period is over, ARM rates adjust, potentially raising your mortgage payment.
First-time homebuyers can
prequalify for a SoFi Mortgage Loan,
with as little as 3% down.
Fixed-Rate Mortgage
With a fixed-rate mortgage loan, the interest is exactly that — fixed. No matter what happens to benchmark interest rates or the overall economy, the interest rate will remain the same for the life of the loan. Fixed loans typically come in terms of 15 years or 30 years, though some lenders allow more options.
This type of mortgage can be a good choice if you think rates are going to go up, or if you plan on staying in your home for at least five to seven years and want to avoid any potential for changes to your monthly payments.
Pro: The monthly payment is fixed, and therefore predictable.
Con: If interest rates drop after you take out your loan, you won’t get the lower rate unless you’re able to refinance.
💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*
30-Year Fixed-Rate Mortgage
A 30-year fixed-rate home loan is the most common type of mortgage and the longest term length available for mortgages.
Monthly payments are generally lower than shorter-term mortgages because the loan is stretched out over a longer term. However, the overall amount of interest you’ll pay is typically higher, since you’re paying interest for a longer period of time. Also, interest rates tend to be higher for 30-year home loans than shorter-term mortgages, since the longer term poses more risk to the lender.
15-Year Fixed-Rate Mortgage
A 15-year loan allows you to build equity more quickly and pay less total interest. Loans with shorter terms also tend to come with lower interest rates, since they pose less risk to the lender.
On the flipside, the shorter term means monthly payments may be much higher than a 30-year mortgage. This type of loan can be a good choice for borrowers who can handle an aggressive repayment schedule and want to save on interest.
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) has an interest rate that fluctuates according to market conditions.
Many ARMs have a fixed-rate period to start and are expressed in two numbers, such as 7/1, 5/1, or 7/6. A 7/1 ARM loan has a fixed rate for seven years; after that, the fixed rate converts to a variable rate. It stays variable for the remaining life of the loan, adjusting every year in line with an index rate. A 7/6 ARM, on the other hand, means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. A 5/1 ARM has a rate that’s fixed for five years and then adjusts every year.
Many ARMs have rate caps, meaning the rate will never exceed a certain number over the life of the loan. If you consider an ARM, you’ll want to be sure you understand exactly how much your rate can increase and how much you could wind up paying after the introductory period expires.
Pro: The initial interest rate of an ARM is usually lower than the rate on a fixed-rate loan. This can make it a good deal for borrowers who expect to sell the property before the rate adjusts.
Con: Even if the loan starts out with a low rate, subsequent rate increases could make this loan more expensive than a fixed-rate loan.
Mortgages can also be broken down into two other categories: conventional loans, which are offered by banks or other private lenders, and government-backed loans, which are guaranteed by a government agency. Here’s a breakdown of conventional vs. government-insured loans, including how each works, and their pros and cons.
Conventional Loan
This is the most common type of home loan. Conventional mortgages must meet standards that allow lenders to resell them to the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. This is advantageous to lenders (who can make money by selling their loans to GSEs) but means stiffer qualifications for borrowers.
Pro: Down payments can be as low as 3%, though borrowers with down payments under 20% have to pay for private mortgage insurance (PMI).
Con: Conventional loans tend to have stricter requirements for qualification than government-backed loans. You typically need a credit score of at least 620 and a debt-to-income ratio under 36%.
Government-Insured Loan
If you have trouble qualifying for a conventional loan, you may want to look into a government-insured loan. This type of mortgage is insured by a government agency, such as the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and the U.S. Department of Veterans Affairs (VA).
FHA Loan
FHA loans are not directly issued from the government but, rather, insured by the FHA. This protects mortgage lenders, since if the borrower becomes unable to repay the loan, the agency has to handle the default. Having that guarantee significantly lowers risk for the lender.
As a result, qualifying for an FHA loan is often less difficult than qualifying for a conventional mortgage. This makes an FHA mortgage a good choice if you have less-than-stellar credit scores or a high debt-to-income (DTI) ratio.
Pro: With a FICO® credit score of 500 to 579, you may be able to put just 10% down on a home; with a score of 580 or higher, you may qualify to put just 3.5% payment.
Con: FHA mortgages require you to purchase FHA mortgage insurance, which is called a mortgage insurance premium (MIP). Depending on the size of your down payment, the insurance lasts for 11 years or the life of the loan.
💡 Quick Tip: Check out our Mortgage Calculator to get a basic estimate of your monthly payment.
VA Loan
The U.S. Department of Veterans Affairs backs home loans for members and veterans of the U.S. military and eligible surviving spouses. Similar to FHA loans, the government doesn’t directly issue these loans; instead, they are processed by private lenders and guaranteed by the VA.
Most VA loans require no down payment. However, you’ll need to pay a VA funding fee unless you are exempt. Although there’s no minimum credit score requirement on the VA side, private lenders may have a minimum in the low to mid 600s.
Pro: You don’t have to put any money down or purchase mortgage insurance.
Con: Only available to veterans, current service members, and eligible spouses.
FHA 203(k)
Got your eye on a fixer-upper? An FHA 203(k) loan allows you to roll the cost of the home as well as the rehab into one loan. Current homeowners can also qualify for an FHA 203(k) loan to refinance their property and fund the costs of an upcoming renovation through a single mortgage.
The generous credit score and down payment rules that make FHA loans appealing for borrowers often apply here, too, though some lenders might require a minimum credit score of 500.
With a standard 203(k), typically used for renovations exceeding $35,000, a U.S. Department of Housing and Urban Development (HUD) consultant must be hired to oversee the project. A streamlined 203(k) loan, on the other hand, allows you to fund a less costly renovation with anyone overseeing the project.
Pro: If you have a credit score of 580 or above, you only need to put down 3.5% on an FHA 203(k) loan.
Con: These loans require you to qualify for the value of the property, plus the costs of planned renovations.
USDA Loan
A USDA loan is a type of mortgage designed to help borrowers who meet certain income limits buy homes in rural areas. The loans are issued through the USDA loan program by the United States Department of Agriculture as part of its rural development program.
Pro: There’s no down payment required, and interest rates tend to be low due to the USDA guarantee.
Con: These loans are limited to areas designated as rural, and borrowers who meet certain income requirements.
Conforming vs. Nonconforming Loans
Conventional loans, which are not backed by the federal government, come in two forms: conforming and non-conforming.
Conforming Loans
Mortgages that conform to the guidelines set by government-backed agencies (such as Fannie Mae and Freddie Mac) are called conforming loans. There are a number of criteria that borrowers must meet to qualify for a conforming loan, including the loan amount.
For 2023, the ceiling for a single-family, conforming home loan is $726,200 in most parts of the U.S. However, there is a higher limit — $1,089,300 — for areas that are considered “high-cost,” a designation based on an area’s median home values.
Typically, conforming loans also require a minimum credit score of 630 to 650, a DTI ratio no higher than 41%, and a minimum down payment of 3%.
Pro: Conforming loans tend to have lower interest rates and fees than nonconforming loans.
Con: You must meet the qualification criteria, and borrowing amounts may not be sufficient in high-priced areas.
Nonconforming Loans
Nonconforming mortgage loans are loans that don’t meet the requirements for a conforming loan. For example, jumbo loans are nonconforming loans that exceed the maximum loan limit for a conforming loan.
Nonconforming loans aren’t as standardized as conforming loans, so there is more variety of loan types and features to choose from. They also tend to have a faster, more streamlined application process.
Pro: Nonconforming loans are available in higher amounts and can widen your housing options by allowing you to buy in a more expensive area, or a type of home that isn’t eligible for a conforming loan.
Con: These loans tend to have higher interest rates than nonconforming loans.
Reverse Mortgage
A reverse mortgage allows homeowners 62 or older (typically those who have paid off their mortgage) to borrow part of their home equity as income. Unlike a regular mortgage, the homeowner doesn’t make payments to the lender — the lender makes payments to the homeowner. Homeowners who take out a reverse mortgage can still live in their homes. However, the loan must be repaid when the borrower dies, moves out, or sells the home.
Pro: A reverse mortgage can provide additional income during your retirement years and/or help cover the cost of medical expenses or improvements.
Con: If the loan balance exceeds the home’s value at the time of your death or departure from the home, your heirs may need to hand ownership of the home back to the lender.
Jumbo Mortgage
A jumbo loan is a mortgage used to finance a property that is too expensive for a conventional conforming loan. If you need a loan that exceeds the conforming loan limit (typically $726,200), you’ll likely need a jumbo loan.
Jumbo loans are considered riskier for lenders because of their larger amounts and the fact that these loans aren’t guaranteed by any government agency. As a result, qualification criteria tends to be stricter than other types of mortgages. Also, in some cases, rates may be higher.
You can typically find jumbo loans with either a fixed or adjustable rate and with a range of terms.
Pro: Jumbo loans make it possible for buyers to purchase a more expensive property.
Con: You generally need excellent credit to qualify for a jumbo loan.
💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.
Interest-Only Mortgage
With an interest-only mortgage, you only make interest payments for a set period, which may be five or seven years. Your principal stays the same during this time. After that initial period ends, you can end the loan by selling or refinancing, or begin to make monthly payments that cover principal and interest.
Pro: The initial monthly payments are usually lower than other mortgages, which may allow you to afford a pricier home.
Con: You won’t build equity as quickly with this loan, since you’re initially only paying back interest.
There are many different types of mortgages, including fixed-rate, variable rate, conforming, nonconforming, conventional, government-backed, jumbo, and reverse mortgages. It’s a good idea to research and compare different loan programs, consult with lenders, and, if needed, seek advice from a mortgage professional to determine the best type of home loan for your specific circumstances.
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 Mortgages: simple, smart, and so affordable.
FAQ
What are the different types of mortgages?
There are several types of mortgages available to homebuyers, each with its own characteristics and requirements. Some of the most common types include:
• Conventional mortgage This type of mortgage is not insured or guaranteed by a government agency.
• FHA loan Insured by the Federal Housing Administration (FHA), FHA loans are popular among first-time homebuyers. They offer more lenient credit requirements and allow for a lower down payment (as low as 3.5%).
• VA loan These loans are available to eligible veterans, active-duty service members, and eligible surviving spouses, and come with favorable rates and terms.
• USDA Loan Issued by the U.S. Department of Agriculture, these loans are designed for low- and moderate-income homebuyers in rural areas. They offer low interest rates and may require no down payment.
• Jumbo mortgage A jumbo mortgage is a loan that exceeds the loan limits set by Fannie Mae and Freddie Mac.
• Fixed-rate mortgage The rate stays the same for the entire life of the mortgage.
• Adjustable-rate mortgage (ARM) The interest rate is initially fixed for a specific period, then typically adjusts annually based on market conditions.
What are the 4 types of qualified mortgages?
Qualified mortgages are mortgages that meet certain criteria set by the Consumer Financial Protection Bureau (CFPB) to ensure borrowers can afford the loans they obtain. The four main types of qualified mortgages are:
• General qualified mortgages These mortgages adhere to basic criteria set by the CFPB.
• Small creditor qualified mortgages These loans have more flexible requirements for small lenders.
• Balloon payment qualified mortgages These mortgages allow for a balloon payment at the end of the term.
• Temporary qualified mortgages This type of qualified mortgage provides a transition period for loans that were eligible for purchase or guarantee by Fannie Mae or Freddie Mac but no longer meet those standards.
Which type of home loan is best?
The best type of home loan depends on your financial situation, goals, and preferences.
If you have a significant down payment and strong credit, you might consider a conventional mortgage. If, on the other hand, you have limited funds for a down payment and lower credit scores, you might consider a Federal Housing Administration (FHA) home loan.
VA loans benefit eligible veterans and service members, while USDA loans are for homebuyers in rural areas.
Whether to choose a fixed-rate or adjustable-rate mortgage will depend on your long-term plans and tolerance for risk.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria 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.
*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.
Whether relocating down the block or across the country, there is a lot of work and planning that goes into moving. For current homeowners, there may be more logistics when simultaneously buying and selling houses.
If you’re figuring out how to sell and buy a house at the same time, there are some options to choose from based on your own budget, situation, and tolerance for risk.
Although this situation can be complex, it is not uncommon. In fact, 74% of home buyers owned their previous residence.
To help you navigate this juggling act, this guide will go over potential challenges and outline some alternative options and tips to close on both deals.
Evaluating the Local Housing Market
Taking stock of the local housing market can help inform how to sell and buy a house at the same time. Not only does the market influence home prices, it can also impact the length of closing on a sale or purchase.
You may be faced with a housing market that favors buyers over sellers or vice-versa. Researching your local housing market ahead of time can help guide your efforts in finding a new house.
When It’s a Buyer’s Market
A buyer’s market has more houses for sale than people actively looking to purchase a home. Generally, finding a new house in areas with a higher concentration of sellers can be easier than selling. At the same time, an accurate listing price and contingencies can factor into the equation.
Since there is less competition in the market, buyers can consider requesting an extended closing to allow time to sell their own house or include other contingencies in their offer. For instance, a home sale contingency can be included in a contract to coordinate a purchase with the sale of the buyer’s house.
A home sale contingency asks for the patience of a seller depending on their situation. Complications may arise in the event that all parties involved are simultaneously buying and selling homes.
On the flipside, sellers in a buyer’s market could benefit from setting a competitive asking price and getting ahead of inspection by buttoning up any lingering home maintenance issues.
💡 Quick Tip: SoFi’s new Lock and Look* feature allows you to lock in a low mortgage financing rate for up to 90 days while you search for the perfect place to call home.
When It’s a Seller’s Market
If there are more buyers in the housing market than there are homes for sale, it’s considered a seller’s market. Often, selling a house where there’s a high percentage of homebuyers takes less time and can fetch a higher price.
Sellers may be able to take advantage of the housing scarcity and go with a more ambitious asking price. If this pays off, the extra cash could be especially useful if you are shopping for houses in a seller’s market yourself. Making a competitive offer may be helpful if you are trying to beat out other bids and quickly secure a home.
It’s also not uncommon for houses to receive multiple offers in a seller’s market. If this is the case, sellers may have more success negotiating favorable terms that suit their sell and buy situation.
For example, a rent-back agreement allows sellers to lease their former house from the new owners for a set period of time. This gives them more time to find their new home, but may not be an acceptable condition for every prospective buyer.
Getting your finances in order to buy and sell a home isn’t just about counting savings and building budgets. Home equity is another important consideration.
To calculate home equity, subtract the money owed on a mortgage loan from the current market value of a house. For example, if your home is worth $250,000 and you still owe $150,000 on your mortgage loan, you have $100,000 of equity in your home.
Depending on your financial situation, home equity may be necessary to buy a new home. Keep in mind that equity does not become available until the closing is complete. Typically, lenders will limit borrowers to 80% to 90% of their available equity, depending on factors such as credit history and income, among others.
Unless you’re selling a home shortly after buying it, the market value of a home could likely differ from the initial purchase price. These changes could either increase or decrease your home equity.
Generally speaking, the average home sale price in the United States increases year-to-year, barring notable exceptions like the 2008 financial crisis and subsequent recession. Yet, these trends don’t account for regional housing booms and busts.
Getting an official valuation from a real estate appraiser, which typically costs between $300 and $400, is one way to get a more accurate idea of your home equity and a feasible sale price. Researching comparable homes that recently sold in your community can give you a ballpark estimate, too.
💡 Quick Tip: You can use money you get with a cash-out refi for any purpose, including home renovations, consolidating other high-interest debts, funding a child’s education, or buying another property.
Prequalification vs Preapproval
Being aware of your own financial situation is useful for a variety of reasons, especially when buying a house. But if you’re among the majority of buyers who finance their home purchase, your mortgage lender will consider factors besides your own number crunching and goals when deciding their loan total.
For many prospective homebuyers, prequalifying is the first step to getting an estimate of how large a loan they would likely qualify for. Lenders generally evaluate factors like a buyer’s debt, assets, and income, which may take just a matter of days.
Becoming prequalified does not lock buyers into a set mortgage rate. Rather, it gives buyers a more accurate picture of their financing options and what houses are in their price range. Before making an offer, it is generally advisable that buyers are prequalified, which can be demonstrated with a letter from your lender. This can signal to the sellers that you are a serious buyer.
To ultimately obtain a mortgage loan, buyers still need to go through preapproval. In doing so, lenders perform a more thorough credit and financial background check to arrive at a specified preapproved loan amount.
Sellers may consider offers from preapproved buyers to be more favorable than those with just prequalification since there is less concern about a rejected mortgage application pending a deal. It may also get you to the closing table faster, which can be a big plus if you’re in a competitive market.
Selling Before Buying
Whether by intention or pure circumstance, you could face a choice of selling your house before buying your next home.
Selling first can potentially be beneficial for qualifying for a mortgage loan. After the sale closes, you may be able to use that money to finance a down payment on a new home, as well as having a lower debt-to-income ratio.
Yet, selling before buying may create complications for finding a place to stay until you purchase a new home. If the new buyers are not willing or able to do a rent-back agreement, you may end up having to find temporary housing in the meantime.
Apartments and rental properties may require signing up to a 12-month lease. For prospective homebuyers, a lengthy rental commitment with penalties for leaving early may be costly. Instead, finding a month-to-month rental option can grant more flexibility and sync up with a storage unit lease, if needed.
Buying Before Selling
When you find your dream home, you may want to pull the trigger and make an offer right away. But what does that mean if your house hasn’t sold yet?
For some, making a down payment or home purchase before selling with savings alone is not feasible. In other cases, your debt-to-income ratio and credit may prevent you from getting a second mortgage.
There are several options available if this is the case. A Home Equity Line of Credit (HELOC) can let prospective buyers borrow against the equity of their current home. A buyer’s credit and existing home equity are taken into account to qualify for a HELOC.
If approved, buyers can use the HELOC to access money for a down payment, which could then be paid off when their house sells. Take note of the repayment terms and interest rate on the HELOC, as these can vary from lender to lender.
Taking out a bridge loan is another possibility. These short-term loans are usually structured to cover a down payment and become due after several months. Bridge loans generally have high interest rates and may require an origination fee. Sellers who cannot unload their house in time may need to request an extension or begin repaying the loan while still paying their mortgage.
Choosing a Real Estate Agent
A savvy real estate agent can help reduce the stress and uncertainty of selling and buying a house at the same time. Their expertise can come in handy for setting an accurate listing price, scheduling showings, and staging a home.
If you had a positive experience with the agent you worked with to buy your home, their familiarity with your property could help expedite the process and give you peace of mind in case you have to move out of the area before selling.
There are benefits to using the same agent for buying and selling when geography allows. For instance, they can simplify the lines of communication and more easily coordinate the closing of both homes with your ideal timeline.
Sometimes it may not be possible to use the same realtor. The obvious case is when you’re moving a significant distance to a new area.
The need to use two realtors could arise if you’ve chosen a reputable realtor who exclusively works with buyers or sellers alone. If you decide to hire such a realtor, they may be able to recommend a trusted colleague in their agency to handle your other deal.
Timing Your Closing Dates
There is a lot to consider when selling and buying a house at the same time. The timing of both deals can impact financing options, having to find temporary housing, and figuring out how to store or move your belongings.
Setting a closing date is part of the negotiating process for any real estate deal, and coordinating closings for the same date can streamline the process.
Still, closings can be delayed due to reasons outside your control. Having a back-up plan, such as a rent-back agreement, can keep you in your home while you find a new house. Putting additional contingencies in a contract can help with rescheduling closings as needed or even walking away without much financial loss.
Obtaining a Mortgage
Buying and selling houses at once may not always be easy, but it is doable.
If you cannot purchase a house with cash or home equity, you’ll need to figure out how much you can borrow.
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 Mortgages: simple, smart, and so affordable.
*Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 90 calendar days at the time of pre-approval subject to payment on 60th day of the fee below. If you submit a fully executed purchase contract within 30 days of the initial rate lock, SoFi will reduce the interest rate by an additional 0.125% at no cost. If current market pricing has improved by .75 percentage points or more from the original locked rate, you may qualify for an additional rate reduction. If you have not submitted a fully executed purchase contract within 60 days of your initial rate lock, you will be charged $250 to maintain the rate lock through the 90-day period. The $250 fee will be credited back to you at the time of closing. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
As of 2023, only 21% of people say now is a good time to buy a house according to a Gallup poll. This is due to high home prices and high interest rates. While the average home price has dropped since the last quarter of 2022, prices are still higher than normal. The median home price currently sits at $424,495 and mortgage rates as of June 2023 are 6.67% for 30-year fixed-rate mortgages and 6.03% for 15-year FRMs.
We’ve seen higher home prices and higher interest rates in the past year, so now may not be the worst time to buy. However, whether or not now is a good time to buy a house depends heavily on your unique financial situation and local market dynamics.
Determining When You’re Ready to Buy
Before you assess the current real estate market and pay close attention to interest rate fluctuations, it’s important to understand your financial and personal situation.
Here are a few factors you may want to consider before deciding if a new home is a good play right now.
Making Room in the Budget
When buying a home, the first thing you’ll need to budget for is a down payment.
While 20% of the home’s value is the benchmark, you may only need 3.5% if you apply for an FHA loan. But even 3.5% can be a chunk of change. If you want to buy a $200,000 house, 3.5% is $7,000.
Your home-buying budget should be large enough to cover a down payment as well as closing costs, which typically include homeowners insurance, appraisal fees, property taxes, and any mortgage insurance.
Remaining Consistent
How long do you plan to live in the city where you’re eyeing a home? If you plan on staying in the home long-term, now could be a good time to buy because staying put will give your home time to appreciate (subject to market fluctuations).
Since mortgage lenders pay close attention to job consistency and a steady income, you may also want to consider your job security. Especially during uncertain times, it’s crucial to feel confident knowing you can make your mortgage payments every month.
💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.
Checking Your Financial Profile
It’s a good idea to check your financial profile. Doing so may help you secure better financing terms when you purchase a home. Lenders will review your credit history, debt-to-income ratio, and assets, among other factors, to determine your eligibility for a mortgage.
Lenders review your credit history to gauge your creditworthiness and the level of risk to lend you money. They look at your debt-to-income ratio to indicate how much of your income goes toward debt payments every month.
If your ratio is high, it can show you’re overleveraged, which may mean you’re not in a position to take on more debt like a mortgage. You may also face a higher interest rate.
Last, a mortgage applicant can list assets like cash and investments. The more assets you have, the less risky lenders view you.
If renting a home in your community is less expensive than buying, you may want to hold off on a home purchase. Conversely, if renting is more expensive, you may be more enticed to purchase a new home.
Overall, if you find that these factors point you in the direction of homeownership, it’s possible you’re ready to buy a home and can begin determining the perfect time to pounce.
Financial institutions charge interest to cover the costs of loaning money when they offer you a mortgage. The interest rate they charge is influenced by the Federal Reserve, but mortgage-backed securities are considered to be the main driver.
When interest rates are low, borrowing money is less expensive to the borrower. As interest rates rise, borrowing money becomes more costly. The government has been slashing rates to keep buyers in the market.
But keep in mind that the rate and terms you qualify for will depend on financial factors including your credit score, down payment, and loan amount.
And, if interest rates go down after you purchase your home, you can always choose to refinance your mortgage in hopes of getting a lower rate.
💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.
Timing the Real Estate Market
Essentially, to time any market, you want to aim to buy low and sell high. If you’re going to buy a property, you’ll want to ideally buy when there are more sellers than there are buyers—a buyer’s market.
In a buyer’s market, buyers have an abundance of homes to choose from. This may also give you leverage to ask for more concessions from sellers eager to close a deal, such as a seller credit toward your closing costs or help covering the cost of repairs.
Conversely, in a seller’s market, real estate inventory is low and demand is high, which may drive up home prices.
To identify the current market conditions, you may want to visit real estate websites like Zillow, Redfin, Realtor.com, or Trulia to look at inventory in your area or ZIP code.
Typically, it’s a buyer’s market if you see more than seven months’ worth of inventory.
If you see five to seven months of inventory, you’re in a balanced market that isn’t especially beneficial to buyers or sellers.
It’s a seller’s market when there is less than five months’ worth of inventory.
Understanding Local Economics and Trends
Because prices can vastly vary from area to area, real estate is often considered a location-driven market. This means that general rules of thumb might not be valid in every region or city.
Also, local economics may play a role in housing demand. For instance, if a large company decides to move its operations to a city, that city may experience a housing boom that creates a spike in home prices.
That said, hopeful buyers will want to pay close attention to the economic happenings and housing trends in their desired location.
The Takeaway
If you find a home that seems right for you, your employment is stable, and you can get a home loan with a good interest rate, buying may make sense. Then again, with interest rates and home prices still being on the high side, comparing the costs of renting and buying may be called for.
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 Mortgages: simple, smart, and so affordable.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria 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.
*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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
