The Mortgage Loan Process Step-by-Step

The Mortgage Loan Process Explained in 9 Steps

Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)

Ready to learn how to apply for a home loan? Here are the nine steps in the mortgage process, including moves you can make that may expedite your approval.

1. Estimate Your Budget

Before any mortgage application, your first step should be figuring out how much house you can afford. Being realistic about your budget — factoring in income, debts, monthly spending, down payment savings, and more — can keep you from shopping outside your budget.

Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, property taxes, and (possibly) private mortgage insurance, or PMI. Some popular methods for calculating your mortgage budget include:

•   The 28% rule: No more than 28% of your gross monthly income should go to a mortgage payment.

•   The 35% / 45% guideline: Your total monthly debt should be no more than 35% of your pre-tax income or 45% of your post-tax income.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


When calculating your budget, don’t forget the down payment. A higher down payment can yield a lower monthly payment — and putting down 20% or more could help you avoid PMI — but don’t drain your savings for a down payment. You want to have savings on hand should you need to cover emergency home repair costs down the line.


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

2. Choose a Mortgage Type and Term

There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle.

Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.

Some choices you’ll need to make at this stage of the mortgage process are:

•   A conventional home loan or government-insured loan (FHA loan, USDA loan, or VA loan)

•   A fixed-rate or adjustable-rate mortgage

•   Your repayment term: typically 15, 20, or 30 years

•   A conforming or nonconforming loan (such as a jumbo loan)

•   If you should opt for an interest-only mortgage

A good lender will walk you through your options, whether it’s a HUD home requiring an FHA mortgage or a high-priced home with a jumbo loan.

3. Get Preapproved

At this stage in the mortgage application process, you can shop around for multiple mortgage lenders and even get prequalified. Look for lenders that not only offer you a great rate but that are also willing to help you navigate the mortgage process. Here are a few questions to ask a lender to narrow down your list.

Found the perfect lender? Then it’s time to get preapproved. During the mortgage preapproval process, you’ll complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.

In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house.

A preapproval letter, usually good for up to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a preapproval letter may even be a requirement.

Getting preapproved requires some work on your part. You’ll need to furnish the lender with proof that you can afford the mortgage, which typically includes the following documents:

•   Bank statements

•   Paystubs

•   Tax returns

•   W-2s

•   Retirement account statements

•   Gift letter (if you received help from a family member to fund your down payment)

•   Identification

Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.

In general, lenders like to see two years of employment on a loan application. Self-employed individuals will submit two years of tax returns.

Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?

4.Find a Property and Make an Offer

Your real estate agent will guide you through the process of finding a property and making an offer on a house. The offer is typically written by the buyer’s agent on a standardized form.

Only make offers on properties that fall within the amount you’ve been preapproved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.

Your offer will typically include earnest money — a good-faith deposit you’re making on the house. It’s usually 1% to 3% of the offer price, and it’s meant to make your offer more attractive to the buyer.

If your offer is accepted, you’ll send the signed paperwork to your lender.

5. Submit a Mortgage Application

Lenders are required to do a second credit check before final mortgage loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since preapproval, those actions will have to be vetted.

Responding quickly to your lender’s requests for documentation can help keep your application on track. Your lender likely has most of the required forms from your preapproval application, but in general, you’ll need:

•   Documentation of income: W-2s or 1099s, profit-and-loss statements if self-employed, paystubs, Social Security and retirement account info, information on alimony and child support, etc.

•   Documentation of assets: Bank accounts, real estate, investment accounts, gifted funds, etc.

•   Documentation of debts: Any current mortgage if you own a home, car loans, credit cards, student loans, etc.

•   Information on property: Street address, sale price, property size, property taxes, etc.

•   Employment documentation: Current employer information, salary information, position/title, length of time at employer, etc.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

6. Be Patient and Avoid New Debt

The average time between submitting a mortgage application and closing is 50 days. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time.

If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let them know.

It can be tough feeling like your life is on hold while you’re waiting for your mortgage application to be processed. Try to be patient and just let the process play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.

Recommended: What’s a Mortgage Commitment Letter?

7. Get a Home Inspection

Home inspections may not be required — but they’re a crucial part of the mortgage loan process. Hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction or back out of the deal without penalty.

Inspectors will look for a wide range of issues, but some inspectors are more thorough than others. Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).

Don’t let the infatuation with your dream home blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.

8. Go Through the Mortgage Underwriting Process

A major part of mortgage loan processing is the underwriting process. But what is underwriting? The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed and includes the appraisal. During this process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.

An appraisal is an independent property evaluation of a home’s value. It will describe the home and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.

A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.

Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.

After underwriting approval with a “clear to close,” you’re set to close on your loan.

Recommended: Local Housing Market Trends

9. Close on Your New Home

Closing day is when all parties sign the final documents, and ownership is legally transferred from the sellers.

In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 3% to 6% of the mortgage principal and consist of:

•   Lender fees

•   Appraisal and survey fees

•   Title service

•   Recording fees

•   Home warranty costs

•   First year’s premium of PMI

You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.

Before arriving at closing, however, you’ll want to do a final walk-through of the property. During this walk-through, confirm that the sellers have made all the repairs agreed to — and that the buyers haven’t removed anything, like appliances, that were meant to be left, per the purchase agreement.

In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common.

The Takeaway

Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.

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 first steps of applying for a mortgage?

The first step when applying for a mortgage is estimating how much house you can actually afford. Once you have an idea of your budget, you can research mortgage types and lenders and get preapproved for a loan.

What are the steps of mortgage loan processing?

During mortgage loan processing, an underwriter will first review your personal information and information about the sale property to determine approval. The potential lender will request an appraisal of the home, and also request additional documents from you as needed. Finally, the underwriter will recommend approval or denial of the loan.

How long is a mortgage loan in processing?

It takes a little under two months from the date you submit your mortgage application and close on the house — the average timeline is 50 days. In some scenarios, you may be able to close in as little as 30 days.

How do you know when your mortgage loan is approved?

Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.

What should I avoid after applying for a mortgage?

You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either.


Photo credit: iStock/MicroStockHub

*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.


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

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What Is a Mortgage Payoff Statement or Letter?

What Is a Mortgage Payoff Statement or Letter? All You Need to Know

If you’re thinking about refinancing your home loan or paying off your mortgage early, you might request a mortgage payoff statement. The amount due on this document is likely to be different from your current balance because it includes interest owed until the payoff date and any fees due.

Read on to learn more about what a mortgage payoff statement or letter is and when you might need one.

Key Points

•   A mortgage payoff statement details the total amount needed to fully pay off a loan as of a specific date.

•   This statement includes the principal balance, accrued interest, and any applicable fees.

•   Homeowners often request this document when considering refinancing or paying off their mortgage early.

•   The statement is provided by the mortgage servicer and can be requested at any time.

•   Accurate payoff information is crucial for managing financial decisions related to property ownership.

What Is a Mortgage Payoff Statement?

Starting with mortgage basics, a mortgage is a loan used to purchase different types of real estate, including a primary home. A bank or other lender agrees to lend money, which the borrower commits to pay back monthly for a set period of time and with interest.

The different types of mortgage loans include conventional and government-insured mortgages and reverse mortgages.

There are jumbo loans, which exceed the dollar limits set by the Federal Housing Finance Agency, and home equity loans.

Say you have a mortgage and want to know exactly how much you’d need to pay to satisfy the loan. A mortgage payoff letter will tell you that magic number. Unlike your current balance, the payoff amount includes interest owed up to the day you intend to pay off the loan. It may also include fees that you’re on the hook for and haven’t paid yet.

Your monthly mortgage statement, on the other hand, only shows your loan balance and the amount due for your next monthly payment.


💡 Quick Tip: You’ve found an award-winning home. Enjoy an award-winning mortgage experience, too. SoFi has knowledgeable Mortgage Loan Officers to guide you through the process.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


How Does a Mortgage Payoff Statement Work?

You can request a payoff statement from your loan servicer at any time. Note: Your mortgage servicer may be different from your lender. The company that manages your loan handles billing, accepts loan payments, keeps track of your principal and interest, and fields questions from borrowers.

You may request a payoff statement for any type of loan, including mortgages, student loans, personal loans, and auto loans. However, if you need your mortgage payoff statement, go to your mortgage servicer directly. The name and contact information of your mortgage servicer is included in your monthly statements.

When you make the request from the company that handles your mortgage servicing, you’ll need to provide the following details:

•   Your name

•   Address

•   Phone number

•   Your loan number

•   The date you want your payoff to be effective if you’re seeking to pay off your mortgage early.

Asking for a payoff statement does not necessarily mean that you intend to pay off your loan immediately. You may simply be determining whether or not paying off your mortgage early is feasible, for example. The request itself does not initiate the prepayment process.

Traditional lenders, such as brick-and-mortar banks, may mail you a paper mortgage payoff statement. Online lenders may send a payoff statement online.

Recommended: 5 Tips for Finding a Mortgage Lender

What Information Do Mortgage Payoff Letters Contain?

All mortgage payoff letters tend to contain similar information, including:

•   Payoff amount: The amount of money that would satisfy the loan.

•   Expiration date: The date through which the payoff amount is valid. The letter may also include an adjusted amount should you pay before or after the expiration date.

•   Payment information: The letter will also usually tell you who to make the final check out to and where to mail it.

•   Additional charges: You will be alerted to any additional fees and charges that you’ll need to include.



💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Do You Need a Mortgage Payoff Statement?

There are a few common situations in which you might need a payoff statement.

•   Refinancing a mortgage: When you refinance your mortgage, your chosen lender pays off your old home loan with a new one, preferably with a lower interest rate and possibly a new term. When you seek to refinance, your new lender may ask you to provide a payoff statement on your current loan.

•   Prepaying a mortgage: It’s possible to pay off a mortgage early. A payoff statement will show you exactly how much you’d need to pay to do so. Most prepayment penalties for residential home loans that originated after January 10, 2014, are prohibited. Still, check before you decide to prepay.

•   Working with a debt relief company: If you’re having trouble managing your debts, you’ve fallen behind on payments, or you otherwise need mortgage relief, you may choose to work with a debt relief company that can help negotiate with your lenders. The company will need to see payoff statements to get an idea of the scope of your debt.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

•   Collections and liens: A lender might send you a payoff statement if you’ve fallen behind on your payments and they are sending your debt to a collection agency. In this case, the payoff statement may tell you how much you need to pay to stop the collection action.

   If your lender decides to seize your home to recoup unpaid mortgage payments, they may place a lien on the property. They may send a payoff statement that alerts you that your property will be seized if the specified amount isn’t paid in full.

There are other ways to figure out how much you owe on your mortgage loan. You can talk to your lender and ask for a verbal payoff quote. This will provide an estimate, but understand that it is not a legal agreement and isn’t binding.

The Takeaway

If you have a home loan, you may want to request a mortgage payoff statement, especially if you’re thinking about refinancing or paying off your mortgage early. Requesting the mortgage payoff letter does not initiate any formal processes, so it’s fine to think of it as an information-gathering exercise.

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

How do I get my mortgage payoff statement?

Contact your loan servicer to request your mortgage payoff statement.

When should I get my mortgage payoff statement?

Request your mortgage payoff statement when planning to prepay your mortgage, refinance, or consolidate debt.

How long does it take to get a mortgage payoff statement?

Generally speaking, you should receive your mortgage payoff statement within seven business days of your request.


Photo credit: iStock/Vadym Pastukh

*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.


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.

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.

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house interior

How to Buy a Starter Home: Pros, Cons, and Tips

Buying your first house is a major move, even if the home itself is tiny. Becoming a homeowner can be a great way to start putting down some roots and building equity. And just because it’s called a “starter home” doesn’t necessarily mean you’re twenty-something when you go shopping for one. For many people, the purchase of a first, maybe-not-forever house can come years or decades later.

But what exactly makes a good starter home? How do you know when to jump into the housing market? There are many variables to factor in, such as price, location, type of home, the sort of mortgage you’ll get, your personal finances, and more.

Read on to learn answers to such questions as:

•   Why should you buy a starter home?

•   Should you buy a starter home or wait?

•   How do you buy a starter home?

What Is a Starter Home?

The first step in deciding “Should I buy a starter home?” is understanding what exactly that “starter home” term means. A starter home is loosely defined as a smaller property that a first-time buyer expects to live in for just a few years.

The home could be a condo, townhouse, or single-family home. But generally, when you purchase a starter home, you anticipate outgrowing it — maybe when you get married or have a couple of kids, or because you want more space, a bigger yard, or additional amenities.

A starter house could be brand-new, a fixer-upper, or somewhere in between, but it’s usually priced right for a buyer with a relatively modest budget.

That modest budget, though, may need to be loftier than in years past. The 2022 price of a starter home was $325,000, according to Realtor.com, up 48% from $220,000 in 2019.

That might sound a little intimidating, but remember, that’s the median price. Depending on where you live, there may be entry-level homes selling at significantly lower price points.

Recommended: What Is Housing Discrimination?

How Long Should You Stay in a Starter Home?

Unless you’re a big fan of packing and moving — not to mention the often-stressful process of selling one home and then buying another, or buying and selling a house at the same time — you may want to stay in your starter home for at least two to five years.

There can be significant financial reasons to stick around for a while:

•   Home sellers are typically responsible for paying real estate agents’ commissions and many other costs. If you haven’t had some time to build equity in the home, you might only break even or even lose money on the sale.

•   You could owe capital gains taxes if you’ve owned the home for less than two years and you sell it for more than you paid.

Of course, if there’s a major change in your personal or professional life — you’re asked to relocate for work, you grow your family, or you win the lottery (woo-hoo!) — you may need or want to sell sooner.

What Is a Forever Home?

A forever home is one that you expect to tick all the boxes for many years — maybe even the rest of your life. It’s a place where you plan to put down roots.

A forever home can come in any size or style and at any cost you can manage. It might be new, with all the bells and whistles, or it could be a 100-year-old wreck that you plan to renovate to fit your home decorating style and vision.

Your forever home might be in your preferred school district. It might be close to friends and family — or the golf club you want to join. It’s all about getting the items on your home-buying wish list that you’ve daydreamed about and worked hard for.

At What Age Should You Buy Your Forever Home?

There’s no predetermined age for finding and moving into a forever home. Some buyers plan to settle in for life when they’re 25 or 30, and some never really put down roots.

But according to data from the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors® Research Group, buyers in the 57 to 66 age range said they expected to live in their newly purchased home longer than buyers from other age groups, with an expectation of 20 years of residence.

Younger buyers (ages 23 to 31) and older buyers (75 to 90) said they expected to stay put for 10 years.

The median expectation for buyers of all ages was 12 years.

Recommended: First-Time Homebuyer’s Guide

Benefits of Buying a Starter Home

Are you contemplating “Should I buy a starter home?” Here are some of the main advantages of buying a starter home:

•   Becoming a homeowner can bring stability to life. A starter home comes with a feeling of “good enough for now” that, for some buyers, is just the right amount of commitment without feeling stuck in the long term.

•   Buying a starter home is also a great way to try on aspects of homeownership that renters take for granted, like making your own repairs and mowing your own yard. The larger the house, the more work it usually brings. With a starter home, you can start small.

•   Buying a starter home is also an investment that could see good returns down the road. While you live in the home, you’ll be putting monthly payments toward your own investment instead of your landlord’s. Depending on market conditions, you could make some money when you decide to trade up, either through the equity you’ve gained when you sell or recurring income if you choose to turn it into a rental property.

•   Homeowners who itemize deductions on their taxes may take the mortgage interest deduction. Most people take the standard deduction, which for tax year 2022 (filing by Tax Day 2023) is:

◦   $25,900 for married couples filing jointly

◦   $12,950 for single taxpayers and married individuals filing separately

◦   $19,400 for heads of households

•   Some homeowners who itemize may be able to do better than the standard deduction. For instance, in some states, a homestead exemption gives homeowners a fixed discount on property taxes. In Florida, for example, the exemption lowers the assessed value of a property by $50,000 for tax purposes.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Downsides of Starter Homes

Next, consider the potential disadvantages of snagging a starter home:

•   While the idea of buying a home just big enough for one or two is a romantic one, the reality of finding a starter home that’s affordable has gotten tougher.

   The outlook has been so bleak, especially in some larger cities, that some Millennials are opting out of the starter-home market altogether, choosing instead to rent longer or live with their parents and save money.

   Who can blame Millennials for taking a different approach to homeownership than their parents? The older members of this generation came of age during the financial crisis of 2008-09, which included a bursting housing bubble that put many of their parents — and even some of them — underwater on a mortgage they may not have been able to afford in the first place.

•   When thinking about whether you should buy a starter home, know that it may require a lot of sweat equity and cash. If you buy a bargain-priced first home, you may be on the hook for spending much of your free time and cash to restore it.

•   Another con of buying a starter home is the prospect of having to go through the entire home-buying process again, possibly while trying to sell your starter home, too. Keeping your house show-ready, paying closing costs, going through the underwriting process, packing, moving, and trying to time it all so you avoid living in temporary lodging is a big endeavor that, when compared with the relative ease of moving between apartments, can be seen as not worth the effort.

•   In some circumstances, you may have to pay capital gains taxes on the sale of your starter home when you move up.

If you aren’t ready to jump into a starter home, an alternative could be a rent-to-own home.

How to Find Starter Homes for Sale

Are you ready to start the hunt? Here are some tips for finding a starter home:

•   Work with an experienced real estate agent who knows your market and spends their days finding homes in your price range.

•   Rethink your house criteria. If you are buying a starter home and figured you’d shop for a three-bedroom, you may find more options and less heated competition if you go for a two-bedroom house.

•   Take a big-picture view. If you’re a young couple with no kids yet, maybe you don’t need to purchase in the tip-top school district. After all, you are at least several years away from sending a little one to their first day of school Or, if prices are super-high for single-family houses, could buying a condo or a townhome work well for a number of years?

   You might also look into purchasing a duplex or other type of property.

Average U.S. Cost of a Starter Home

As noted above, the typical cost of a starter home in the U.S. was $325,000. Keep in mind, however, that there is a huge variation in costs. A rural home may be much less expensive than shopping for a starter home that’s within short commuting distance of a major city, like New York or San Francisco.

Is Buying a Starter Home Worth It?

Deciding whether a starter home is worth it is a very personal decision. One person might be eager to stop living with their parents and be ready to plunk down their savings for a home. Another person might have a comfortable rental in a great town and be reluctant to take on a home mortgage loan as they continue to pay down their student loan debt.

When you consider the pros and cons of starter homes listed above, you can likely decide whether buying a starter home is worth it at this moment of your life.

Tips on Buying a Starter Home

If you’re tired of renting or living with your parents but don’t have the cash flow necessary for anything more than a humble abode, a starter home could be a great way to get into real estate without breaking the bank. Some pointers on how to buy a starter home:

•   Before you buy any home — starter or otherwise — it’s important to sit down and crunch the numbers to see how much home you can realistically afford. Lenders look at your debt when considering your debt-to-income ratio (DTI), but they aren’t privy to other regular monthly expenses, such as child care or kids’ activity fees. Be sure to factor those in.

•   You also may want to look at how much you can afford for a down payment. While a 20% down payment isn’t required to purchase a home, most non-government home loan programs do require some down payment.

   It’s possible to buy a home with a small down payment: The average first-time homebuyer puts down about 6% of a home’s price as a down payment, according to the latest data from the National Association of Realtors (NAR).

   In addition, putting down less than 20% means you may have to pay private mortgage insurance (PMI).

•   You’ll want to explore different mortgage loan products as well, possibly with a mortgage broker. You’ll have to decide between adjustable and fixed rate offerings, 20-year vs. 30-year mortgages, and different rates. You may also be in a position to buy down your rate with points. Getting a few offers can help you see how much house you can afford, as can using an online mortgage calculator.

•   The decision to purchase a starter home is about more than just money, though. You may also want to consider your future plans and how quickly you might grow out of the house, whether you’re willing to live where the affordable houses are, and if you’ll be happy living without the amenities you’ll find in a larger house.

•   Other factors to consider are your current state of financial health and your mental readiness for a DIY lifestyle (which includes your willingness to fix your own leaky toilet or pay a plumber.)

•   If you’re ready to make the leap, there are plenty of home ownership resources available to help you get started on the path to buying your starter home. Your first step might be to check out a few open houses and to research mortgage loans online.

The Takeaway

Buying a starter home can be a good way to get your foot in the door of homeownership, but it’s important to consider your financial situation and your plans for the next two to five years or more before buying a starter house.

Are you house hunting and mortgage shopping? SoFi offers fixed-rate mortgage loans with as little as 3% down for first-time homebuyers, plus competitive rates and variable terms.

SoFi Mortgage Loans: The smart, simple source for financing.

FAQ

How much money should you have saved to buy a starter home?

The average down payment is about 6% of the home purchase price. That number can help you see how much you want to have in the bank, though mortgage loans may be available with as little as 3% down or even zero down if you are shopping for a government-backed mortgage. Worth noting: If your down payment is under 20%, you may have to pay private mortgage insurance.

What is considered a good starter home?

A good starter home will likely check off some of the items on your wish list (square footage, location, amenities, etc.) and will not stretch your budget too much. You want to be able to keep current with other forms of debt you may have as well as pay your monthly bills (which will likely include mortgage, property tax, home maintenance, and more). That financial equation may help you decide whether to buy a starter home or wait.

How much do people spend on a starter home?

As of 2022, the average price for a starter home in the U.S. was $325,000. However, prices will vary greatly depending on location, size, style, and condition.


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

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


*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.


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.

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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A Guide to Mortgage Points

A Guide to Mortgage Points

If you’re shopping for a home loan, you may be wondering if using mortgage points to “buy down” your interest rate is a good move for you.

The answer is … it’s complicated.

Whether you’re buying or refinancing your home, purchasing mortgage points from your lender can lower your monthly payment and reduce the overall amount of interest you’ll pay on your loan. And that’s certainly an appealing prospect.

But it’s important to understand how points work — how much they can cost and how much they might save you over the life of your loan — before you decide to hand over that extra cash up front at your closing.

What Are Mortgage Points?

Mortgage points, also known as discount points, may be used by a borrower to prepay some of the interest on a home loan in exchange for a lower mortgage rate. The borrower pays more up front (the points are paid as a fee at closing) but can end up saving money over time because the interest rate is then reduced for the life of the loan.


💡 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.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


How Do Mortgage Points Work?

Lenders typically base their interest rate offers on several factors, including a borrower’s credit profile and current market rates. But once you receive that initial offer, your lender also may give you the opportunity to buy down your rate through the use of mortgage points. (If the lender doesn’t bring it up, you can ask.)

Every point purchased reduces the interest rate a borrower pays by a predetermined percentage, which can vary from one lender to the next. But let’s say your lender offers you an initial rate of 3.25% and provides a 0.25% rate reduction if you purchase one discount point. If you decide to buy the point, your rate would then be 3%.

Each point you buy typically costs 1% of the amount you’re borrowing, and that money is due up front. So, for example, if your loan is for $200,000, a point will cost $2,000 at closing. If that seems too steep, you may be able to purchase a fraction of a point. A half-point in this scenario would cost $1,000, or three-quarters of a point would be $1,500.

How Do Points Affect Your Mortgage?

Here’s a hypothetical example to illustrate how buying one point could reduce the cost of a 30-year, fixed-rate $200,000 mortgage. (This is a bare-bones example, so the payment amount includes principal and interest only.)

Discount points purchased None 1 point ($2,000)
Loan principal $200,000 $200,000
Interest rate 3.25% 3%
Monthly payment $870 $843
Total interest paid over life of the loan $113,348 $103,555
Total saved over life of the loan None $9,793

Keep in mind that the borrower in this scenario would have to stay with the loan for the entire 30-year term to get the full savings — and that can be rare these days. Homeowners only stay in a home for an average of eight years, and many refinance their home loans.

That’s why it’s important to factor in your “break-even point” — when the savings from the lower mortgage cost offset what you paid for the discount points — before you make your decision.


💡 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.

What Is the Break-Even Point?

Paying points on a mortgage can lower your monthly payment and save you thousands of dollars — if you keep the same loan long enough to recover the money you paid up front. If you plan to move or refinance before you reach and pass that threshold, paying points may not make sense.

To calculate the approximate point at which you would get back what you spent on prepaid interest, you can divide the amount you paid for any points by the amount you’ll save each month on your payment. For example, as noted in the chart above, if you purchased one point for $2,000 at closing, you’ll save $27 each month. Divide $2,000 by $27 and you’ll see you can expect to break even in 74 months — or about six years. If you plan to stay in your home much longer than that, buying down your rate could be worth considering.

Can You Buy Points for an ARM?

You can buy points if you decide to go with an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. But it may not be worth it if the points apply only to the ARM’s initial interest rate, which typically lasts for three, five, seven, or maybe ten years. If the rate goes up after that and you decide to refinance, you could lose out on the savings you hoped to get when you paid for the points.

Recommended: How an Interest-Only Mortgage Works

Are Mortgage Points Tax Deductible?

Discount points, which are considered prepaid interest, may be deducted as home mortgage interest if you itemize deductions on Schedule A of your Form 1040. But you’ll need to meet certain criteria in order to deduct mortgage points and you may not be able to deduct all of the mortgage interest and points in the year you paid them.

It’s important to note that only discount points, which represent prepaid interest, are tax deductible. “Origination points,” which also may be referred to as mortgage points, are not tax deductible. These points, which you’ll also pay at closing, refer to the various fees lenders may charge in preparing your mortgage (such as processing, underwriting, administration, or document preparation costs).

Your accountant or tax preparer should be able to answer your questions if you aren’t clear about the amount you can deduct on your annual return.

Is There a Limit on the Points You Can Buy?

The maximum number of points you can purchase to reduce your interest rate may differ based on factors like the financial institution, type of loan you choose, or how much you need to borrow. According to a survey of lenders performed weekly by Freddie Mac, the average number of points reported on 30-year, fixed-rate conventional loans in 2022 was 0.9.

Benefits and Risks of Mortgage Points

Here are some things to consider when you’re deciding if buying points makes financial sense for you.

How Long Do You Plan to Stay in the Home?

If you run the numbers and think you’ll keep your loan past your break-even point, it could be worth paying extra up front. But if it’s a starter home, or you expect to relocate for your career, buying points may not be prudent.

Do You Have Plenty of Money Saved?

Homeownership can be expensive. Are you certain you have enough saved to make a decent down payment, pay for points as well as other closing costs, and still have funds in reserve for the inevitable expenses related to homeownership? If not, you may want to reconsider the benefits of buying down your interest rate.

Did the Seller Agree to Pay Some Closing Costs?

If the seller agreed to pay some or all of your closing costs, you may be able to negotiate discount points as part of that offer.

Do You Plan to Make Extra Payments?

Paying for points could be a smart strategy if you expect to hold on to the same loan for a long time. However, if your goal is to pay off your mortgage early — perhaps by paying more toward the loan principal whenever possible — points may not offer the savings you expected.

Would the Money Be Better Spent on Your Down Payment?

If you have plenty of money saved and you’re trying to decide between increasing your down payment or buying points, you may want to run the numbers to determine which choice will give you a better return on your investment.

If your time horizon is short, you may save more by making a bigger down payment. If you plan to stick around for several years at least, you may choose to put your money toward discount points.

Remember, depending on the type of loan you have, if you make a down payment that’s less than 20%, your lender probably will require that you purchase private mortgage insurance. PMI could add about 0.3% to 1.5% to the cost of your mortgage. And you’ll likely have to pay it every year until your equity in the home reaches 20%.

Pros and Cons of Mortgage Points

Pros

Cons

You can lower your monthly mortgage payment High up-front costs can make closing even more expensive
You may be able to save on interest over the life of your loan Could deplete cash needed for furniture, renovations, moving, etc.
Discount points may be tax deductible for those who itemize Could lose money if you sell or refinance before breaking even

Ready to Go Rate Shopping?

Make sure when you shop rates, you’re comparing apples to apples. Some lenders may offer an interest rate that appears lower than others but has a fraction of a point or a point tied to it. If two lenders are offering a 3% interest rate on a 30-year, fixed-rate loan, but one is charging a point to get that rate and one isn’t, the one that isn’t charging the point is offering you a more affordable deal.

Be cautious when comparing mortgage rates: If it isn’t clear how much you’ll pay to borrow, you can ask a loan officer to walk you through your loan estimate and/or to calculate your costs based on different time frames. Lenders are required to disclose information about their products in a way that allows borrowers to make meaningful comparisons.

The Takeaway

What’s the point of mortgage points? They allow homebuyers to reduce their loan’s interest rate by paying some of the interest up front. Buying discount points can save you money on interest over time, but only if you keep the loan long enough to recover the upfront cost.

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.


Photo credit: iStock/Prostock-Studio

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.


*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.

+Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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.

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.

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What Are the Conforming Loan Limits for 2022?

What Are the Conforming Loan Limits for 2025?

A 5.2% increase in the conforming loan limits for 2025 raised the baseline loan limit for a single unit to $806,500 in most counties in the United States.

The adjustment is a result of a change in the average price of a home nationwide from the third quarter of 2023 to the third quarter of 2024. Home prices increased an average of 5.21%, and the baseline conforming loan limit kept pace.

Conforming loans may be cheaper than nonconforming loans like jumbo mortgages, but jumbo loans have their place.

Key Points

•   For 2025, the conforming loan limit for one-unit properties in most of the U.S. is set at $806,500.

•   In high-cost areas, the limit for a one-unit property reaches $1,209,750.

•   Staying within these limits enables buyers to secure lower-cost mortgages.

•   Loans within these limits can be acquired by Fannie Mae and Freddie Mac.

•   This arrangement reduces risk for lenders and lowers costs for consumers.

Conforming Loan Limits for 2025

The conforming loan limits set by the Federal Housing Finance Agency can vary based on area and the number of units in the property.

In most counties, that number increased to $806,500 in 2025 for a one-unit property. In high-cost areas, the limit is $1,209,750 for a one-unit property.

In general, here’s how the baseline conforming loan limits break down for 2025.

Maximum baseline loan limit for 2025

Units

Many counties in the contiguous states, District of Columbia, and Puerto Rico

Alaska, Hawaii, Guam, and the U.S. Virgin Islands

1 $806,500 $1,209,750
2 $1,032,60 $1,548,975
3 $1,248,150 $1,872,225
4 $1,551,250 $2,326,875

Recommended: The Cost of Living by State

Why Care About Conforming Loan Limits?

Staying under a conforming loan limit means you’ll most likely obtain a lower-cost mortgage. Mortgages that “conform” to the limits can be acquired by Fannie Mae and Freddie Mac, government-sponsored enterprises.

Because these mortgages can be bought by the agencies and then sold to investors on the secondary mortgage market, they represent a lower risk to the lender and a lower cost to the consumer.

If you need to finance more than the conforming limit, you’ll need to look at jumbo mortgage loans.

Getting a jumbo loan involves clearing more hurdles than a conforming loan. The rate will usually be similar to conforming loan rates, but sometimes it can be lower. How jumbo can a loan be for a primary residence, second home, or investment property? It’s up to each lender.

Government-backed mortgages are also nonconforming loans, and although they serve certain homebuyers, they also may be more expensive than conforming conventional loans because they usually come with additional fees.

Recommended: How to Get a Mortgage Loan

Notable Counties Above the Standard Loan Limits

Loan limits are higher in counties where the average home price is above 115% of the local median home value. The loan ceiling is 150% of the baseline value.

For 2025, the high-cost-area loan limit increased from $1,209,750 to $1,209,750 on a one-unit property. Alaska, Hawaii, Guam, and the U.S. Virgin Islands also have a baseline loan limit of $1,209,750.

The following is a chart of counties (and some cities) in high-cost areas with an increased baseline loan limit. The increased amount for high-cost areas maxes out at $1,209,750 in select areas.

State

County

2024 limit for a single unit

2025 limit for a single unit % change year over year
Alaska All $1,209,750 $1,209,750 5.21%
California Los Angeles County, San Benito, Santa Clara, Alameda, Contra Costa, Marin, Orange, San Francisco, San Mateo, Santa Cruz $1,209,750 $1,209,750 5.21%
California Napa $1,017,750 $1,017,750 0%
California Monterey $920,000 $970.600 5.50%
California San Diego $1,006,250 $1,077,550 7.09%
California Santa Barbara $838,350/td>

$913,100 8.92%
California San Luis Obispo $929,200 $967,150 4.08%
California Sonoma $877,450 $897,000 2.23%
California Ventura $954,500 $1,017,750 6.63%
California Yolo $806,500 $806,550 5.21%
Colorado Eagle, Garfield, Pitkin $1,209,750 $1,209.750 5.21%
Colorado San Miguel $994,750 $994,750 0%
Colorado Boulder $856,750 $862,500 .07%
Florida Monroe $929,200 $967,150 4.08%
Guam All $1,209,750 $1,209,750 5.21%
Hawaii All $1,209,750 $1,209,750 5.21%
Idaho Teton $1,209,750 $1,209,750 5.21%
Maryland Calvert, Charles, Frederick, Montgomery, Prince George’s County $1,209,750 $1,209,750 5.21%
Massachusetts Dukes, Nantucket $1,209,750 $1,209,750 5.21%
Massachusetts Essex, Middlesex, Norfolk, Plymouth, Suffolk $862,500 $914,250 6.00%
New Hampshire Rockingham, Strafford $862,500 $914,250 6.00%
New Jersey Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union $1,209,750 $1,209,750 5.21%
New York Bronx, Kings, Nassau, New York, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester $1,209,750 $1,209,750 5.21%
Pennsylvania Pike $1,209,750 $1,209,750 5.21%
Utah Summit, Wasatch $1,209,750 $1,209,750 0%
Utah Wayne $997,050 $997,050 0%
Virgin Islands All $1,209,750 $1,209,750 5.21%
Virginia Arlington, Clarke, Culpeper, Fairfax, Fauquier, Loudoun, Madison, Prince William, Rappahannock, Spotsylvania, Stafford, Warren, Alexandria City, Fairfax City, Falls Church City, Fredericksburg City, Manassas City, Manassas Park City $1,209,750 $1,209,750 5.21%
Washington King, Pierce, Snohomish $997,500 $1,037,300 6.11%
Washington D.C. District of Columbia $1,209,750 $1,209,750 5.21%
West Virginia Jefferson County $1,209,750 $1,209,750 5.21%
Wyoming Teton $1,209,750 $1,209,750 5.21%

Will Conforming Loan Limits Rise or Fall?

The baseline conforming loan limit is adjusted each year to reflect the change in the average home value in the United States.

The conforming loan limit has increased steadily for the past 10 years and has never declined. From 2006 to 2016, for example, the conforming loan limit remained at $417,000, despite declining home values across the country. If home values continue to rise, the conforming loan limit will also rise.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


Conforming Loan Limits Over the Past 10 Years

The 5.2% increase in loan limits for 2025 is lower than the previous year’s increase of 5.5% and far lower than the 18% increase of 2022, which was the largest jump in the past 40 years. But it still represents an increase of $39,950 over the past year alone.

Conforming loan limit

Year

Amount

2025 $806,500
2024 $806,500
2023 $726,200
2022 $647,200
2021 $548,250
2020 $510,400
2019 $484,350
2018 $453,100
2017 $424,100
2016 $417,000
2015 $417,000
2014 $417,000

The Takeaway

Conforming loan limits are intended to keep costs low for homebuyers. This means competitive pricing on mortgages, no matter what the housing market looks like each year.

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

Is a conforming loan a good thing?

Yes, generally speaking, staying under a conforming loan limit means you’ll most likely obtain a lower-cost mortgage.

Is a conforming loan the same as a conventional loan?

No, a conventional loan is one that is not backed by a government agency — it might come from a private lender such as a bank. A conforming loan is one in which the underlying terms and conditions adhere to the funding criteria, including loan amount limits, spelled out by Freddie Mac and Fannie Mae. Conventional loans can be conforming. Those that do not follow the conforming loan limits are considered “jumbo” loans.


Photo credit: iStock/marchmeena29

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.


*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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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