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A condo is a privately owned unit in a community of other units, often with shared areas or amenities. If you’re considering whether to buy or rent a condo, you’ll want to think about the costs, benefits, and responsibilities of each option.

Of course, those who are deciding whether or not to rent have much less riding on their choice, but it’s still worth delving into the pros and cons of this kind of property and if it suits your needs.

Here, you’ll learn about the characteristics that define condos, the pros and cons of these units, and what it’s like to rent or buy a condo.

What Is a Condo?

As noted above, a condo is a privately owned unit that is part of a community of other units, whether that means there are a couple of other residences or dozens. Typically, a condo owner only possesses their unit, unlike the situation with a single-family homeowner, who owns the home and the land under it.

You may be familiar with condos that are rented out for income. If you’ve ever rented an apartment in, say, a complex by the beach, with a shared pool and patio, there’s a chance you’ve been in a condo. Real estate investors often buy condos and rent them out in this way.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Characteristics of a Condo

Individual condo units are owned by private owners, while common areas are owned and maintained by an association or organization. This might be called a condo association (CA) or a homeowners association (HOA). These groups are not identical, but they do manage a multi-unit residential community.

Your ownership rights may be limited to the space within your condominium, as is the case with most condo high-rises, or you may own an entire standalone structure within a larger community. In a condo situation, the CA or HOA owns the land. In a planned unit development, the homeowners own their lot and share the common area.

Maintenance and Finances of Condos

Condos are popular starter homes, thanks to their low maintenance, relatively cheap purchase price, and general convenience. They may also appeal to investors and people who are downsizing.

With detached single-family homes, you’re on the hook for the bill if any repair issues arise, whether it’s a broken water heater, leaky roof, or malfunctioning air conditioner. This generally isn’t the case with condos, as the property management company employed by the CA or HOA maintains common areas and shared amenities.

Convenience comes with a price, though. Condo owners share maintenance costs, and the expense of a master insurance policy, by paying dues monthly or quarterly. It’s important to budget for these costs. HOA fees,for example, have recently been rising 10% per year. Atop those fees, special assessments can be levied if the HOA needs to pay for a major project.

Condos tend to appreciate at a slower rate than traditional single-family homes, but they cost less. So buyers may want to take both realities into consideration when deciding on house vs. condo.

Recommended: First-Time Homebuyers Guide

Types of Condos

Condos vary widely in structure and appearance, ranging from high-rise buildings to communal developments. Take a closer look:

Condo Developments

These are communities of standalone homes where maintenance of both the interior and exterior are carried by the condo owner, but services like the maintenance of common areas and snow removal are typically handled by a property management company.

All properties within a condo development are bound by the rules of the CA or HOA, so it’s similar to a traditional neighborhood with fixed rules and less upkeep.

Condo Buildings

These are high-rise apartments consisting of individual condo units. The maintenance of the structure, shared utilities, and common areas are the responsibility of the property management company.

If you’re looking at buying or renting an apartment in a large metropolitan area, make sure you understand what it means to choose between a condo and a co-op.

High-rise condo buildings are more common in urban areas and may have higher fees in order to cover the greater costs of maintaining an apartment building and often the salaries of full-time maintenance staff members and doormen.

Pros and Cons of Condos

Next, take a look at the pros and cons of a condo.

Pros of Condos

Here are the upsides of condo life:

•   Less maintenance since the CA or HOA is responsible for many aspects of upkeep.

•   Affordability. Since you don’t own the land, the price can be lower.

•   Possible investment opportunity; can use a condo for rental income.

•   Security. Some people appreciate having a condo staff and neighbors nearby.

•   Social life. You’re part of a community and will likely know and connect with your neighbors to some extent.

•   Amenities. There are often such features as gyms, pools, dog run, coworking space, party rooms, and other perks to enjoy.

Cons of Condos

Next, consider the potential downsides of a condo:

•   Association rules. You have to adhere to the guidelines of the community, which may or may not suit you. This can include everything from the appearance of your home’s exterior to when and for how long you may rent your place out.

•   Higher interest rates. If you are shopping for a condo to purchase, you may find that the mortgage rates are somewhat higher than what you’d be quoted if you were buying a single-family home.

•   Investment risk factor. If you are buying a condo, its value could depend to some extent on other residents and how well they maintain their property.

•   Lack of privacy and land. You will have neighbors…so the experience is different from being in your own single-family home on your own land. And you likely won’t have acres of property to plant and use as you wish.

•   Rising costs. Your association payments can rise considerably, and assessments are possible as well. That can throw a wrench in your budget.

Recommended: Most Affordable Places to Live in the US

Buying or Renting a Condo: Which Is Better?

Whether you’re better off buying or renting a condo — or any of the other types of houses, from modular home to manufactured home, tiny house to townhouse — depends as much as your own circumstances as it does the cost of buying vs. renting in an area.

•   Buying: Assuming you’ve decided to settle down in an area for the next three to five years, you might be better off buying a condo if you have a stable income stream and can cover the down payment and closing costs without emptying your emergency fund.

Given how real estate values have risen in the past few years, buying a condo may be a good choice if you’re looking for long-term investment and a chance to build home equity over time.

•   Renting: You may be better off renting if there’s a chance you’ll need to relocate within the next few years, or if any upcoming life events might require you to upsize your residence, like having children.

Here’s a closer look at these scenarios.

Pros of Renting a Condo

Renting a condo gives you all of the benefits of living in a private condo unit without the long-term commitment and upfront costs.

•   Few maintenance responsibilities: If you’re renting a condo unit in an apartment building, the association is responsible for maintenance, or in the case of an individually owned HVAC system, the owner is.

•   More leeway for negotiation: Reliable renters are hard to come by; some condo owners may be more willing to negotiate your monthly rent than professional property managers are.

•   Flexibility to end or extend your lease: As a renter, you can often decide whether to end or continue your lease. This makes it easy to cut ties if needed.

Pros of Buying a Condo

Taking out a mortgage to buy a condo more or less freezes your living costs into the future. This will help you avoid rising rents, though association fees can certainly rise.

•   More affordable than single-family homes: The price of a condo is usually lower than a single-family home in a given area. This makes it attractive to homebuyers on a budget.

•   Freedom to make it your own: Owning a condo gives you more freedom over such features as the appliances and color palette than you’d likely have with a rental.

•   Rental potential: Depending on the rules of your association, you may have the right to rent out your condo to generate income.

Finding a Condo

If you’re ready to go out and shop for a condo, you’ll want to assemble a list of must-haves to narrow your search. This applies whether you’re looking to rent or buy.

Are you looking for a more affordable apartment condo or something with more space like a community development? Browse local listings for condo units that match your requirements.

For those seeking to buy a condo, it’s a good idea to find a real estate agent who’s well versed in condo sales. They know the area and can obtain vital info regarding association rules and financials. It’s important to review the rules and fees, and check for any special assessments and their frequency over the years.

Condo Tips

A few more suggestions as you start your hunt:

•   If you are planning to buy, it’s also a good idea to thoroughly understand mortgage basics and have financing lined up with a mortgage company so you’re ready to make a bid on a property.

•   Know your budget. A mortgage calculator is an excellent tool for helping you figure out your costs.

•   Consider checking this HUD site for FHA-approved condos as your primary residence if you are seeking financing with an FHA loan.

💡 Quick Tip: Keep in mind that FHA home loans are available for your primary residence only. Investment properties and vacation homes are not eligible.1

The Takeaway

What is a condo? A condo is a privately owned unit within a community that can be a good starter home or a place to downsize. Or it might be a wise investment property that can bring in rental income. If you’re able to rent a condo, it’s much like renting an apartment, except your landlord may be the owner.

If you’re interested in buying a condo, realize that condo buyers are able to access the same kinds of loans available to buyers of single-family homes, though rates may be slightly higher.

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

FAQ

What’s the difference between an apartment and a condo?

A condo can be a kind of apartment, which is a residential unit that’s part of a larger building. An apartment can be owned or rented, as can a condo. However, a condo is a specific kind of unit ownership in which there are communal facilities and shared maintenance charges.

What is the difference between a condo and a townhouse?

With a condo, you own your unit but not the land under and around it. You pay for your unit (rent or mortgage). Association charges cover maintenance and repairs, and property taxes apply to owners. With a townhouse, the property includes the residence and the land it sits on and that surrounds it. You will pay your rent or mortgage and real estate taxes, but may not be part of an association or obligated to pay those fees.

Is a condo the same as a flat?

Many people use the terms condo, apartment, and flat interchangeably. While an apartment and a flat are the same thing, a condo refers to a style of ownership of a dwelling unit that’s part of a community. It may be an apartment, but the way it’s bought or rented can differ.

Photo Credit: iStock/Edwin Tan

*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.

^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.
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.

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.

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Are you sick of pouring money into summer rentals or booking vacation houses online, sight unseen? If you’re managing to make the mortgage payments on your primary residence without straining your budget, you could be ready to invest in a second home. Here are some ideas on how to get an additional mortgage loan to potentially purchase another home.

Consider All the Costs

If you already own a house, you understand that the costs of home ownership go beyond mortgage payments. Remember that you’ll now have a second set of costs, including property taxes, insurance, maintenance, utilities, and the cost of travel to the second location.

You may also face some expenses with a vacation property that you wouldn’t face with a primary residence. For example, a house on the beach might need flood insurance to protect it against hurricanes.

All of these costs factor in on top of a second mortgage payment. Before you dive into owning a second home, consider whether or not you can afford them.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Determine if You Want a Vacation Home or a Rental Property

Before beginning to shop for a mortgage, you’ll need to decide whether you want to potentially earn rental income on the property. The answer to this question will determine the type of mortgage you qualify for.

However, if you require rental income in order to qualify for the additional home purchase, you may need to document existing rental income derived from the property (if the seller will share that information) or the lender may require a rental appraisal from a local property manager or real estate agent specifying the likely rental income. Keep in mind that the lender may only use a certain percentage (likely 75%) of the lease amount as a credit toward your qualifying income.

To qualify for a loan on a rental property, you will likely need a higher down payment, typically at least 20% or more. Non-owner occupied loans allow you to use the home when it’s not rented. Investment property mortgage rates may be higher than those for a primary residence. Another factor to consider is that a rental property may affect your income tax deductions differently than a vacation home.

Factors to Qualify for a Mortgage

If you’re ready to buy a home, and you’ve decided whether you’re looking for a vacation home or a rental property, you’ll want to consider many of the same factors needed to secure a first mortgage. Utilizing a home affordability calculator can be important when understanding how much home you can afford.

Credit report and FICO® score: Your credit report is essentially a report card that shows lenders how responsible you are about managing your debt, including your existing mortgage. It shows whether you make payments on time and whether you’ve missed payments or defaulted on debt in the past.

Your FICO score is a number that reflects your consumer credit risk. Make sure that you keep your credit score healthy by making on-time payments. Also check your credit report to be sure everything has been reported correctly. Mistakes can drag your score down, so it’s important to alert the credit reporting bureaus immediately if you find incorrect information.

Debt-to-income ratio: Your debt-to-income (DTI) ratio is a measure of how much debt you carry each month compared to your monthly income. If you have $2,000 a month in debt payments and make $6,000 a month in income, your DTI is $2,000/$6,000, or 33%. If your DTI is too high, lenders are less likely to give you a mortgage, or you may not be able to secure a mortgage with favorable terms. The DTI required by your lender can vary based on factors such as your credit score, type of home, and the size of your down payment but most lenders like to see a DTI of no more than 43% for a second home purchase.

One way to get your DTI low is by paying off old debts and avoiding taking on new ones. “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. You may also consider refinancing loans you already have, including the mortgage on your first house, if you can take advantage of potentially lower interest rates. A lower interest rate could mean paying less over the life of the loan, which could help you lower your DTI sooner than you thought.

If you are purchasing a rental property, and you can show an existing tenant’s fully executed lease agreement and other supporting documentation the lender may require, it is likely that the lender will calculate 75% of the monthly lease amount toward your qualifying income.

Down payment: Required down payments on second homes are typically higher than on primary residences. For a second home purchase, lenders may require a down payment of at least 10% or more. If you put less than 20% down, you may be required to have private mortgage insurance (PMI), which protects the lender if you stop making payments.

The more you can pay upfront with a down payment, the more favorable your mortgage terms are likely to be. Your interest rate and monthly payments may be lower, and if your DTI or credit score is less than ideal, a higher down payment could potentially help you compensate for these factors.

Though making a large down payment can be a financial boon, you may want to make sure that you don’t deplete your savings so much that you no longer have extra cash to cover other expenses like closing costs.

Income and assets: Your lender will typically want to see that you have two years worth of steady and ongoing income to qualify for a mortgage. They also may want to see recent statements from any monetary assets you have such as a checking account, savings account, CD, IRA, 401(k), etc. Lenders may also want to see reserve funds. The amount of required reserves will vary from lender to lender and loan program to loan program, but each month of reserves is equal to one month’s worth of payments on your first and additional mortgage. One month of mortgage payments is defined as principal, interest, taxes, insurance, and other miscellaneous costs (such as flood insurance or HOA dues).

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

Estimate How Much You Can Afford

This home affordability calculator helps estimate the cost of purchasing a home and what your monthly payment would be — including closing costs, insurance, and property tax.

The Takeaway

It’s usually a good idea to shop around. As you search for an additional mortgage, consider checking out multiple lenders to make sure you’re getting the best deal for you on interest rates, terms, and fees.

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 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.

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.

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The U.S. Department of Veterans Affairs (VA) offers a mortgage financing program known as VA loans. This is designed to help veterans, active-duty service members, and surviving spouses get financing for a home loan.

When applying for any mortgage, there are additional costs on top of the purchase price of the property. These costs can be complex to figure out for first-time homebuyers, so there are calculators available to help.

A loan closing costs calculator is used to estimate the closing expenses associated with a mortgage loan such as a VA loan. These costs can include appraisal fees, loan origination fees, title and homeowner’s insurance, lawyer’s fees, and property taxes. The calculator takes into account the amount of the loan, the term of the loan, the interest rate, and the purchase price.

This guide will help you understand these costs and also calculate what these expenses might look like for your loan.

Why Use a VA Loan Closing Costs Calculator Table?

A VA loan closing costs calculator is a useful tool for anyone looking into applying for a VA loan. Because, yes, you do pay closing costs with a VA loan.

Although calculators only provide an estimate and not the final closing costs, you can enter the property and loan details and immediately get an idea about the total closing expenses you will be paying if you go through with the loan.

This helps with budgeting, comparing the cost of living in different locations, looking at different properties and loan options, and negotiation. It also helps educate borrowers about the loan process.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

How to Calculate Your VA Loan Closing Costs

Whether you are a first-time homebuyer or have been through the process before, it can be a good idea to acquaint yourself in advance with the fees you’ll pay when you get a home mortgage. The following are some of the common costs associated with VA loans:

•   VA funding fee: This is a required fee calculated as a percentage of the loan amount. The amount of this fee depends on factors such as the down payment amount and the type of service member applying. Worth noting: This is the one fee that you may be able to roll into the loan vs. pay separately.

Also, some people may be exempt from paying a funding fee, such as those who receive compensation for a service-related disability, among other scenarios.

•   Loan origination fee: This is a fee for processing the loan application (it’s charged by the lender, not the VA) and is generally a percentage of the loan amount. With a VA loan, it typically has a maximum and will not exceed 1% of the loan value.

•   Discount points: These are upfront payments that can be made to reduce the loan’s interest rate. Each percent of the loan amount is equal to one point.

•   Credit report: This is a fee for obtaining a credit report, which is used to determine the borrower’s creditworthiness. Having good credit is just one important part of qualifying for a home loan.

•   Appraisal fee: There is a fee for hiring an appraiser, who determines the value of the property being purchased.

•   Homeowners insurance: This is to secure the property against damage and losses. Borrowers generally pay the first year upfront.

•   Real estate taxes: If there are any unpaid property taxes, some or all may need to be paid at closing.

•   State and local taxes: Some states or cities may impose taxes or property transfer fees.

•   Title insurance: Title insurance protects against issues with the property’s title and is generally required by lenders.

•   Recording fee: This fee covers the cost of recording the mortgage and any related documents with the government.

Worth noting: With VA loans, you can save big because private mortgage insurance (PMI) isn’t required for those putting down less than 20%, as it might be with other kinds of home loans.


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

2024 VA Loan Funding Fee Calculator Table

Now that you understand the different fees that may be assessed when you take out a mortgage, take a closer look at what some of these fees look like for a typical VA loan. (Rates may differ for other types of VA loans, such as those for manufactured homes or that are part of the Native American Direct Loan program.)

Examples of VA Loan Closing Costs Calculations

Below are a few examples of closing costs for a VA loan in 2023:

Example 1: First-time homebuyer with no down payment

Loan Amount: $250,000
Down Payment: 0% (No down payment)
Funding Fee: 2.15% (First-time user)
Other Closing Costs: $5,000

Closing Costs Calculation:

Funding fee: $250,000 x 2.15% (0.0215) = $5,375
Other closing costs: $5,000
Total closing costs: $5,375 (funding fee) + $5,000 (other closing costs) = $10,375

Example 2: First-time homebuyer with a 5% down payment

Loan amount: $300,000
Down payment: 5% ($15,000)
Funding fee: 1.50% (first-time user)
Other closing costs: $6,500

Closing Costs Calculation:

Funding fee: ($300,000 – $15,000) x 1.50% (0.0165) = $4,275
Other closing costs: $6,500
Total closing costs: $4,275 (funding fee) + $6,500 (other closing costs) = $10,775

Example 3: Subsequent homebuyer with a 15% down payment

Loan amount: $400,000
Down payment: 15% ($60,000)
Funding fee: 1.25% (subsequent user)
Other closing costs: $7,000

Closing Costs Calculation:

Funding fee: ($400,000 – $60,000) x 1.25% = $4,250
Other closing costs: $7,000
Total closing costs: $4,250 (funding fee) + $7,000 (other closing costs) = $11,250

Recommended: The Cost of Living in California

Reasons to Calculate Your VA Loan Closing Costs First

Calculating VA loan closing costs is beneficial for a few reasons:

1.    Financial planning: Calculating closing costs for a VA loan upfront helps with planning finances and budgeting to make sure you have enough money to afford purchasing a home. It prevents unforeseen expenses and reduces stress throughout the buying process.

2.    Analyze affordability: Knowing closing costs can help you determine whether you can afford a property.

3.    Comparison shopping: Calculating closing expenses also helps with comparing various home mortgage loans so you can choose the terms that work best for you and potentially save money. While VA loans are one option, there are many types of mortgage loan choices that may be a good choice depending on your individual circumstances.

4.    Negotiation: Understanding closing costs provides a starting point for negotiation. Certain fees or terms may be negotiable, and having the knowledge of the starting points provides you, the borrower, with the information needed to get the best deal.

5.    Avoid surprises: Planning ahead can help prevent unforeseen costs that may arise during the closing process. It also allows you to compare the estimate to the final closing costs to make sure they are all accurate.

Recommended: How Long Does It Take to Close on a House?

Tips on How to Save on Your VA Loan Closing Costs

Here are some tips for how to save on VA loan closing costs:

•   Shop around for lenders: Compare closing cost estimates from various lenders by requesting quotations from them all. It’s important to shop around for a mortgage and look into different options to find the best rates and terms.

•   Negotiate with the lender: Don’t hesitate to ask for lower fees and discuss terms. Eligible borrowers with good credit may be able to negotiate loan conditions.

•   Consider seller concessions: In some cases it may be possible to persuade the seller of the home to cover some of the closing costs. Consult with the real estate agent during the negotiation process about this possibility to reduce costs.

•   Utilize VA loan programs and benefits: Take advantage of the benefits offered by the VA loan program. For instance, the VA funding fee can be rolled into the loan amount, and the VA has restrictions on fees which can help keep closing costs down.

•   Consider rate options: Evaluate different interest rate options and the impact they have on closing costs. For instance, a higher interest rate may offer lender credits that can be applied to closing costs. If one intends to live in the house for a long time, this may be a good option.

•   Read the Closing Disclosure (CD) carefully: The final closing costs are listed in the Closing Disclosure document. It’s important to carefully review this document to make sure there are no errors or unforeseen closing costs.

Dream Home Quiz

The Takeaway

VA loan closing costs include the financing fee, credit report fees, appraisal fees, title insurance, and other expenses associated with obtaining a VA loan. It’s important for borrowers to calculate their estimated closing costs in advance to compare loan options, negotiate fees, and prepare themselves financially for buying a home.

It’s also wise to consider a variety of loan options, from the VA or not, to make sure you are getting the right fit for your financial needs.

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

FAQ

What is the VA funding fee for 2023?

The VA funding fees for 2023 are, for first use, dependent on your down payment amount: less than 5%, 2.15%; 5% to 10%, 1.5%; and over 10%, 1.25%. After first use, the rates shift to: less than 5%, 3.3%; 5% to 10%, 1.5 %; and move than 10%, 1.25%.

What percentage of closing costs can be included in a VA loan?

There is no specific limit on the percentage of closing costs that can be included in the loan amount, but the VA restricts the types of fees that can be charged. The VA has a “4% rule,” which states that the total allowable closing costs and certain fees paid by the borrower cannot exceed 4% of the loan amount.

What is an example of a VA funding fee?

The VA funding fee is a one-time fee paid by borrowers using a VA loan, and the amount is calculated based on factors such as the loan amount, down payment, and the borrower’s service category. For example, a first-time borrower with a $300,000 loan amount and no down payment may have a funding fee of 2.15%, resulting in a fee of $6,450.

Photo credit: iStock/Ole Schwander

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
SoFi 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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Thanks to rapidly rising home prices, VA loan limits got a substantial boost in 2023.

For most U.S. counties, the baseline limit for VA loans is now $726,200, compared to $647,200 in 2022. And loan limits for single-family homes in counties with higher home costs also increased — from a maximum (or “ceiling”) of $970,800 in 2022 to $1,089,300 in 2023.

What could higher loan limits mean for you? If you’re a veteran considering a VA-backed home loan, read on for a breakdown of what you can expect if you purchase a home this year.

What Is the VA Loan Limit?

To be clear: The VA doesn’t limit how much an eligible veteran, service member, or survivor using a VA loan benefit can borrow to finance a home. There are only limits on how much of the loan amount the VA will guarantee if the borrower is unable to repay the mortgage. And that limit can vary based on the status of the borrower’s VA entitlement.

Most borrowers who apply for a VA loan have something called “full entitlement.” This means that if the borrower defaults, the VA will guarantee — or repay the lender — up to 25% of whatever loan amount the lender approved based on its own criteria. If you’re a first-time homebuyer, or if you’ve paid off a past VA loan, you can expect to have a full entitlement.

But if a borrower has what the VA refers to as a “remaining entitlement” (they have a VA loan they’re still paying back), the VA will limit its guarantee based on the Federal Housing Finance Agency (FHFA) loan limit in the county where the home is being purchased.

Instead of paying the lender up to 25% of the full loan amount if the borrower defaults, the VA will limit its guarantee to up to 25% of the applicable FHFA loan limit minus the amount of the entitlement the borrower already used. Borrowers can still get a VA loan using their remaining entitlement, but they may have to make a down payment to get that loan if the loan amount is more than $144,000.

To check your VA entitlement status, you can request a certificate of eligibility (COE) through your lender, online, or by mail.


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

When Do VA Loan Limits Apply?

You may wonder when VA loan limits apply and, more specifically, how annual changes to loan limits are calculated. The VA bases its loan guarantee limits on the same conforming loan limits (CLL) the FHFA sets for conventional home mortgage loans that are eligible for purchase by Fannie Mae and Freddie Mac.

By law, the FHFA must adjust these limits annually to reflect changes to home prices in the U.S. Between the third quarters of 2021 and 2022, home prices increased, on average, by 12.21%, based on the FHFA House Price Index. So the 2023 baseline CLL increased by that percentage.

But your county’s loan limit could be considerably higher, depending on average home prices in your area.

These differences are, in part, due to the variability of cost of living by state.

2023 VA Loan Limit Calculator Table

Higher home prices across the U.S. brought the FHFA’s baseline limit (and, therefore, the VA’s baseline limit for 2023) to $726,200 for a single-family home in most counties.

But in counties where 115% of the median home value is higher than the baseline CLL, the limit has been increased by a percentage that reflects those higher prices. There is a ceiling, or cap, however, of 150%.

Here’s what that looks like for a single-family home in 2023 vs. 2022.

VA Loan Limits in 2023 and 2022

If you’re buying in Alaska, Hawaii, Guam, or the U.S. Virgin Islands, special statutory provisions dictate the loan limit, which in 2023 is $1,089,300 for a single-family home.

VA Loan Limit Example

Here’s a hypothetical example of how a borrower could be affected by the county loan limit on a VA loan.

Let’s say Joe, a Navy veteran, wants to buy a home in San Diego County, even though he knows the cost of living in California is higher than average. Joe manages to find a $600,000 single-family home and he wants to buy with a VA loan, but he still owes $100,000 on another VA loan.

The 2023 limit in San Diego County is $977,500. Since the VA will guarantee up to a quarter of that amount, Joe has a maximum entitlement of $244,375.

$977,500 x .25 = $244,375

But Joe has to subtract the amount of his entitlement he’s already used, which leaves him with $144,375.

$244.375 – $100,000 = $144,375

So, the VA would guarantee up to $144,375 of Joe’s loan.

Since most lenders want at least 25% of a borrower’s loan amount to be covered by the VA entitlement and/or a down payment, Joe might have to make a $5,625 down payment to get a VA loan for this home.

$600,000 x .25 = $150,000

$150,000 – $144,375 = $5,625


💡 Quick Tip: Apply for a VA loan and borrow up to $1.5 million with a fixed- or adjustable-rate mortgage. The flexibility extends to the down payment, too — qualified VA homebuyers don’t even need one!^{†^}

How Does My County Loan Limit Affect Me?

Just like Joe in the example above, if you’re using a remaining entitlement and your loan amount is over $144,000, your county loan limit could determine whether you’ll have to make a down payment to buy the home you want.

It doesn’t mean you can’t get the loan. If you have enough to make the down payment required by your lender, you may even qualify for a VA-backed loan that’s more than your county loan limit.

It’s important to note that though the example provided here is for a home purchase, the same entitlement limits apply if you’re considering refinancing your VA loan. In that case, your county limit could affect how much you’ll be asked to pay in closing costs.

How to Apply for a VA Home Loan

Most VA loans are “VA-backed” loans, which means they’re issued by approved private lenders. The VA’s guarantee that it will help repay the lender if a borrower defaults is an incentive for lenders to offer these loans with attractive terms.

Still, it can be a good idea to shop around for the loan that best meets your family needs, and compare interest rates, fees, customer service, and any additional benefits various lenders might be offering.

You also may want to compare the terms of your top VA loan offer to what you can get with different types of mortgage loans, including a conventional loan.

Of course, no matter which type of loan you ultimately choose, you’ll still have to qualify for a mortgage with a lender.

There isn’t a requisite minimum credit score for VA loans. Instead, the VA asks lenders to review the borrower’s “entire loan profile,” which could include your credit history, DTI ratio, employment history, and assets. Individual lenders also may have their own approval criteria you should be aware of when you’re ready to apply for a VA loan.

Pros and Cons of VA Loan Limits

The VA loan limit is just one of several factors you may want to consider if you’re thinking about using a VA loan for a home purchase or a mortgage refinance. Like any other mortgage option, VA loans have their pros and cons. Here are a few to keep in mind:

VA Loan Pros

The upsides of VA loans can include:

•   Interest rates may be lower with a VA loan than with a conventional loan.

•   You may not need to make a down payment or pay mortgage insurance.

•   Though non-VA jumbo loans may require a higher down payment, this isn’t necessarily true with a VA jumbo loan.

•   If you decide to sell your home, you can allow the buyer to assume (or take over) your existing mortgage.

VA Loan Cons

Now, for the downsides:

•   VA purchase loans are only for primary homes; you can’t use the loan to buy a vacation home or to invest in a home that isn’t your main residence.

•   The VA charges a one-time “funding fee” that’s designed to cover foreclosure costs when homebuyers default on a loan. Currently, the fee ranges from 1.25% to 3.3% of the loan.

•   The home you hope to buy must be evaluated by a VA-approved appraiser to ensure it meets the VA’s minimum property standards. If the home you want is too rundown, it may not pass this appraisal.

Recommended: 2023 Home Loan Help Center

The Takeaway

VA loan limits are based on home prices in the U.S., and they’re adjusted annually to reflect price increases.

If you’re a first-homebuyer or you’ve paid off a past VA loan, you shouldn’t have to worry about VA loan limits. But if you want to buy a home and you already have a VA loan, the loan limit for your county could determine whether you’ll have to make a down payment to qualify for the amount you hope to borrow.

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

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

Will VA home loan limits increase in 2023?

Yes, VA home loan limits increased significantly in 2023. The baseline limit for VA loans is now $726,200, compared to $647,200 in 2022.

What is the conforming limit for 2023?

The national baseline conforming loan limit for 2023 is $726,200 in 2023. But the VA loan limit may be higher in U.S. counties where home prices are especially high.

What is the DTI limit for a VA loan in 2023?

The Department of Veterans Affairs hasn’t set a hard-and-fast limit on the debt-to-income ratio it requires for its loans. But generally, lenders allow a 41% maximum for a VA loan.

Photo credit: iStock/Thai Liang Lim
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
^{^}SoFi VA ARM: At the end of 60 months (5y/1y ARM), the interest rate and monthly payment adjust. At adjustment, the new mortgage rate will be based on the one-year Constant Maturity Treasury (CMT) rate, plus a margin of 2.00% subject to annual and lifetime adjustment caps.
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.

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.

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Saving up for a down payment is a common challenge for many prospective homebuyers. FHA loans allow qualifying borrowers to put as little as 3.5% down on a property, helping lower the barriers to homeownership for many.

With an FHA loan, borrowers may also be eligible for down payment assistance. But there are other out-of-pocket expenses to keep in mind when considering an FHA loan. Let’s take a closer look at FHA loan down payment requirements and how much money you’ll need to get to the closing table.

What Is an FHA Loan?

An FHA loan is a type of mortgage that’s issued by a lender, such as a bank or credit union, but insured by the Federal Housing Administration (FHA). The purpose of the FHA mortgage program is to make homeownership more affordable for low- to moderate-income buyers.

Since FHA loans are government-insured, they offer more flexible eligibility requirements for borrowers who might not qualify for a conventional home loan. FHA loans have lower minimum down payment and credit score requirements, making them popular with first-time homebuyers and applicants with limited savings or poor credit. Compared to conventional mortgages, FHA loan interest rates are typically lower, but will vary depending on the lender and on the borrower’s credit score and finances.


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

FHA Loan Income Requirements

There aren’t any minimum or maximum income requirements to qualify for an FHA loan. However, there may be income limits for borrowers receiving down payment assistance through a state or local program.

In any case, lenders will look at an applicant’s ability to manage monthly mortgage payments and ultimately repay the FHA loan. Besides savings and assets, lenders assess an applicant’s debt-to-income (DTI) ratio, which measures the percentage of monthly income that goes toward debt payments. A lower DTI ratio is typically viewed as favorable. Depending on the lender, borrowers can get an FHA loan with a DTI ratio of up to 50%. In comparison, conventional loans typically require a DTI ratio of 43% or less.

Recommended: How Much is a Down Payment?

What Is the Down Payment Required for an FHA Loan?

Down payments are calculated as a percentage of the home purchase price. Historically, lenders looked for buyers to put down one-fifth of a home’s purchase price upfront. But you no longer always need to put down 20% on a house. The minimum down payment percentage for FHA loans depends on a borrower’s credit score.

The average down payment on a house in the U.S. was 13% in 2022. But with an FHA loan, borrowers with a credit score of 580 or more may qualify for a down payment of 3.5% of the home purchase price. Those with credit scores between 500 and 579 will need to put 10% of the home price towards a down payment. For a $400,000 house, this translates to $14,000 for a 3.5% down payment and $40,000 for a 10% down payment.


💡 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 Other Cash Will I Need to Close?

Besides the down payment, the remaining amount you need to close on a house will depend mainly on the home’s purchase price. Taking out an FHA loan requires paying an upfront mortgage insurance premium (MIP) of 1.75% of the loan total. It may be possible to roll this cost into the loan, which would increase the loan principal and monthly payment amount.

Buyers will also be on the hook for FHA loan closing costs, which typically range from 2% to 5% of the home’s purchase price. Borrowers can potentially avoid the upfront expense by rolling closing costs into an FHA loan. By financing closing costs, borrowers will pay a portion of the costs each month, plus interest. Note that financing closing costs can increase a borrower’s DTI ratio and potentially impact their ability to qualify for an FHA loan.

An alternative option to cover closing costs would be to ask for seller concessions. FHA loans allow the seller to contribute up to 6% of the home value for closing costs as a seller concession.

Recommended: What Do You Need to Buy a House?

How to Save for an FHA Loan Down Payment

Understanding how much house you can afford is a useful place to start to determine your housing budget and savings goal. Using an FHA loan mortgage calculator can help crunch the numbers to determine your down payment and monthly payment based on different loan terms. Not sure you will choose an FHA loan? Use a home affordability calculator to determine how much house you can afford.

With a savings goal in mind, calculate how much you can set aside each month after paying for debts and expenses. Consider cutting discretionary spending, such as dining out and travel, to increase monthly savings.

Buyers can also get the money they need for an FHA down payment in the form of a gift from family, friends, employer, charitable organization, or government program. Gifted funds need to be accompanied by a gift letter to show the lender that the money is going toward the down payment and doesn’t need to be repaid.

Is Down Payment Assistance Available for FHA Loans?

Borrowers who can’t afford a down payment on an FHA loan may be eligible for financial assistance. Down payment assistance can come in several forms, including grants and forgivable loans. These programs are available through local, state, and federal government programs, as well as nonprofit organizations.

Most down payment assistance programs are geared towards first-time buyers. They may include additional eligibility requirements, such as income limits and participation in homebuyer education courses. Consult a list of first-time homebuyer programs and loans to see what you might be eligible for. If it has been more than three years since you have owned a home, you may qualify for first-time homebuyer status.

Additional Cost Considerations for FHA Loans

In addition to the upfront costs of a down payment, closing costs, and MIP, there are other expenses to plan for.

The MIP includes an additional annual fee besides the 1.75% that’s required for closing. Annual payments range from 0.15% to 0.75% depending on the loan terms and loan-to-value ratio. The total annual cost is divided by 12 and spread out across the monthly payments in a given year. Note that MIP usually spans the life of the FHA loan unless a borrower refinances.

Depending on the property location, borrowers may also need to pay for flood insurance to get an FHA loan.

Pros and Cons of an FHA Loan

FHA loans are popular for their lower down payment mortgage requirements, but they’re not for everyone. Here are some advantages and drawbacks to consider when comparing home mortgage loan options.

Pros:

•   Smaller down payments

•   More lenient credit score requirements

•   No income limits

•   Can finance closing costs

Cons:

•   Required to pass an inspection and appraisal

•   Must be used for a primary residence.

•   Loan limits of $472,030 to $1,089,300 for a single-family home, depending on the cost of living by state.

•   Can require an inspection and stricter standards for the condition of the property.

The Takeaway

What is the minimum down payment for an FHA loan? Borrowers with credit scores of 580 or more can put just 3.5% down, while those with scores between 500 to 579 need to put 10% toward a down payment. The combination of lower minimum credit score and low down payment make FHA loans one attractive option for first-time homebuyers.

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

FAQ

What is the lowest down payment for an FHA loan?

The lowest down payment for an FHA loan is 3.5% of the loan amount. Borrowers can explore down payment assistance programs to help cover the cost.

What is the down payment for an FHA loan 2023?

The down payment for an FHA loan in 2023 ranges from 3.5% to 10% depending on the borrower’s credit score.

What will disqualify you from an FHA loan?

Borrowers could be disqualified from an FHA loan based on a high debt-to-income ratio, poor credit, or insufficient funds to pay for the down payment, closing costs, and monthly mortgage payment.

Photo credit: iStock/Edwin Tan

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.
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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