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When you’re looking for a mortgage loan, credit union vs. bank is a key question. Each option comes with pros and cons.

Here’s an overview to help you make the right choice for your situation.

How Credit Union and Bank Mortgages Are Similar

In many ways, banks and credit unions can be quite similar as mortgage providers. At a high level, approval processes are the same at each type of financial institution. Each will have mortgage underwriting guidelines, and after a borrower applies, the loan will be reviewed and approved, suspended, or denied. Plus, both may offer mortgage preapprovals.

Below are more similarities.

Application Process

As you look at credit union mortgages vs. bank mortgages, you’ll see that both typically offer you multiple ways to apply for a loan, including in an in-person appointment at a branch office, over the telephone, or online on the organization’s website.

Types of Mortgages

Generally, you’ll be able to apply for many different mortgage types at a bank or a credit union. Common types of home loans include fixed-rate and adjustable-rate loans as well as conventional and government-insured loans (such as FHA and VA mortgages).

One-Stop Shop for Finances

Both credit unions and banks usually offer a range of financial services, so you can also turn to them for savings and checking accounts, personal or auto loans, and CDs, among other services.

💡 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

Differences Between Credit Union and Bank Mortgages

While there are similarities between bank and credit union mortgages, there are also differences to be aware of.

Membership

Banks are typically open to serving most customers, but credit unions are meant for their members. There can be membership criteria – such as living in a certain area or being a member of a specific profession – that can limit the credit union options open to you.

Loan Options

When it comes to options among mortgage loans, credit unions vs. banks may have a disadvantage. Major national banks may have more loan choices available than credit unions, which tend to be smaller institutions.

Profitability

Banks are generally for-profit businesses, and aim to make money for their stockholders. Credit unions, on the other hand, are generally non-profit organizations.

Underwriting Process

Banks, especially large ones, often follow strict underwriting guidelines. Credit unions, which tend to be smaller and more local, may underwrite loans locally, giving them a fuller picture of their members’ financial situations, and may be able to be more flexible

Benefits of Getting a Credit Union Mortgage

Are credit unions good for mortgages? In many ways they are. While a bank has stockholders, a credit union consists of members (account holders) who more or less serve in this same role. A bank must satisfy its investors by making a profit; credit unions don’t have that obligation, so they can return those dollars to members through more attractive interest rates, lower fees, and more.

To enhance their members’ financial wellness, credit unions typically provide the following benefits.

Looser Approval Criteria

In general, credit unions may approve more loans in the lower- to middle-income range for their members. And if your credit scores are less than ideal, a credit union loan is sometimes the better choice.

Lower Interest Rates

Overall, credit unions offer lower rates on their mortgage loans. To estimate how much money this may save you, use a mortgage calculator.

Fewer Fees

Credit unions can pass on savings to members through lower fees as well as lower rates.

The Personal Touch

Because credit unions are less likely to sell their mortgage loans to a third party, a borrower is more likely to know the loan servicer (the credit union). This can lead to more personalized service.

Local Market Knowledge

Since a credit union is typically more local, with ties in the community, you’re likely to be working with a loan officer who is familiar with your area, what’s typically available, and what the going rates for different kinds of homes are. This knowledge can help you find and make a fair offer on your home more easily.

Recommended: How Does the Mortgage Preapproval Process Work?

Disadvantages of Getting a Credit Union Mortgage

Are credit unions better for mortgages? That depends on your needs and preferences. Credit union mortgages also have downsides.

Membership is a Must

In most cases, a borrower must meet certain requirements to join a credit union. This can include living in a certain community, belonging to a certain profession, or otherwise having the appropriate affiliation.

Fewer Locations

Usually, credit unions have fewer branches, which can limit their geographical range. So when you’re away from home, outside the credit union’s range, it may be harder to conduct all the financial transactions you might like. For example, the ATM network may be smaller and less convenient.

Stale Tech

Because credit unions are often more local institutions, they typically won’t have the up-to-date technology found at larger banks. So if a borrower wants first-class online and mobile banking, credit unions may not be the best choice.

Limited Menu

Credit unions may offer fewer financial products, especially on the savings and investment side. They may only offer checking and savings accounts, for example, plus credit cards. Although that may not affect a borrower’s ability to get a mortgage, it can limit what other products they can benefit from at the credit union.

Possibly Higher Interest Rates

Sometimes credit unions can’t compete with banks, especially when a large bank offers especially good interest rates. So be sure to compare rates if you’re looking for the most attractive ones.


💡 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.

Benefits of Getting a Bank Mortgage

Getting a home loan at a bank has its upsides, including the following.

Variety of Services

Banks often offer a significant range of savings, lending, and retirement-related financial products, making it easier for a borrower to have an all-in-one financial institution.

Multiple Branches and ATMs

Banks, especially national ones, will typically allow you to have access to multiple branches in more locations as well as a larger ATM network. This can make for a more convenient experience.

New Tech

Banks are, overall, more likely to have the latest in banking technology, including the ability to bank online and to use more sophisticated mobile apps.

Access to Loan Products

Because they tend to be larger and serve a broader population, banks often have a wider range of loan products available to their customers, like jumbo loans.

Disadvantages of Getting a Bank Mortgage

Drawbacks of getting a bank home loan can include the following.

Higher Interest Rates

Banks need to generate profit for stockholders — and credit unions don’t — so banks may charge a higher rate on home loans. But this isn’t universally true, so it’s always a good idea to compare rates.

Higher Fees

In general, banks charge higher mortgage fees than credit unions do. Although not always true, this is something to investigate.

Less Personalized Customer Service

Because credit union membership tends to be smaller and more local, bank customers may receive less personal service, especially when using a branch outside their more typical one (perhaps while traveling). Plus, banks are more likely to sell mortgage loans to a third-party loan servicer.

With any lender, bank, or credit union, a house hunter should feel at ease asking a range of mortgage questions.

Recommended: Tips on How to Shop Around for a Mortgage Lender

How to Choose the Right Mortgage Lender

Whether you’re better off with a mortgage from a bank or a credit union depends heavily on your situation and preferences.

First, consider what kind of experience you want. If you’re looking for a wide network of services and many different loan options, a bank may work for you. If you’d like a more personalized approach that could involve less rigorous qualifications and allow you to tap into local expertise, a credit union may be the better option.

You’ll also want to consider the cost. Though credit unions may typically offer lower rates, costs, and fees, that’s not always true, so it’s worth looking around and comparing.

Finally, you may want to factor in convenience. Banks typically have more branches and more up-to-date tech options, but credit unions may more easily allow you to develop ongoing relationships with local loan providers who understand your situation.

Taking all these factors into account, you can make an informed decision about what option will best suit you.

The Takeaway

Thinking about a credit union mortgage vs. a bank mortgage? Each has its upsides and potential downsides. If you’re a borrower looking for a home mortgage loan, explore the pros and cons to make the right choice for your specific situation.

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 get a mortgage at a credit union?

Not necessarily. It’s a good idea to look into what each route offers before making the right choice for you.

What are the disadvantages of credit unions?

Credit unions tend to be smaller and more localized than many banks, so disadvantages can include fewer locations, a smaller ATM network, and more limited financial products. Borrowers must qualify to become a credit union member; technology probably won’t be as modern as that at a larger bank; and, in some cases, rates can be higher.

Are credit unions safe for mortgages?

The National Credit Union Administration insures deposits of up to $250,000 at all federal and some state credit unions, protects the members who own credit unions, and regulates federal credit unions. Eligible bank accounts of the same amount are insured by the Federal Deposit Insurance Corporation.

Can I take out a HELOC or second mortgage through a credit union?

Not all credit unions offer the same products, but many of them do offer home equity lines of credit and home equity loans.

Do credit unions have better mortgage rates than banks?

Sometimes credit unions have better mortgage rates than banks, but that isn’t always true. In some cases, large banks may be able to offer lower rates, so it’s always worth shopping around and comparing credit union mortgage rates vs. bank rates to find the best terms you can get.

Photo credit: iStock/Lemon_tm

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

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-Q325-033

When you apply for a mortgage, any outstanding debts you have — including personal loans, credit cards, and auto loans — can impact how much of a mortgage you can get, and whether you even qualify in the first place.

If you’re planning to buy a home within the next couple of years, applying for a personal loan could potentially reduce how much you can borrow. A personal loan can also affect your credit — this impact could be positive or negative depending on how you manage the loan.

Whether you’re thinking about getting a personal loan or currently paying one off, here’s what you need to know about how personal loans interact with mortgages.

How Do Personal Loans Work?

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in fixed monthly payments, or installments. Unlike mortgages and auto loans, personal loans are typically unsecured, meaning there’s no collateral (an asset that a borrower pledges as security for a loan) required.

Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Common uses for personal loans include:

•   Debt consolidation

•   Home improvement projects

•   Emergencies

•   Medical bills

•   Refinancing an existing loan

•   Weddings

•   Vacations

Personal loans usually have fixed interest rates, so the monthly payment is the same for the term of the loan, which can range from two to seven years. On-time loan payments can help build your credit file, but missed payments can hurt it.

Can Personal Loans Affect Mortgage Applications?

Yes, getting a personal loan could impact a future mortgage application. When you apply for a home mortgage loan, the lender will look at your full financial picture. That picture includes your credit history (how well you’ve managed debt in the past), how much debt you currently have (including personal loans, credit cards, and other debt), your income, and credit score.

Depending on your financial situation, getting a personal before you buy a house could have a positive or negative impact on a mortgage application. Here’s a closer look.

Negative Effects

A personal loan could have a negative impact on your mortgage application if the loan payments are high in relation to your income. A lender may worry that you don’t have enough wiggle room to cover your current expenses and debts, plus a mortgage payment.

Another potential drawback is the impact on your credit score, especially if the loan is recent. When you apply for a personal loan, it triggers a hard inquiry on your credit report, which can temporarily lower your score. In addition, any missed or late payments on your personal loan impact your payment history, which is a significant factor in your credit score.

Recommended: Using a Personal Loan for a Down Payment

Positive Effects

If you have a personal loan that is a reasonable size (relative to your income), your personal loan payment history shows that you regularly pay on time, and you’re consistently paying down any other debts, a mortgage lender could see that as a positive indicator that you’d likely be a low-risk investment.

What’s more, a personal loan adds variety to your credit mix — the types of credit you use. A balanced credit portfolio that includes both revolving credit (like credit cards) and installment credit (like personal loans) may help strengthen your credit profile.

How Personal Loans Can Affect Getting a Mortgage

Here’s a closer look at the ways in which getting a personal loan can affect your ability to get a home mortgage.

Credit Score

Your credit score is one indication to a lender of how likely you are to be to repay a loan — or, in other words, how much risk you represent to the lender. A personal loan can affect your credit score in several different ways. These include:

Payment History

Your bill-paying track record is typically the most significant factor in your credit scores, accounting for approximately 35% of your FICO® Score. On-time payments on a personal loan demonstrate financial responsibility and help build a positive payment history. Over time, this consistency can have a favorable impact on your credit file. On the flip side, missed or late payments can negatively affect your credit profile and damage your chances of mortgage approval.

New Credit

When you apply for a personal loan, the lender will run a hard credit inquiry. This type of credit check can cause a small, temporary drop in your scores. In addition, a new loan reduces the average age of your credit accounts, which may further impact your credit file, especially if your credit history is limited.

Credit Mix

Credit mix accounts for about 10% of your FICO credit score. Lenders like to see that you can manage various types of credit responsibly. If you only have credit cards, adding an installment loan like a personal loan could positively impact your credit file and make you look more attractive to a mortgage lender.

Credit Utilization

If you use a personal loan to consolidate and pay off high-interest credit card debt, it could favorably impact your credit by lowering your credit utilization ratio.

Your credit utilization ratio is the percentage of available credit that you’re currently using on your credit cards and other lines of credit, and is another important factor in your credit scores. Keeping your utilization below 30% is generally recommended for maintaining good credit health.

Recommended: Personal Loan Calculator

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio refers to the total amount of debt you carry each month compared to your total monthly income. Your DTI ratio doesn’t directly impact your credit score, but it’s an additional factor lenders may consider when deciding whether to approve you for a new credit account, such as a mortgage. Having a personal loan will increase your debt load and, in turn, your DTI ratio.

To calculate your DTI ratio, add up all your monthly debt payments and divide them by your gross monthly income (that’s your income before taxes and other deductions are taken out). Next, convert your DTI ratio from a decimal to a percentage by multiplying it by 100.

The DTI ratio you need to secure a mortgage varies by lender. Generally, though, mortgage lenders prefer a DTI ratio of 36% or below.

Should You Pay Off Your Personal Loan Before Applying for a Mortgage?

If you already have a personal loan, are close to the end of your repayment term, and can afford to pay off the remainder before applying, eliminating the debt could improve your chances of getting the mortgage amount you’re looking for.

Another reason why you may want to pay off your personal loan before buying a home is that home ownership generally comes with a lot of additional expenses. Not having a personal loan payment to make each month can free up cash you may need for other things, like mortgage payments, homeowners insurance, and more.

That said, if paying off a personal loan will use up money you had earmarked for a downpayment on a home or leave you cash poor (with no emergency fund), it might be better to keep making your monthly payments, rather than pay off your personal loan early.

Tips to Help Your Mortgage Application

Generally speaking, having a personal loan won’t make or break your odds of getting a mortgage. If you’re concerned about being approved, however, here are some steps that can help.

Avoid Taking on New Debt Before Applying

It’s wise to avoid taking any type of new debt in the months before applying for a mortgage. New debt can increase your DTI and also cause a temporary drop in scores due to the recent hard inquiry. It also signals to lenders that you may be relying on credit to make ends meet, which can raise concerns about your financial stability.

Check Your Credit Report for Errors

Before you submit a mortgage application, it’s a good idea to review your credit reports to make sure there are no errors or inaccuracies. Mistakes like incorrect balances, outdated accounts, or erroneous late payments can hurt your chances of approval.

You’re entitled to a free credit report every week from each of the three major credit bureaus — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com. If you find any mistakes, you can dispute them with the appropriate bureau.

Consider Getting Prequalified

Getting prequalified for a mortgage gives you an idea of how much you may be able to borrow based on your income, credit, and debts. It’s not a guarantee of loan approval, but it can help you identify any red flags in your financial profile — such as a high DTI or low credit score — before formally applying.

Prequalification also helps you set realistic expectations when house hunting and shows sellers you’re a serious buyer.

The Takeaway

A personal loan can impact your ability to get a mortgage, but the effects depend on how you manage the loan and your overall financial situation. Personal loans can increase your debt burden and negatively affect your credit file if mismanaged. But they can also help build credit and demonstrate responsible borrowing when used wisely.

If you’re not planning to apply for a mortgage right away, and can comfortably manage the personal loan payments (and possibly even pay off the loan early), getting a personal loan could help you build credit and make it easier to get a mortgage.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can a personal loan hurt your chances of getting a mortgage?

A personal loan could potentially hurt your chances of getting a mortgage. A personal loan increases your monthly debt obligations, which could reduce the amount you’re approved to borrow. Also, If you struggle to make timely payments on the personal loan, it will negatively impact your payment history, which is a key component of your credit score.
That said, having a personal loan and managing it responsibility could be a net positive if it adds to your positive payment history and diversifies your credit mix. This could improve your chances of getting a mortgage.

Should you close a personal loan before applying for a mortgage?

Closing (or paying off) a personal loan before applying for a mortgage can be beneficial, especially if it lowers your debt-to-income (DTI) ratio. A lower DTI can improve your mortgage eligibility and may help you qualify for better interest rates. However, it’s important to weigh this decision carefully. If paying off the personal loan significantly depletes your savings and limits your ability to make a substantial down payment, it might be more strategic to continue making regular payments.

How much does a personal loan impact debt-to-income ratio?

A personal loan directly affects your debt-to-income (DTI) ratio because its monthly payment is included in your total monthly debt obligations. Lenders calculate DTI by dividing total monthly debt by gross monthly income. Even a relatively small personal loan can increase your DTI enough to impact your mortgage eligibility. Keeping your DTI below 36% is generally recommended for mortgage approval.

Is it easier to get a mortgage without other active loans?

Yes, having no other active loans can make it easier to qualify for a mortgage. Without additional debt, your debt-to-income (DTI) ratio will be lower, making you appear less risky to lenders. A low DTI may also allow you to qualify for a larger loan amount or better interest rates. However, having a mix of well-managed credit can also be favorable. The key is maintaining a healthy balance — manageable debt, on-time payments, and a strong credit score.

Do mortgage lenders consider personal loans as part of your liabilities?

Yes, mortgage lenders include personal loans when calculating your total liabilities. These liabilities help determine your debt-to-income (DTI) ratio, a key factor in mortgage approval. Lenders will look at your credit report to verify outstanding balances and monthly payment obligations, including personal loans. Even if the loan has a low balance, the monthly payment counts toward your DTI. Keeping loan payments manageable and your overall DTI low can improve your chances of mortgage approval.

Photo credit: iStock/kate_sept2004

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.

SOPL-Q325-006

Expect to pay 2% to 5% or even 6% of the new mortgage amount in closing costs when you refinance your mortgage.

If you have sufficient equity in your home and you’re tempted by a rate-and-term refinance or a cash-out refi, here’s what you need to know about the costs.

What Is the Average Cost to Refinance a Mortgage?

How much does it cost to refinance a mortgage? Let’s put it this way: Refinancing isn’t free. That’s because you’re taking out a new home loan and paying off your current one, and doing so brings on a host of costs, though not as many as purchase loans incur.

The main difference between the average cost to refinance vs. closing costs for home purchases is that owner’s title insurance and several inspection fees common for purchases are not necessarily required for refinances or may be cheaper. But there is evidence that fees have been creeping up in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to the government’s Consumer Financial Protection Bureau.

Common Mortgage Refinance Fees

Some fees to refinance are flat fees that vary by lender. Other fees are based on a percentage of the loan amount.

Then there are recurring closing costs like homeowners insurance and property taxes. Six months of property taxes are often due at closing.

Here are some common fixed closing costs, though in some cases, a borrower may not need an appraisal.

And here are common percentage-based closing costs. Keep in mind that not all borrowers will need mortgage insurance (PMI or MIP: private mortgage insurance for conventional loans, and mortgage insurance premium for FHA loans). PMI is usually needed for a conventional loan exceeding an 80% loan-to-value ratio.

An FHA loan can be refinanced to another FHA loan or to a conventional loan if the borrower meets credit score and debt-to-income requirements for a nongovernment loan. USDA and VA loans can also be refinanced.

Hidden Costs to Watch For

Being aware of the range of potential closing costs and fees for a refinance is important as you’re evaluating whether a refinance would make financial sense for you. But there are some potential fees that might blindside you. Here are a few to look out for.

•   Prepayment penalties. If your original mortgage penalizes you for an early payoff, your refinance might trigger those fees. How these penalties work varies by lender, so it’s worth checking with yours to make sure you know what, if any, fees you might be facing if you refinance.

•   VA funding fee. If you’re refinancing using a VA loan, you’ll need to pay an upfront funding fee. The fee is a percentage of the amount you’re borrowing and may be higher for refinances, depending on the down payment. Current rates range from 1.25% to 3.3% of the loan amount.

•   USDA guarantee fee. If you’re refinancing to a USDA loan, expect to pay a new guarantee fee, currently 1% of your loan amount, as well as a recurring annual fee of 0.35% of the loan amount.

Are You Eligible to Refinance?

Most mortgage lenders want a homeowner to have at least 20% equity in the house in order to refinance, although those numbers are not universal.

What is home equity? Here’s an example. If your home is worth $450,000 and the current mortgage balance is $250,000, you have $200,000 in equity. The loan-to-value ratio is 56% ($250,000 / $450,000). This scenario fits the parameters of many lenders for a refinance to take place.

Credit Score and Debt-to-Income Ratio Requirements

You’ll typically need a minimum FICO® credit score of 620 to refinance a conventional loan and 580 to refinance an FHA loan. A score of 740 or above often ushers in the best rates.

Lenders will also look at your debt-to-income (DTI) ratio, which compares your monthly debt to your monthly income. What they’ll accept depends on the lender, but for a refinance, they may prefer as low as 35% or less, though some may be willing to accept higher if your other credentials are good.

Besides credit score and DTI ratios, lenders normally review recent credit applications, on-time payments, and credit utilization.

Recommended: 7 Signs It’s Time for a Mortgage Refinance

Benefits of Refinancing a Mortgage

The most common type of refi is a rate-and-term refinance, when you take out a new loan with a new interest rate or loan term (or both). Some people will choose a mortgage term of less than 30 years when they refi, if they can manage the new monthly payment.

Then there’s cash-out refinancing, which provides a lump sum to the homeowner.

In general, refinancing may make sense if interest rates fall below your current mortgage rate. Here are some times when a mortgage refinance could be beneficial.

If You Can Break Even Within a Suitable Time Frame

Calculate how long it would take to recoup the closing costs. Find the break-even point by dividing the closing costs by the monthly savings from your new payment.

Let’s say refinancing causes your payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings.

If you plan to sell the house in two years, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.

If You Can Reduce Your Rate Even a Little

You might read or hear that refinancing is worth it if you can reduce your mortgage rate by one or two percentage points. But for a big mortgage, a change of just a quarter of a percentage point, or half of one, could result in significant savings, especially if you can minimize lender fees.

Again, consider the break-even point and how long you plan to keep the home.

You’d Like to Tap Home Equity

With a cash-out refinance, a percentage of your equity can be issued in a lump sum for any purpose. You will need to have at least 20% equity remaining after the transaction.

Be aware that the higher loan amount of a cash-out refinance usually results in higher closing costs.

(If your main goal is to access cash and not to change your rate or term, a home equity loan or home equity line of credit may be less expensive than paying the closing costs on a cash-out refinance.)

An ARM’s Teaser Rate Is Appealing

Refinancing a fixed-rate mortgage to an adjustable-rate mortgage could make sense for a homeowner who plans to move before the ARM’s initial rate adjustment.

A 5/1 ARM, for example, will typically come with a rate for five years that is lower than that of most fixed-rate mortgages.

In other rate environments, it could make sense to refinance an ARM to a fixed-rate mortgage.

You Want to Reduce Your Repayment Term

Some people may decide to take advantage of a lower rate and shorten their mortgage term, say from 30 years to 15. Monthly payments may well go up, but a lower rate and a shorter term mean paying much less over the life of a loan.

The amortization chart of this mortgage calculator shows how much interest may be saved.

You’d Like to Get Rid of FHA Mortgage Insurance

FHA loans come with an annual mortgage insurance premium (MIP) that ranges from 0.15% to 0.75% of the loan amount, divided into monthly payments. Unless you put down more than 10%, you must pay those premiums for the life of the loan. The only way to get rid of the MIP is to get a new mortgage that isn’t backed by the FHA.

You Want to Switch Loan Types

If you have a conventional mortgage but you’re eligible for a government-backed mortgage that may have more advantageous terms, a refinance to switch loan types could be worth exploring.

If you qualify for a VA loan, for example, it may be possible to refinance to a VA loan with a cash-out refinance. You can also potentially refinance from a conventional mortgage to an FHA cash-out refinance or FHA 203(k) refinance (used for home improvements), though you will have to pay the mortgage insurance premium.

Tips to Lower the Cost of a Mortgage Refinance

As you’re contemplating how much it costs to refinance a 30-year mortgage, bear in mind that the most important step you can take is to shop around.

Comparison Shop and Try to Negotiate

You need not apply for a refinance with just your current lender — and doing so would be a missed opportunity, the Consumer Financial Protection Bureau notes. Then again, your current lender may offer loyalty incentives.

Apply with as many lenders as you wish; you’ll receive a loan estimate from each. Compare the costs, including those of the lender’s preferred vendors.

Ask potential lenders which fees can be discounted or waived. Remember, each lender wants your business.

Typical non-negotiable closing costs found under Section B of each loan estimate include credit reports and appraisals.

Keep Your Credit Shipshape

Having at least a “good” credit score can help you get a more attractive rate, and if your credit score has improved since the initial mortgage was taken out, that could be a reason to refinance all by itself.

A good FICO score on the credit rating scale of 300 to 850 falls in the range of 670 to 739. VantageScore®, a competitor developed by Experian, Equifax, and TransUnion, considers a score between 661 and 780 good.

If your credit profile could use some polishing, consider ways to build credit over time.

Use the Same Title Insurance Company

Save money on the lender’s title insurance policy by asking for a reissue rate from the title insurance company that was used for the original loan.

Consider a Streamline Refi for Government Loans

If you have an FHA, USDA, or VA loan, you may want to see if you’re eligible for an FHA Streamline, USDA Streamlined-Assist, or VA Interest Rate Reduction Refinance Loan. The programs may charge a lower mortgage insurance fee than regular government refinance programs and usually do not require an appraisal.

Think About a No-Closing-Cost Refi

A no-closing-cost refinance allows borrowers to roll the closing costs into the mortgage or accept a slightly higher interest rate on the new loan.

Rolling the closing costs into the refinance loan will increase the principal and total interest paid. But if you’re going to keep the loan for more than a few years, this move could be worth it.

Accepting a slightly higher rate could work for borrowers who can skip the upfront payment and who plan to keep their new loan for only a few years.

Lock In a Favorable Interest Rate

When you’ve gotten an offer for an interest rate you like, you may want to get a rate lock, which will ensure the offer won’t change for a specified period of time – usually 30 to 60 days – as long as nothing else changes. Ideally, this will let you be sure you can close the deal with this rate. Some lenders may lock your rate when they issue the loan estimate, but others may not automatically lock your rate and may charge a fee. Check with your potential lender to understand your options.

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

The Takeaway

How much does it cost to refinance a typical 30-year mortgage? Refinancing your mortgage could cost anywhere from 2% to 5% or more of the loan amount but might make financial sense if you are able to capture a lower interest rate, shorten your payment term (and thus lower the amount of interest you pay), or escape paying a mortgage insurance premium on an FHA loan. To contain costs, always compare offers from multiple lenders and don’t forget to include both interest and closing costs (and fees) in your calculations.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Is refinancing your mortgage free?

No. A whole new loan must be approved and processed, and fees will apply.

Is refinancing a mortgage worth the closing costs?

It might be. You’ll want to calculate your break-even point: Divide your closing costs by whatever your monthly savings will be to find the number of months it will take you to break even. Beyond that point, the refinancing benefits kick in.

Is it worth refinancing to save $100 a month?

Refinancing to save $100 a month could be worth it if you plan to keep your home long enough to cover the closing costs. Divide your closing costs by 100 to calculate how many months it will take you to break even.

Will refinancing cost me more in the long run?

If you get a new 30-year mortgage several years into your original 30-year loan, you are, in essence, lengthening the term of your loan, and that can cost you. It may make more sense to shorten the term to 20 or 15 years.

Is it cheaper to refinance with the same bank?

Your lender might offer a slightly lower rate, but it’s still a good idea to see what competitors are offering by comparing loan estimates.

Can you negotiate closing costs when refinancing?

Yes. Many lender fees and third-party vendor fees are negotiable. On each loan estimate, Section A lists the lender charges. Try to negotiate the lowest total lender charge, keeping the rate in mind. And third-party fees in Section C are negotiable.

*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.

SOHL-Q325-026

Are you ruminating about a refi? How soon you can refinance your home depends on the kind of mortgage you have and whether you want cash out.
The type of mortgage you have plays a major role in determining how soon you can refinance a mortgage after closing. You can typically refinance a conventional loan as soon as you want to, but you’ll have to wait six months to apply for a cash-out refinance. The wait to refinance an FHA, VA, or USDA loan ranges from six to 12 months.

Before any mortgage refinance, homeowners will want to ask themselves: What will the monthly and lifetime savings be? What are the closing costs, and how long will it take to recover them? If I’m pulling cash out, is the refinance worth it?

How Soon You Can Refinance Your Home by Mortgage Type

How soon after you buy a house can you refinance? The rules differ by home loan type and whether you’re aiming for a rate-and-term refinance or a cash-out refinance.

A rate-and-term refi will change your current mortgage’s interest rate, repayment term, or both. Cash-out refinancing replaces your current mortgage with a larger home loan, allowing you to take advantage of the equity you’ve built up in your home through your monthly principal payments and appreciation.

Here are more details about how soon after you buy a house you can refinance with different kinds of loans.

How Soon Can You Refinance a Conventional Loan?

If you have a conventional loan, a mortgage that is not insured by the federal government, you may refinance right after a home purchase or a previous refinance — but likely with a different lender.

Many lenders have a six-month “seasoning” period before a borrower can refinance with them. So you’ll probably have to wait if you want to refi with your current lender.

How Soon Can You Cash-Out Refinance?

Here’s how cash-out refinancing works: You apply for a new mortgage that will pay off your existing mortgage and give you a lump sum. A lower interest rate may be available at the same time.

How soon you can refinance your home with a cash-out refinance depends on the kind of loan, but you normally have to wait at least six months before refinancing a conventional mortgage. An FHA cash-out refinance requires that you have owned the home for at least one year and that your mortgage is at least six months old with a record of on-time payments. Getting a cash-out refinance on a VA loan involves a waiting period of 210 days from the closing date on the original mortgage or six months of on-time payments, whichever comes later.

How Soon Can You Refinance an FHA Loan?

An FHA Streamline Refinance reduces the time and documentation associated with a refinance, so you can get a lower rate faster. (That said, how soon you can refinance an FHA mortgage is still not as soon as with a conventional loan.)

You will have to wait 210 days (and make at least six on-time payments) before using a Streamline Refinance to replace your current mortgage.

How Soon Can You Refinance a VA Loan?

When it comes to VA loans, the Department of Veterans Affairs offers an Interest Rate Reduction Refinance Loan (IRRRL), also known as a “streamline” refinance.

It also offers a cash-out refinance for up to a 100% loan-to-value ratio, although lenders may not permit borrowing up to 100% of the home’s value.

How fast you can refinance a home loan from the VA is the same in both cases. The VA requires you to wait 210 days between each refinance or have made six on-time monthly payments, whichever comes later. Some lenders that issue VA loans have their own waiting period of up to 12 months. If so, another lender might let you refinance earlier.

How Soon Can You Refinance a USDA Loan?

The Streamlined-Assist refinance program provides USDA direct and guaranteed home loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.

Borrowers of USDA loans typically need to have had the loan for at least a year before refinancing. But a refinance of a USDA loan to a conventional loan may happen sooner.

How Soon Can You Refinance a Jumbo Loan?

You may be wondering, “When can I refinance my house if I have a jumbo loan?” For a jumbo loan, even a rate change of 0.50% may result in significant savings and a shorter time to break even.

Here’s the good news about how fast you can refinance a home loan that’s a jumbo loan: You can refinance your jumbo mortgage at any time if you find a lender willing to do so.

Top Reasons People Refinance a Mortgage

If you have sufficient equity in your home, typically at least 20%, you may apply for a refinance of your mortgage. Lenders will also look at your credit score, debt-to-income ratio, and employment.

If you have less than 20% equity but good credit — a minimum FICO® score of 670 — you may be able to refinance, although you may not receive the best rate available or you may be required to pay for mortgage insurance.

Remember, too, that home equity increased for many homeowners in recent years as home values rose. That’s attractive if you want to tap your equity with a cash-out refinance.

Here are some of the main reasons borrowers look to refinance.

Lower Interest Rate

For many homeowners, the point of refinancing is to switch to a loan with a lower rate. Just be sure to calculate your break-even point – the moment when the closing costs will have been recouped: To do this, divide the closing costs by the amount you’ll save in payments every month. For example, if your closing costs will be $5,000 and you’ll save $100 a month, it will take 50 months to break even and begin reaping the benefits of the refi.

Two points to remember if you’re considering a refi for this reason. First, if you purchased your home around 2020, it may be hard to capture a lower interest rate than you currently have, as rates then were particularly low compared to historical mortgage rates. And second: Closing costs can often be rolled into the loan or exchanged for an increased interest rate with a no-closing-cost refinance.

Shorten Loan Term

Refinancing from a 30-year mortgage to a 15-year loan usually saves you a substantial amount of loan interest, as this mortgage calculator shows. Or you might want to refi to a 20-year term, if you’re years into your mortgage already, since resetting to a new 30-year term may not pay off.

Reduce PMI

If you put down less than 20% on a conventional mortgage, you’re probably paying primate mortgage insurance (PMI) on the loan. This typically costs between 0.5% and 1.0% of the total loan amount annually, though it can be higher. When your mortgage balance is down to 78% of the home’s original value (or the loan reaches the halfway point of the term schedule) the lender will automatically cancel the insurance, and you can request to have it removed when the balance is down to 80%, but until then, you’re on the hook for these monthly payments. One potential way to get rid of or reduce them is to refinance. For this to be worth considering, rates will have to be lower and you’ll need to find a lender willing to let you refinance with less than 20% equity. But especially if your home has gone up in value, this may be a possibility.

FHA loans require a similar insurance payment, called mortgage insurance premiums. After the upfront fee you’ll pay at closing, you pay monthly installments on a charge that’s annually between 0.15% and 0.75% of your loan amount for 11 years or the life of your loan, depending on when you took out the loan and the size of your down payment. The only way to get rid of those fees early may be to sell your home or refinance the mortgage to a conventional loan once you have 20% equity in the home — in other words, when your new loan balance would be at least 20% less than your current home value.

Switch to an ARM or Fixed-Rate Loan

Depending on the rate environment and how long you expect to keep the mortgage or home, refinancing a fixed-rate mortgage to an adjustable-rate mortgage (ARM) with a low introductory rate could be a strategic move. Similarly, if you’re uncomfortable with unpredictable payments and want to lock in a stable rate, switching from an ARM to a fixed-rate loan may make sense.

The Takeaway

If you’ve been asking yourself, “When can I refinance my house?” the answer is that it depends. If it’s a conventional loan, whenever you want to, although probably not with the same lender if that’s within six months of closing. Otherwise, if you must bide your time before refinancing or you’re waiting for rates to drop, that gives you a lull to decide whether a traditional refinance or cash-out refi might suit your needs.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Do you need 20% equity to refinance?

Some lenders will allow you to refinance with less than 20% equity in your home, but you may not get the best available interest rate, or you may need to pay for private mortgage insurance. You’ll want to do the math to make sure you’re saving money with the refinance.

Does refinancing hurt your credit score?

There may be a temporary dip in your credit score after a refinance, but if refinancing helps you lower your monthly debts you may find that it is actually helpful to your credit score over the long term.

Should I refinance soon after buying a home?

How soon you can refinance your mortgage after closing is secondary to whether refinancing soon is a good idea. That will depend on your specific loan, how much you put down, whether rates have changed, and many other factors. You’ll also want to take into account both the advantages you hope to get from refinancing as well as the costs.

How do I know when to refinance my mortgage?

The time to think about refinancing your home is when the benefits of a refi outweigh potential costs (like closing costs). If you can get a significantly lower interest rate, switch to a more advantageous loan type, or access a sum you need from a cash-out refinance, for example, it may be worth looking into a refinance.

Can you refinance more than once in a year?

There’s no legal limit on how often you can refinance. However, lenders and loan types may require waiting periods which will limit how many times you can refinance in a year. And don’t forget that you’ll generally need to pay for closing costs each time, as well.

What documents are needed to refinance a mortgage?

Requirements will vary by lender, but typically you’ll need to have documents that establish your income (W-2s for the past two years and paystubs; 1099s and/or tax returns if you’re self-employed), records establishing your financial reserves (account statements, including investment accounts), proof of homeowners insurance, and the most recent monthly statement for any mortgages or home equity loans you have.

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

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

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

SOHL-Q325-031

As you explore your home loan options, you may wonder, “Is property tax included in mortgage payments?” Typically it is, often along with insurance. Though many mortgage calculators don’t include property tax in their estimates, it is likely that expense will be rolled into your mortgage payment.

Having your property tax included in your mortgage is convenient, but it’s not the only way to pay taxes. Read on to learn more about paying property taxes and your mortgage.

What Are Property Taxes?

Property taxes are taxes paid on real property owned by an individual or entity. Property taxes are based on an assessed property value and are paid whether or not the property is used. When you become a new homeowner, you’ll pay property taxes for the first time.

The money you pay will be put to use toward the local school system, police and fire departments, sanitation, road work, and other services.


💡 Quick Tip: SoFi’s mortgage loan experience means a simple application — we even offer an on-time close guarantee. We’ve made $9.4+ billion in home loans, so we know what makes homebuyers happy.‡

Why Do You Need to Pay Property Taxes?

Local governments rely on property taxes as a revenue source. About 75% of local funding from tax collections come from property taxes.

As noted above, property taxes pay for government services like schools, roads, law enforcement, and emergency services. If you have a mortgage, a portion of your payment will generally go into your escrow account to be paid when your taxes come due.

How Are Property Taxes Paid?

Every month you’ll pay one-twelfth of your tax payment into an escrow account, if you have one, and most loans do.

When it’s time to pay taxes, a notice will be sent to your mortgage servicer. You’ll likely see one in the mail, too, but your mortgage servicer is the one responsible for paying your property taxes. (A review of your mortgage statements should reflect that you are paying these taxes.)

When are property taxes included in mortgages? Usually, but if you make a down payment of 20% or more on a conventional loan, your lender may waive the escrow requirement if you request it. USDA and FHA mortgages do not allow borrowers to close their escrow accounts. If you own your home outright, you’ll pay taxes on your own.

How to Calculate Property Tax

Property tax is calculated by your local taxing entity. The methods and rates for calculating property taxes vary widely around the country. In general, your property is assessed and you pay taxes as a percentage of that value. (Keep in mind that the assessed value may be different from the market value.)

To get the amount of taxes you will pay, multiply the assessed value of your home by the tax rate. Some states allow for an exemption to reduce the taxable value. Florida, for example, offers a homestead exemption of up to $50,000 on a primary residence.

If your home was assessed at $400,000, and the property tax rate is 0.62%, you would pay $2,480 in property taxes ($400,000 x 0.0062 = $2,480).

If you qualify for a $50,000 exemption, you would subtract that from the assessed value, then multiply the new amount by the property tax rate.

$400,000 – $50,000 = $350,000
$350,000 x 0.0062 = $2,170

With an exemption of $50,000, you would owe $2,170 in property taxes on a $400,000 house.

Property Tax Rate

The property tax rate is determined by the local taxing authority and is adjusted each year. In general, taxing entities aim to collect a similar amount as in the prior year. If property values go up, the effective tax rate might go down a little. You will receive a notice in the mail informing you of the new rate.

Factors That Can Affect Property Tax Rates

Local government bodies set property tax rates in their areas, depending in large part upon their funding needs. If you live in a city or county that invests heavily in its educational system, you might pay a higher rate than you would in an area that doesn’t prioritize excellent schools, for example. What’s more, some states have higher income taxes or other taxes that may be used to help fund local services, in which case the property taxes may be lower.

What you will pay is also affected by the assessed value of your property (which is not necessarily the same as your home’s market value).

Does a Mortgage Include Property Tax?

Property taxes will be listed on your mortgage statements if you have an escrow account for homeowners insurance and property taxes. (When you’re shopping for a home loan, whether you’ll need an escrow account is one of many mortgage questions to ask a lender.)

The mortgage servicer deposits the portion of your mortgage payment meant for taxes in the escrow account. When your tax bill is due, the servicer will pay it.

Understanding Escrow Accounts

In general, an escrow account is an account in which a third party holds funds to fulfill a contract when certain conditions are met. In the context of your mortgage, what this means is that many lenders set up an escrow account out of which they pay your homeowners insurance and property tax bills. They do this to make sure these bills get paid and protect their investment. There are strict rules about how much they can collect (typically 1/12 the cost of your yearly insurance and tax bill, if you are up to date on your payments) and how the escrow account is administered.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

What Happens to Property Tax If You Pay Off Your Mortgage?

If you pay off your mortgage, your property tax stays the same. The difference is that you no longer have a mortgage servicer administering the escrow account for you. If you do have money left in your escrow account, it will be refunded to you once the mortgage is paid off.

Now that you no longer have an escrow account, you need to contact the taxing entity and have the tax bill sent directly to you to pay.

Recommended: How to Afford a Down Payment on Your First Home

What if You Can’t Afford Property Tax?

If you’ve paid off your house or have closed your escrow account, you may feel the full force of ever-increasing property taxes. This is particularly true for older adults on a fixed income.

The trouble with not paying your property taxes is that your taxing entity can place a lien against your property or even start foreclosure proceedings. You do have several options to explore if you’re having trouble with your property taxes.

•   Payment options. Your locality may be open to establishing a payment system for collecting your taxes. There are also relief programs you may be eligible for.

•   Challenge your home’s assessed value. Since your taxes are based on your home’s assessed value, you can challenge it to potentially reduce your taxes. You generally need to do this soon after you receive your tax bill. You have to show that the assessed value of your home is inaccurate or unfair.

•   Talk to a HUD housing counselor. A housing counselor can point you in the direction of programs that can reduce your tax bill or offer some other relief, such as a deferral or payment plan. They can also help you find mortgage relief programs, should you need them.

The Takeaway

Are property taxes included in a mortgage? With most home loans, yes. Typically, you pay one-twelfth of the amount owed every month into escrow, and your servicer is then responsible for paying the property tax bill for you. Property taxes are a significant part of your home-buying budget, so be sure to include them in your budget as you work towards securing a mortgage.

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

What is included in my monthly mortgage payment?

What exactly is included in your monthly mortgage payment can vary, but typically it includes principal, interest, property taxes, homeowners insurance, and any mortgage insurance.

Is it better to pay your monthly tax with your mortgage?

It’s certainly more convenient to have your tax included in your mortgage payment. For the duration of your mortgage you won’t have to worry about your taxes being paid or coming up with a large payment when they come due. On the other hand, if you would rather manage the tax payment yourself, you may be able to cancel your escrow account and pay the taxes on your own.

How do I know if my property taxes are included in my mortgage?

You can check your monthly mortgage statement or closing documents if you’re a new homeowner. For most types of loans, taxes are included in your mortgage payment.

Do you pay property tax monthly?

The monthly mortgage payment you send usually includes a share of the annual property tax bill that your mortgage servicer will pay. If you pay your taxes directly, you’ll pay them annually or semiannually.

What happens if you miss a property tax payment?

If you miss a property tax payment to your tax authority, there will be a lien on your property, making it more difficult to sell. Ultimately, if the situation is not resolved, you could lose your home, though that may take as long as one to three years.

Photo credit: iStock/MStudioImages

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

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

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