Owner-Financed Homes: What You Need to Know

Owner-Financed Homes: What You Need to Know

Looking to get into a home but can’t qualify for a traditional mortgage? You may want to look at owner financing.

Owner-financed homes aren’t very common, but they have some benefits for unique buyer and seller situations. Owner financing bypasses a traditional mortgage when the seller takes on the role of lender, but seller financing comes with some risks.

Let’s take a deep dive into how owner financing works and when it could make sense.

Key Points

•   Owner-financed homes allow property owners to act as lenders, offering direct financing to buyers.

•   This financing method can bypass traditional mortgage processes, aiding buyers who might not secure conventional loans.

•   Terms like interest rates and loan duration are negotiated between buyer and seller.

•   Payments are often structured over 30 years with a possible large balloon payment due within one to seven years.

•   Benefits for buyers include potential lower down payments and closing costs, while sellers can attract more buyers and close sales faster.

What Is Owner Financing?

Owner financing, also known as seller financing, is a transaction in which the property owner takes on the role of lender by financing the sale to the buyer. Like the trading of homes, this type of transaction bypasses traditional mortgages (unless the purchase of the home is only partially owner-financed.)

The payments for buyers are typically amortized over 30 years for a smaller monthly payment, but there’s often a large balloon payment at the end of a shorter period of time (usually one to seven years). Owner-financed transactions operate on the belief that the buyer’s finances may improve over time or the property will appreciate to a point where the buyer can get a home loan from a traditional lender.

Note: SoFi does not offer owner financing at this time. However, SoFi does offer conventional mortgage loan options.

How Does Owner Financing Work?

Owner-financed homes work much like traditionally financed homes, but with the seller acting as the lender. The seller may (or may not) require a credit check, loan application, a down payment, an appraisal of the home, and the right to foreclose should the buyer default. Buyers and sellers will need to agree on an interest rate and length of loan.

The buyer and seller sign a promissory note, which contains the loan terms. They also record a mortgage (or deed of trust), and the buyer pays the seller. The buyer should also pay for homeowner’s insurance, taxes, title insurance, and other loan costs. It is typical to hire real estate professionals or lawyers to get more into the details of how to use a home contract in owner financing.

Pros and Cons of Owner Financing

For Sellers

Owner financing isn’t nearly as beneficial for sellers as it is for buyers, but there are still some upsides to consider along with the increased debt load and assumed risk.

Pros for Sellers

Cons for Sellers

Attract a larger buyer pool Carry more debt
Saves money on selling costs Assume more risk; buyers could default
May be able to sidestep inspections, especially if the home needs work or may not pass an inspection for FHA or VA loans Not able to cash out for years
Can earn higher returns by acting as a lender May need to act like a landlord; buyer may not keep up the property and the home may lose value
Faster closing occurs when buyers don’t have to go through the mortgage underwriting process If the seller still has a fairly large mortgage on the property, the lender must agree to the transaction (many are not willing)

For Buyers

There are advantages to buying a house for sale by owner, namely that a buyer can obtain housing sooner under owner financing. A buyer may also be able to lower the down payment needed and pay lower closing costs. But it’s also riskier than borrowing from a traditional mortgage lender. If, for example, buyers are unable to finance the balloon payment, they risk losing all the money they’ve spent during the loan term.

Pros for Homebuyers

Cons for Homebuyers

Opportunity to gain equity Sellers may ask for a hefty down payment to protect themselves against loss
Opportunity to improve finances May pay a higher interest rate than the market rate
Can obtain housing and financing when traditional lenders would issue a denial May pay too much for the home
Lender doesn’t always require a credit check Fewer consumer protections available when a homebuyer purchases from a seller
No mortgage insurance Short loan terms
No minimum down payment Sellers may not follow consumer protection laws
Lower closing costs Buyers may not be protected by contingencies

To reduce risk exposure in an owner-financed transaction, buyers may want to hire an attorney.

Example of Owner Financing

Bob and Vila want to purchase a large, forever home for their family. The purchase price of the home is $965,000, but Bob and Vila can only qualify for $815,000. Part of Bob’s income is from recent self-employment, which is not accounted for by the lender but will help the couple be able to afford the house.

For the remaining $150,000, the seller offers owner financing as a junior mortgage. The buyers will pay both a traditional mortgage lender as well as the seller in this type of owner financing.

Recommended: How Much Home Can I Afford?

Types of Owner Financing

Land contracts, mortgages, and lease-purchase agreements are a few ways to look at owner financing. Here’s how they work and how they’re different from a traditional mortgage.

Land Contracts

Because the title cannot pass to the buyer in owner financing, a land contract creates a shared title for the buyer and seller until the buyer makes the final payment to the seller. The seller maintains the legal title, but the buyer gains an interest in the property.

Mortgages

These are the different ways to structure a mortgage with owner financing.

•   All-inclusive mortgage. The seller carries the promissory note and the balance for the home purchase.

•   Junior mortgage. When a buyer is unable to finance the entire purchase with a lender on one mortgage, the seller carries a junior mortgage (or second mortgage) for the buyer. The seller is put in second position if the buyer defaults, so there is risk to the seller by doing a second mortgage.

•   Assumable mortgage. Some FHA, VA, and conventional adjustable-rate mortgages are assumable, meaning the buyer is able to take the seller’s place on the mortgage.

A mortgage calculator can help you get an idea of what purchase price you may be able to afford.

Lease-Purchase

In a lease-purchase arrangement, both parties agree on a purchase price. The potential buyer leases from the owner for an amount of time, usually one to three years, until a set date, when the renter has the option to purchase the property. In addition to paying rent, the tenant pays an additional fee, known as the rent premium.

It’s typical to see options that credit a percentage of the purchase price (often between 1% and 5%), rents, and rent premiums toward the purchase price. If the option to buy is not used, the buyer will lose the option fee and rent premiums.

They are also known as rent-to-own, lease-to-own, or lease with an option to purchase. They can be used when an aspiring buyer has a lower credit score and needs some time to qualify for traditional financing.

Steps to Structuring a Seller Financing Deal

If you’re thinking about finding a property with owner financing, consider taking these steps to help get you through the process.

1.    Hire a professional. Because owner financing bypasses traditional lending institutions, there’s a lot more risk involved. Hiring a real estate professional and an attorney can help you structure the deal to protect your interests.

2.    Find a property where the owner offers financing. An owner must be willing and able to offer seller financing to make this type of transaction happen. It’s difficult, which is why owner financing is more common between parties that know each other very well. It’s usually required that the property is owned free and clear of any mortgage. A few other ways to look for seller-financed properties:

◦   Asking your current landlord if they’re open to selling their property to you.

◦   Looking for real estate listings with phrases like “seller financing available.”

◦   Contacting the real estate agent for a home you’re interested in. If the home has been on the market a while and the conditions are right, the sellers may be open to this option.

◦   Finding a personal connection who is able to offer owner financing.

3.    Agree to terms. Because seller financing terms are so flexible, there are a lot of details that buyers and sellers need to work out, including:

◦   Sales price

◦   Amount of down payment

◦   Length of the loan

◦   Balloon payment amount

◦   Interest rate

◦   Structure of the contract (land contract, mortgage, or lease-purchase, as described above)

◦   Any late fees, prepayment penalties, and other costs the buyer is responsible for

4.    Complete due diligence. Buyers and sellers would be wise to do their due diligence as if it were a regular purchase. Sellers may want to examine a buyer’s credit, complete a background check, and confirm that buyers have obtained homeowner’s insurance and title insurance to move forward with the transaction. On the buyer’s end, a home inspection and appraisal may be warranted.

5.    Sign and file paperwork. Much like a real estate transaction, the contracts involved in owner financing arrangements can be pretty involved. Depending on how your financing is structured, you may have a promissory note, owner financing contract and addendums, and title paperwork. You’ll also want to be sure your promissory note and deed of trust are filed with the county recorder’s office. An attorney, if you hired one, should be able to complete this process for you.

Alternatives to Owner Financing

Traditional mortgage financing may work better for your individual situation.

•   FHA loans. FHA loans have a low down payment requirement and low closing costs and may be approved for homebuyers with lower credit scores. They are underwritten by the Federal Housing Administration. Even if you’ve had a bankruptcy, you may be able to get an FHA loan.

•   USDA loans. USDA loans are backed by the U.S. Department of Agriculture. Income must meet certain guidelines (as determined by geographic region), and the home purchased must be in an eligible rural area.

•   VA loans. Loans guaranteed by the Department of Veteran Affairs are geared toward eligible military members, veterans, National Guard and Reserve members and spouses. The favorable terms include a low down payment (or no down payment), lower closing costs, low interest rate, and the ability to use the VA for a home loan multiple times.

•   Conventional loans. A conventional loan simply means the financing is not insured by the federal government as it is with FHA, VA, or USDA loans. Fannie Mae and Freddie Mac provide the backing for conforming loans: those that have maximum loan amounts that are set by the government.

It’s a good idea to not take interest rates at face value but to compare APRs instead. The annual percentage rate represents the interest rate and loan fees, so even if, for instance, an FHA loan looks better than a conventional mortgage, based on just the rates, an APR comparison may tell a different story. A help center for mortgages can be a great resource for learning more about the mortgage and homebuying process.

Recommended: 18 Mortgage Questions for Your Lender

The Takeaway

With owner financing, the seller is the lender. Both buyers and sellers face upsides and downsides when the transaction involves owner-financed homes.

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

Why would an owner offer financing?

Owner financing broadens the pool of potential homebuyers, which might appeal to some homeowners. They may also appreciate having the opportunity to earn interest paid by the homebuyer.

What risks does owner financing have for buyer?

There are fewer consumer protections available to buyers who get owner financing, which is why it is recommended that buyers seek a lawyer’s help in reviewing any agreement. Buyers also risk paying a higher than usual interest rate.


Photo credit: iStock/KTStock

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.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
This article is not intended to be legal advice. Please consult an attorney for advice.

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

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How Much Does it Cost to Refinance a Mortgage?

How Much Does It Cost to Refinance a Mortgage?

Expect to pay 2% to 5% 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.

What Is the Average Cost to Refinance a Mortgage?

Refinancing isn’t free, 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 average closing costs for refinances vs. home purchases is that owner’s title insurance and several inspection fees common for purchases are not typically required for refinances, according to ClosingCorp, a provider of residential real estate closing cost data and technology. 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 usually due at closing.

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


Typical Fixed Refinance Closing Costs
Fee Average cost
Loan application up to $500
Credit report $10 to $100 per borrower
Home appraisal $300 to $400
Abstract fee $200 to $1,000
Lender’s title search $75 to $200

And here are common percentage-based closing costs. 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.

Typical Percentage-Based Refinance Closing Costs
Refi cost Average amount
Loan origination fee 1% of loan amount
Mortgage points 1% of the mortgage amount per point
Mortgage insurance Varies by type of loan

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 $350,000 and the current mortgage balance is $250,000, you have $100,000 in equity. The loan-to-value ratio is 71% ($250,000 / $350,000). This scenario fits the parameters of many lenders for a refinance to take place.

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.

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

Check to see if your current mortgage has a prepayment penalty. These days they’re fairly rare.

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 a 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 Smidge

You might read or hear that refinancing is worth it if you can reduce your mortgage rate by 1% or 2%. 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 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 enjoy 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 the mortgage insurance premium (MIP) that costs the typical borrower $850 per year for every $100,000 borrowed. 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.

Tips to Lower the Cost of a Mortgage Refinance

When preparing to refinance, the most important action 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 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.

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

The Takeaway

Refinancing your mortgage could cost anywhere from 2% to 5% 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.

A new mortgage refinance could be a game changer for your finances.

FAQ

Is refinancing your mortgage free?

No. A whole new loan must be approved and processed.

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


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


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

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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

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18 Mortgage Questions for Your Lender

18 Mortgage Questions for Your Lender

Signing on a knowledgeable mortgage lender is one of the first steps you’ll take on your journey to homeownership. A good lender could help you make a sound decision about a major commitment.

If you want to know what questions to ask a mortgage lender, these can help you feel more confident choosing a lender to navigate the complex homebuying process with you.

Key Points

•   Lenders offer down payments as low as 3% for first-time homebuyers, but a 20% down payment avoids mortgage insurance.

•   Interest rates and APRs differ; APR includes additional fees and is usually higher.

•   Fixed-rate mortgages have stable payments, while adjustable-rate mortgages may start lower but can increase.

•   Preapproval is more thorough than prequalification and helps show sellers you’re a qualified buyer.

•   Closing costs typically range from 2% to 5% of the purchase price and include various fees.

1. How Much Can You Borrow?

How much you can borrow is the question most buyers have on their minds when they start dreaming about real estate listings online. You may have come across a mortgage calculator tool that estimates how much a mortgage is going to cost.

But that’s just a starting point. A mortgage lender will evaluate the entire spectrum of a homebuyer’s financial situation and find the true amount they’ll be able to borrow. The lender may also make recommendations for programs or loans for each buyer’s unique situation.

When you get a loan, you’ll receive a mortgage note, a legal contract between the lender and you that provides all the details about the loan, including the amount you were approved to borrow.

2. How Much of a Down Payment Do You Need?

Another key question your lender can help answer for you is how much are down payments? You’ve probably heard about the ideal 20% down, but a lender may be able to help homebuyers get into a home with a much lower down payment, such as 3% or 5%. The lowest down payment option is often available only to first-time homebuyers. But anyone who hasn’t owned a primary residence in the last three years is often considered a first-timer.

A 20% down payment will enable you to forgo mortgage insurance on a conventional loan (one not insured by the federal government), but lower down payment amounts can help homebuyers obtain housing sooner. There are plenty of options to explore with your lender.

3. What Is the Interest Rate and APR?

Your mortgage lender may explain the difference between the interest rate and annual percentage rate.

•   Interest rate. The interest rate is the cost to borrow money each year. It does not include any fees or mortgage insurance premiums.

•   APR. The APR is a more comprehensive reflection of what you’ll pay for the mortgage, which will include the interest rate, points paid, mortgage lender fees, and other fees needed to acquire the mortgage. It’s usually higher than the interest rate.

The interest rate and APR must be disclosed to you in a loan estimate with the other terms and conditions the lender is offering. Pay particular attention to how the APR changes from loan to loan. When you’re looking at APR vs. interest rates for an FHA loan and a conventional mortgage, for instance, you’ll notice the numbers come out very different. (This is just a recent example.)

30-year term

Interest rate

APR

FHA 6.750% 7.660%
Conventional 6.875% 7.031%

In this case, the interest rate on a 30-year FHA loan is lower than on a conventional loan; however, when accounting an upfront mortgage premium for the FHA loan and other fees, the APR is higher on the FHA loan than on the conventional loan.

4. What Are the Differences Between Fixed- and Adjustable-Rate Mortgages?

The main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is whether or not the monthly payment will change over the life of the loan.

•   Fixed-rate mortgages start with a little higher monthly payment than an ARM, but the rate is secure for the term.

•   An adjustable-rate mortgage will start with a lower interest rate that may increase as the index of interest rates increases. This type of loan may be more appropriate for buyers who know they will not be keeping the mortgage for long.

Fixed-Rate Mortgages

ARMs

Interest rate is locked in for the term Interest rate is variable
Monthly payment stays the same Monthly payment is variable
Typically a longer-term mortgage, such as 15 or 30 years Typically a shorter-term mortgage, such as five or seven years
Interest rate is determined when the rate is locked before closing the mortgage When the index of interest rates goes up, the payment goes up

The key to an ARM is to know how it adjusts. How frequently will your rate adjust? How much could your interest and monthly payments increase with each adjustment? Is there a cap on how high your interest rate could go? A good mortgage lender will help you consider all these variables when selecting a fixed-rate or adjustable-rate mortgage.

5. How Many Points Does the Rate Include?

What are points on a mortgage? Mortgage points are fees paid to a lender for a lower interest rate. Asking your lender how many points are included in the rate can help you compare loan products accurately.

6. When Can the Interest Rate Be Locked In?

Rate lock policies differ from lender to lender. Check at the top of the first page of your loan estimate to see if your rate is locked, and for how long.

You’ll want to ensure that any rate lock agreement gives you enough time to close on your loan. Many lenders have fees for extending a rate lock.

7. How Much Are Estimated Closing Costs?

One of the most important documents you’ll receive from your lender is called a loan estimate. The loan estimate gives a detailed breakdown of the interest rate, monthly payment, fees, and closing costs on the loan you’re applying for. When you ask about closing costs, your lender can provide this document to you.

Common closing costs include:

•   Appraisal fee

•   Loan origination fee

•   Title insurance

•   Prepaid expenses such as homeowners insurance, property taxes, and interest until your first payment is due

Expect to see 2% to 5% of the purchase price in closing costs.

8. Are There Any Other Fees?

Lenders are required to disclose all costs in the loan estimate. They’re also required to use the same standard form so you can compare costs and fees among different lenders accurately. Be sure to ask lenders about other fees and watch for them on your loan estimate.

9. When Will the Closing Happen?

The time to close on a house will depend on your individual circumstances, but the national average is 43 days.

An experienced lender with a digitized process may be able to close a loan more quickly. The time it takes a lender to approve and process the loan are also factors to consider.

10. What Could Delay the Closing?

In the August 2024 National Association of Realtors® Confidence Index survey, 14% of real estate transactions had a delayed settlement. Previous surveys have shown that the main reasons for a delay included appraisal issues, financing issues, home inspection or environmental issues, deed or title issues, or contingencies stated in the contract.
An experienced lender may know how to bring a home to the closing table despite the challenges with financing and appraisals. Be sure to ask upfront how these challenges would be addressed.

11. What Will Fees and Payments Be?

The neat part about obtaining a mortgage since 2015 is that the information is included in a standard form, the loan estimate. The form is used by all lenders and allows borrowers the opportunity to compare costs among lenders quickly and accurately. All fees and payments are required to be clearly outlined in this form.

Recommended: Guide to Mortgage Statements

12. How Good Does Your Credit Need to Be?

You’ll typically need a FICO® credit score of at least 620 to get a conventional mortgage, but lenders consider a credit score just one slice of the qualification pie.

With a lower credit score, a lender may steer you in the direction of an FHA loan, which requires a score of 580 or higher to qualify for a 3.5% down payment. Credit scores lower than 580 require a 10% down payment for an FHA loan.

Borrowers with credit scores above 740 may qualify for the best rates and terms a lender can offer.

13. Do You Need an Escrow Account?

Your lender can set up an escrow account to pay for expenses related to the property you’re purchasing. These may include homeowners insurance and taxes. An escrow account can take monthly deposits from the borrower, hold them, and then disburse them to the proper entities when yearly payments are due. In some locations and with certain lenders, escrow accounts are required.

14. Do You Offer Preapproval or Prequalification?

Lenders have different processes for qualifying mortgage applicants so it’s important to understand prequalification vs. preapproval. Preapproval is a much more in-depth analysis of a buyer’s finances than prequalification.

A preapproval letter provided by the lender specifies how much financing the lender is willing to extend to you, and helps to show sellers you’re a qualified buyer. Getting preapproved early in the homebuying process can also help you spot and remedy any potential problems in your credit report.

15. Is There a Prepayment Penalty?

A prepayment penalty is a fee for paying off all or part of your mortgage early. Avoiding prepayment penalties is easy if you choose a mortgage that doesn’t have any. Ask lenders if your desired loan carries a prepayment penalty. It will also be noted in the loan estimate.

16. When Is the First Payment Due?

A lender will be able to help you get your first payment in, which is typically on the first day of the month after a 30-day period after you close. For example, if you closed on Aug. 15, the first mortgage payment would be due on the 1st of the next month following a 30-day period (Oct. 1).

Each mortgage statement sent every billing cycle includes current information about the loan, including the payment breakdown, payment amount due, and principal balance.

17. Do You Need Mortgage Insurance?

Your mortgage lender will guide you through the process of acquiring private mortgage insurance, commonly called PMI, if you need it. Mortgage insurance is required for most conventional mortgages made with a down payment of less than 20%, as well as for FHA and USDA loans.

It’s not insurance for the buyer; instead, it protects the lender from risk. A good mortgage lender can also help advise borrowers on dropping PMI as soon as possible. A home loan help center can help you learn more about PMI or any mortgage question.

Recommended: What is PMI & How to Avoid It?

18. How Much Is the Lender Making Off of You?

Lenders are required to be clear and accurate when it comes to the costs of the loan. These should be fully disclosed on your loan estimate and closing documents. If you want to know how much the lender is charging for its services, you’ll find it under “origination fee.”

The Takeaway

If you’re shopping for a home loan or thinking about it, you might have mortgage questions — about down payments, APR, points, PMI, and more. Don’t worry about asking a lender too many, because many buyers need a guide throughout the homebuying journey. Asking questions is a great way to get to the lender and loan terms that make the most sense for your financial 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.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What should you not say to a mortgage lender?

The most important thing to remember when communicating with a prospective lender is that you should be truthful — about everything, but especially your finances.

What questions can a mortgage lender not ask?

Generally speaking, most of the topics that are off limits in a job interview are also off limits in a mortgage negotiation. A lender should not ask you about race, ethnicity, religion, or sexual orientation, for example. You also shouldn’t be asked your age (unless you are applying for an age-based loan), or about your family status (married vs. divorced, whether you are planning to have kids, etc.), or about your health.


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


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


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

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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

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woman on couch with smartphone

How Soon Can You Refinance a Mortgage?

Are you ruminating about a refi? How long you must wait to refinance depends on the kind of mortgage you have and whether you want cash out.

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?

Key Points

•   The timeline for refinancing a mortgage depends on the loan type and refinance purpose.

•   Conventional loans can be refinanced anytime, but refinancing with the current lender may require a six-month wait.

•   Cash-out refinances typically need a six-month waiting period.

•   FHA loans mandate a 210-day wait for a Streamline Refinance.

•   VA loans require a 210-day interval between refinances, with some lenders needing up to a year.

Refinance Wait Time Based on Mortgage Type

How soon 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.

Conventional Loan Refinance Rules

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.

Cash-Out Refinance Rules

If you’re aiming for a cash-out refinance, you normally have to wait six months before refinancing, regardless of the type of mortgage you have.

FHA Loan Refinance Rules

An FHA Streamline Refinance reduces the time and documentation associated with a refinance, so you can get a lower rate faster.

But you will have to wait 210 days before using a Streamline Refinance to replace your current mortgage.

VA Loan Refinance Rules

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.

The VA requires you to wait 210 days between each refinance. 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.

USDA Loan Refinance Rules

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.

Jumbo Loan Refinance Rules

For a jumbo loan, even a rate change of 0.5% may result in significant savings and a shorter time to break even.

How soon can you refinance a jumbo loan? A borrower can refinance their jumbo mortgage at any time if they find a lender willing to do so.

Check out mortgage refinancing with SoFi and get
competitive rates and help when you need it.


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.

Here are the main reasons borrowers look to refinance.

•   Reduce the interest rate. Reduce the interest rate. Refinancing to a loan with a lower rate is the point of refinancing for most homeowners. Just calculate your break-even point, when the closing costs will have been recouped: Divide the closing costs by the amount to be saved every month. If 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 a refi. If you purchased your home around 2020, it may be hard to capture a lower interest rate than you currently have, as that was a particularly low time for historical mortgage rates.

•   Shorten the loan term. Refinancing from a 30-year mortgage to a 15-year loan usually results in a substantial amount of loan interest saved, as this mortgage calculator shows. Or you may refi to a 20-year term. If you’re years into your mortgage, resetting to a new 30-year term may not pay off.

•   Tap home equity. 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.

•   Shed FHA mortgage insurance. In many cases, the only way to get rid of mortgage insurance premiums on an FHA loan is to sell your home or refinance the mortgage to a conventional loan when 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 adjustable-rate mortgage or from an ARM to a 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 ARM that has a low introductory rate, or an ARM to a fixed-rate loan, may make sense.

Mortgage rates are no longer at record lows. But they’re still pretty low by historical mortgage rate standards.

And rates are not the be-all, end-all. Home equity increased for many homeowners as home values rose. That’s attractive if you want to tap your equity with a cash-out refinance.

Closing costs can often be rolled into the loan or exchanged for an increased interest rate with a no-closing-cost refinance.

The Takeaway

How soon can you refinance? If it’s a conventional loan, whenever you want to, although probably not with the same lender within six months. Otherwise, if you must bide your time before refinancing or you’re waiting for rates to abate, 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.

A new mortgage refinance could be a game changer for your finances.

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.


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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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A Guide to Mortgage Statements

Guide to Mortgage Statements

If you get paperless mortgage statements or have autopay set up on your home loan, or even if you get statements in the mail, it might be easy to miss important information.

By paying close attention to exactly what’s included in your mortgage statements, you’ll avoid unpleasant surprises.

Key Points

•   Mortgage statements are crucial for tracking loan details like balance, interest rate, and fees.

•   The Dodd-Frank Act mandates specific information and format for these statements.

•   Statements detail amounts due, including principal, interest, and escrow.

•   They also provide a breakdown of past payments and any fees incurred.

•   Contact information for the mortgage servicer is included for customer support.

What Is a Mortgage Statement?

You probably became well versed on mortgage basics during the homebuying process. And you likely did the hard work of using a home mortgage calculator, qualifying for a mortgage, and getting that loan.

Now comes the mortgage statement, a document that comes from your home mortgage loan servicer. It typically is sent every month and includes how much you owe, the due date, the interest rate, and any fees and charges.

In the past, the information that was included and the format of a mortgage statement ran the gamut among lenders. Thanks to the Dodd-Frank Act, enacted in 2010, mortgage servicers must include specific loan information and follow a uniform model for mortgage statements.

Statements also include information on any late payments, how much you’ll need to pay to bring your balance into the black, and any late fees you’re dinged with. You can also find customer service information on your mortgage statement.

What Does a Mortgage Statement Look Like?

A mortgage statement has similar elements as a credit card or personal loan statement. As a picture is worth a thousand words, here’s a sample mortgage statement, courtesy of the Consumer Financial Protection Bureau:

text

What Is on a Mortgage Statement?

Deciphering what’s on a mortgage statement can help you know what to look for, how much you owe in a given month, how much you’re paying toward interest and principal, and how much you’ve paid year to date.

Let’s dig into all the different parts of a home loan statement.

Amount Due

This usually can be found at the top of your mortgage statement and is how much you owe for that month. Besides the amount, you’ll find the due date and, usually, the late fee you’ll get hit with should you be late on payment.

Explanation of Amount Due

This section breaks down why you owe what you owe. You’ll find the principal amount, the interest amount, escrow for taxes and insurance, and any fees charged. All of those will be tallied for a total of what you’ll owe that month.

Past Payment Breakdown

Below the section that explains the amount due, you’ll find a breakdown of your past payment: the date the payment was made, the amount, and a short description that may include late fees or penalties and transaction history.

Contact Information

This is typically located on the top left corner of the mortgage statement and contains your mortgage loan servicer address, email, and phone number should you need to speak to a customer service representative. Note that like student loan servicers, a mortgage loan servicer might be different from your lender.

Your mortgage loan servicer processes payments, answers questions, and keeps tabs on your loan payments, and how much has been paid on principal and interest.

You probably know what escrow is. If you have an escrow account, your mortgage loan servicer is tasked with managing the account.

Account Information

Your account information includes your account number, name, and address.

Delinquency Information

If you’re late on a mortgage payment, within 45 days you’ll receive a notice of delinquency, which might be included on your mortgage statement or be a separate document. You’ll find the date you fell delinquent, your account history, and the balance due to bring you back into good standing.

There might be other information such as costs and risks should you remain delinquent. There also might be options to avoid foreclosure. One possible tactic is mortgage forbearance, when a lender agrees to stop or reduce payments for a short time.

Recommended: Refinance Your Mortgage and Save

Understanding the Details

Your mortgage statement includes many details, all to help you understand what you’re paying in interest, the fees involved, and what your principal and interest amounts are. It’s important to look at everything to make sure you understand what information is included. If you have trouble deciphering the information, call your mortgage servicer listed on the document.

If you have an adjustable-rate mortgage, the mortgage statement also might include information about when that interest rate might change.

Important Features to Know

Besides the main parts of a mortgage statement, here are a few other key elements of a mortgage statement.

Delinquency Notice

As mentioned, you’ll receive a delinquency notice within 45 days should you fall behind on payments. Besides how much you owe to get back in good standing, the delinquency notice might also include your account history, recent transactions, and options to avoid foreclosure.

Escrow Balance

If you have an escrow account for your mortgage, the balance will show how much you owe in homeowners insurance and property taxes.

Note that this is different from how much money you have in your escrow account and how much money is collected, which is typically included in your annual escrow statement.

If you don’t have an escrow account, your taxes and homeowners insurance owed will usually be separate lines.

Recommended: Mortgage Calculator with Taxes and Insurance

Using Your Mortgage Statement

Now that we’ve covered all the elements of a mortgage statement, let’s go over how to use your mortgage statement and make the most of it.

Making Sure Everything Is in Order

Comb through your mortgage statement and make sure everything is accurate and up to date. Inaccurate information can lead to overpaying, potentially falling behind on payments, and headaches.

Keeping Annual Mortgage Statements

While you might not need to hold on to your monthly mortgage statements for too long, make sure you have access to your annual mortgage statements for a longer period of time. In case you run into an IRS audit, you’ll be required to provide documentation for the past three years.

Making Your Payment

There are a handful of ways you can make payments on your mortgage.

Online. This is probably the most common and simplest way to submit a mortgage payment. It’s free, and once you set up an account online and link a bank account to draw payments from, you’re set. You can also set up autopay, which will ensure that you make on-time payments. In some cases, you might be able to get a discount for setting up auto-debit.

Coupon book. A mortgage servicer might send you a coupon book to use to make payments instead of sending mortgage statements. A coupon book has payment slips to include with payments. The slips offer limited information.

Check in the mail. As with any other bill, you can write a check and drop it in the mail. However, sending a payment by snail mail might mean that your payment doesn’t arrive on time. If you are going this route, send payments early and consider sending them via certified mail.

How Long Should You Keep Mortgage Statements and Documents?

Just as you’d want to hold on to billing statements for other expenses, you’ll want to keep your mortgage statements in case you find inaccuracies down the line. Plus, the statements come in handy for tax purposes and for your personal accounting.

So how long should you keep your mortgage statements? Provided you can find your statements online by logging in to your account, you don’t need to hold on to paper statements for long. In fact, you can probably get rid of paper copies if you have access to them online. It might be a good idea to download the documents to your computer.

Other documents, such as your deed, deed of trust, promissory note, purchase contract, seller disclosures, and home inspection report, you should keep as long as you own the home.

Consider holding on to annual mortgage statements for several years, and in a safe place. It’s a good idea to store them on your computer and have hard copies on hand.

The Takeaway

It’s easy to gloss over mortgage statements, but not knowing what’s in them every month and not noticing any changes can result in costly mistakes. It’s also eye-opening to see how much of a payment goes to principal and how much to interest. Having that information at hand can also be helpful if you are considering a mortgage refinance.

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 statement?

You should receive a statement monthly, either in the mail or via an alert from your mortgage servicer saying the bill is due. If you don’t receive a statement and can’t access it online, contact your lender promptly.

What is a mortgage servicer?

A mortgage servicer is a company that manages home loans. They send your statement and collect and process your payment every month, as well as provide customer support. A mortgage servicer may be different from your lender, which is the institution that approved your application and loaned you the funds to buy your property.


Photo credit: iStock/Tijana Simic


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


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


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

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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.

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

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