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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.

SOHL0623004

Buying an investment property can be a great way to put extra cash in your pocket, but you may need a mortgage to pull it off. (Technically, a property is considered an investment property if the owner does not make their primary residence there.) Because there’s more risk involved for lenders, mortgage rates for “non-owner-occupied” property tend to be higher. This article will discuss types of investment property loans, typical rates, and more.

Why You Might Need an Investment Property Mortgage

Purchasing a rental property or buying a fixer-upper could be a rewarding way to invest your money, but if you don’t have the cash to pay out of pocket, you’ll need another way to fund the deal. For many, that means taking out an investment property loan.

Recommended: How to Shop for a Mortgage

Types of Investment Property Loans

The type of mortgage loan you choose can affect your interest rate and required down payment. How you plan to use the investment property and the number of units it contains also will affect your loan choices.

Conventional and Government Loans

If you live in one unit of a multiunit property and rent out the others, a conventional loan may be an option when buying two- to four-unit properties. Buildings with four or fewer units are considered residential and eligible for the same loans as a single-family home when owner-occupied.

Those with five or more units require a commercial loan, which usually has a higher rate, higher down payment requirement, and shorter term. Note: SoFi does not offer this type of loan.

Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) loans are government-backed home loans, can be used to buy a two- to four-unit property with a low down payment or none at all, respectively, if you live in one of the units.

Is the sky the limit? Not exactly. The Federal Housing Finance Agency sets conventional conforming loan limits each year that depend on the number of units (one, two, three, or four) and the cost of the area. Staying under a loan limit means you’ll most likely obtain a lower-cost mortgage.

But jumbo loans, which exceed those limits, have their place. Lenders set their own limits and other criteria.

FHA loan limits for one to four units are set at 65% of the new year’s conforming loan limits. There are no VA loan limits for active-duty military members, veterans, and others who have full VA loan entitlement.

Home Equity Loan or HELOC

If you have enough equity in your primary residence, you may be able to take out a home equity loan or home equity line of credit (HELOC) to fund your investment.

Other Kinds of Financing

Finally, if you’re serious about getting an investment property, you can think about and read up on these options:

•   personal loan

•   cash-out refinance

•   hard money loan

•   owner financing

•   assumable mortgage

Understanding Investment Property Mortgage Rates

However much inflation affected mortgage rates, the rates are even higher for investment properties. Though rental property mortgage rates can vary, they are often at least 0.50% to 1.00% higher than rates for a primary residence.

Why are investment mortgage rates higher? Lending to an investor is inherently riskier. While someone who purchases a primary residence is likely to prioritize the mortgage payments for their own home, an investor who has a primary residence elsewhere will likely prioritize making payments on their own home above paying the mortgage for the investment property if cash runs short.

If the investment property is a flip but doesn’t sell as quickly as expected, the investor must keep making mortgage payments on the home after investing money to renovate — and may struggle to do so. And if the investment property is a rental, a vacancy results in no rental income to put toward the mortgage.

Recommended: Home Loan Help Center

What Determines the Rate?

So what determines investment property mortgage rates? Fannie Mae and Freddie Mac set rules regarding conventional investment property mortgages, including rate increases for single-unit and multiunit properties. Beyond that, mortgage rates for rental properties depend on a few additional factors:

Credit Score

As with any loan, a higher credit score typically results in a lower interest rate for an investment property mortgage.

Recommended: 18 Mortgage Questions for Your Lender

Debt-to-Income Ratio (DTI)

The lower your debt-to-income ratio, the better your chances of loan approval — and at a better rate. To calculate your DTI, add all your monthly debt payments, divide them by your gross monthly income, and multiply the result by 100.

Generally, 43% is the highest DTI you can have and still qualify for a mortgage, but many lenders prefer to see a 36% DTI or lower.

The lender may factor in 75% of your projected rental income when calculating your DTI, which works in your favor.

Cash Reserves

Because you may not immediately make money from an investment property — you typically need time to find renters or to rehab and list — lenders often like to see that you have adequate cash reserves.

Cash reserves refer to liquid (i.e., accessible) money that you have set aside for use in an emergency; in this case, it’s to cover the mortgage until your investment starts showing some ROI.

Though it can vary by lender, having six months’ worth of mortgage payments is often a good start. Having even more could improve your chances of approval and a lower rate.

Loan-to-Value Ratio (LTV) on the Investment Property

As with a traditional mortgage, lenders consider the loan-to-value ratio on the investment property. LTV expresses the ratio between how much money you’re borrowing and the appraised value of the property.

The closer those two numbers are, the higher the LTV ratio (expressed as a percentage) will be. By making a larger down payment and financing less, you can lower the LTV and potentially increase your chance for approval at a lower rate.

Making a Larger Down Payment

On a related note, you might benefit from offering a larger down payment. Although you may get approval with only 15% down — and some people even manage to buy a multifamily property with no money down — a larger down payment may yield a lower rate.

Not sure where to start? You can use a mortgage calculator to see how different down payment amounts may affect monthly payment and interest paid.

Getting a Lower Investment Property Mortgage Rate

Now that you know what determines a rental property mortgage rate, let’s see how you can use that info to potentially earn a lower one.

Coming in With a Good Credit Score

Other than an FHA loan, which is more lenient about credit scores, lenders usually require a minimum credit score of 640 for investment property loans; some set the barrier for entry at 680.

Regardless, catapulting your number into the high FICO® score range can improve your chances of a lower rate.

Paying Off Debt

A lower DTI ratio may also improve your chances of approval and a lower interest rate. But repaying debt is easier said than done; you may need to wait on an investment property if you’re working toward paying down a lot of credit card debt.

Increasing Your Cash Reserves

Showing a lender that you can cover the mortgage and other expenses like renovations or maintenance increases the odds of approval. The more liquid money you have, the lower your interest rate could be.

The Takeaway

Investment property loans are a good way for investors to purchase real estate for a rental property or a house flip, but the rates tend to be higher than rates for mortgages for a primary residence. A lender may offer a lower rate depending on a potential borrower’s credit score, down payment, debt load, and cash reserves.

Find more advice on setting yourself up for mortgage success in a home loan help center.

FAQ

Can I get a mortgage for an investment property?

You can if you qualify, but keep in mind that investment property mortgage rates are typically higher, and lenders may have stricter requirements for approval.

Do investment properties have higher mortgage rates?

In general, yes, because lenders take on more risk when lending to an investor than to a person or family shopping for a primary dwelling.

What’s the minimum down payment for an investment property mortgage?

The minimum down payment for an investment property depends on the type of loan you’re using. For a conventional loan, you usually need to put down at least 15%. An FHA loan for an owner-occupied one- to four-unit property calls for a down payment as low as 3.5%; a similar VA loan, no down payment.

Photo credit: iStock/Drazen Zigic

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

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

SOHL-Q125-014

Whether shopping for a home or an investment property, buyers may come across multifamily homes.The first need-to-know, especially for financing’s sake, is that multifamily properties with two to four units are generally considered residential buildings, and those with five or more units, commercial.

Let’s look at whether multifamily homes are a good idea for homebuyers or investors.

What Is a Multifamily Home?

Put simply, a multifamily home is in a building that can accommodate more than one family in separate living spaces. Each unit usually has its own bathroom, kitchen, utility meter, entrance, and legal address.

Of the more than 100 million Americans who rent, around two-thirds live in multifamily homes.

Among the different house types are duplexes, which contain two dwelling units, while a triplex and quadruplex consist of three and four units, respectively. A high-rise apartment building is considered a multifamily property.

What about ADUs? A home with an accessory dwelling unit — a private living space within the home or on the same property — might be classified as a one-unit property with an accessory unit, not a two-family property, if the ADU does not have its own utilities and provides living space to a family member.

Multifamily Homes vs Single-Family Homes

On the surface, the differences in property types may seem as straightforward as the number of residential units. But there are other considerations to factor in when comparing single-family vs. multifamily homes as a homebuyer or investor.

Unless you plan to hire a manager, owning a property requires considerable time and work. With either type of property, it’s important to think about how much time you’re able to commit to handling repairs and dealing with tenants.

If you’re weighing your options, here’s what you need to know about single-family and multifamily homes.

Pros and Cons of Multifamily Homes

There are a number of reasons to buy a multifamily home: Rental income and portfolio expansion are two.

Buying real estate is one ticket to building generational wealth. But there are also downsides to be aware of, especially if you plan to purchase a multifamily home as your own residence.

So what are multifamily homes’ pros and cons? The benefits and drawbacks can depend on whether it’s an investment property or a personal residence.

As Investment

Investing in multifamily homes can come with challenges. Take financing.

A mortgage loan for an investment property tends to have a slightly higher interest rate, the qualification hurdles are higher, and a down payment of 20% or more is usually required, though there are ways to buy a multifamily property with no money down.

Government-backed residential loans don’t apply to non-owner-occupied property, but there is a commercial FHA (Federal Housing Administration) loan for the purchase or refinancing of apartment buildings with at least five units that do not need substantial rehabilitation. Another FHA loan program is for new construction or substantial rehabilitation of rental or cooperative housing of at least five units for moderate-income families, elderly people, and people with disabilities. Yet another FHA loan pertains to residential care facilities. Upfront and annual mortgage insurance premiums (MIP) apply.

Before adding a multifamily home to your real estate portfolio, take note of the pros and cons of this investment strategy.

As Residence

Buyers can choose to purchase a multifamily home as their own residence. They will live in one of the units in an owner-occupied multifamily home, while renting out the others.

Owners can use rental income to offset the cost of the mortgage, property taxes, and homeowners insurance while building wealth.

Another advantage is financing. With a multifamily home of two to four units, an owner-occupant may qualify for an FHA, VA (U.S. Department of Veterans Affairs), or conventional loan and put nothing down for a VA loan or little down for a conventional or FHA loan. (It isn’t all hearts and flowers, though. Most VA loans require a one-time funding fee. FHA loans always come with MIP. And putting less than 20% down on a conventional loan for an owner-occupied property, short of a piggyback loan or lender-paid mortgage insurance, means paying private mortgage insurance).

What are multifamily homes’ pros and cons as residences?

It’s worth noting that an owner-occupant can move to a new residence later on and keep the multifamily home as an investment property. This strategy can help lower the barrier to entry for real estate investing, but keep in mind that loan terms may require at least one year of continued occupancy.

Recommended: Tips to Qualify for a Mortgage

Who Are Multifamily Homes Right For?

There are a variety of reasons homebuyers and investors might want a multifamily home.

Multifamily homes can be helpful for entering the real estate investment business or diversifying a larger portfolio. It’s important to either have the time commitment to be a landlord or to pay for a property manager.

For homebuyers in high-priced urban locations, multifamily homes may be more affordable than single-family homes, given the potential for rental income. It might be helpful to crunch some numbers with a mortgage payment calculator.

Multigenerational families who want to live together but maintain some privacy may favor buying a duplex or other type of multifamily home.

What to Look for When Buying a Multifamily Home

There are certain characteristics to factor in when shopping for a multifamily home.

First off, assess what you can realistically earn in rental income from each unit in comparison to your estimated mortgage payment, taxes, and maintenance costs. Besides what the current owner reports in rent, you can look at comparable rental listings in the neighborhood.

When looking at properties, location matters. Proximity to amenities, school rankings, and transportation access can affect a multifamily home’s rental value.

The rental market saturation is another important consideration. Buying a multifamily home in a fast-growing rental market means there are plenty of renters to keep prices up and units filled.

The vacancy rate — the percentage of time units are unoccupied during a given year — at a property or neighborhood is an effective way to estimate rental housing demand.

Depending on your financing, the condition of a multifamily home may be critical. With a VA or FHA loan, for instance, chipped paint or a faulty roof could be a dealbreaker.

Read up on mortgage basics to learn about what home loans you might use for a multifamily home and their terms.

Finding Multifamily Homes

Like single-family homes, multifamily homes are featured on multiple listing services and real estate websites. Browsing rental listings during your multifamily home search can help gauge the market in terms of vacancy rates and rental pricing.

Working with a buyer’s agent who specializes in multifamily homes can help narrow your search and home in on in-demand neighborhoods.

Alternatively, you can look into buying a foreclosed home. This may help get a deal, but it’s not uncommon for foreclosed properties to require renovations and investment.

The Takeaway

Buying a multifamily home as a residence or investment property can provide rental income and build wealth. It’s also a major financial decision. Whether you’re planning to be an owner-occupant or not will affect your financing, so seriously consider this option and run the numbers to see if you stand to recoup your costs — and ideally make a profit — from the building’s rental income.

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 difference between residential and multifamily?

Some multifamily homes — those with fewer than five units — are considered residential real estate. Larger properties with more than five units are commercial real estate.

Photo credit: iStock/krzysiek73

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

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

SOHL-Q224-1903424-V1

If you’re on the fast track to buying a home, you’ve probably come across a lot of different players in the game, including mortgage lenders and mortgage servicers. There are some important differences between a mortgage servicer and mortgage lender.

A mortgage lender is the lending institution that originates your mortgage. The loan officer you work with on your home loan is a representative of the lender. But once the papers are signed, the lender is no longer your primary point of contact. That role falls to the mortgage servicer, which is the institution responsible for administering your loan.

What Is a Mortgage Lender?

A mortgage lender is the financial institution that funds your mortgage. The lender serves as your primary point of contact during underwriting while your mortgage heads toward the closing table.

Once your home mortgage loan closes, the servicing of the loan may be handled by a different entity. It may be the same company (for example, Wells Fargo both originates and services home loans), but you may have a different mortgage servicer, which will issue your mortgage statements.

What Do Mortgage Lenders Do?

Mortgage lenders guide borrowers through the entire financing process. In a nutshell, mortgage lenders:

•   Help borrowers choose a home loan

•   Take the mortgage application

•   Process the loan

•   Draw up loan documents

•   Fund the mortgage

•   Close the loan

After shopping for a mortgage and obtaining mortgage preapproval, you choose a lender.

Your mortgage lender helps you compare mortgage rates and different mortgage types to find one that may be right for you.The lender also answers any mortgage questions you may have.

Your lender will also fund the mortgage and close the loan. After your loan has been funded, it may be transferred to a mortgage servicer.

What Is a Mortgage Servicer?

A mortgage servicer is a company that receives installment payments for a mortgage loan. It is responsible for administering the day-to-day tasks of the loan, which include sending statements, keeping track of principal and interest, monitoring an escrow account, and taking care of any serious concerns that may occur.

A mortgage servicer may or may not be the same company as your mortgage lender. The rights to service your loan can be transferred to another company. When this happens, your mortgage terms will remain the same, but you’ll send your mortgage payment to the new servicer.

What Do Mortgage Servicers Do?

The main role of a mortgage service is to collect your payment and ensure that the different parts of your payment (principal, interest, taxes, and insurance, and mortgage insurance, if applicable) make it to the proper entity.

The mortgage servicer will forward principal and interest to the investor (or holder of your mortgage note). Taxes collected and stored in the escrow account will go to the taxing entity when they are due, the insurance premium will be paid to the homeowners insurance company, and the mortgage insurance payment will be forwarded.

The mortgage servicer’s main duties are:

•   Managing and tracking borrowers’ monthly payments

•   Managing borrowers’ escrow accounts

•   Generating tax forms showing how much interest borrowers paid each year

•   Helping borrowers resolve problems, such as with mortgage relief programs

•   Initiating foreclosure if the borrower defaults

•   Performing loss mitigation to prevent foreclosure (in some cases)

•   Processing requests to cancel mortgage insurance

Mortgage servicers also have the responsibility of preserving properties that are in distress. Should a hardship befall borrowers and they need to vacate the property, the servicer must step in to take care of the property while it’s in foreclosure proceedings.

Recommended: Home Loan Help Center

Differences Between a Mortgage Servicer and a Mortgage Lender

To summarize, these are some of the major differences between a mortgage lender and a mortgage servicer.

The Takeaway

Both the mortgage lender and mortgage servicer play an important role in the home-buying process but at different times. The lender will guide you in applying for and obtaining a mortgage. The mortgage servicer will assist in your everyday needs with the mortgage. So your first step on your home-financing journey is to find a mortgage lender.

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 are the four types of mortgage lenders?

Banks, credit unions, mortgage lenders, and individual homeowners all lend money for home mortgages.

What is the difference between a mortgage servicer and investor?

A mortgage servicer is responsible for the day-to-day administration of a loan. A mortgage investor is the person or entity that owns the mortgage note. The investor may be the originator, but it’s more likely that the investor owns a mortgage-backed security. A mortgage investor has no active role in the administration of the actual loan.

How do I find out who my servicer is?

You should receive monthly statements that will have information on who your servicer is and where you can send payment. You can also find out who your mortgage servicer is by calling 888-679-6377 or going to www.mers-servicerid.org/sis, which has the current servicer and note owner information for loans registered on the MERS® System.

Can I change my mortgage loan servicer?

You cannot change your mortgage loan servicer unless you refinance your mortgage. Servicing of your mortgage, however, can be transferred to another loan servicer without your consent.

What happens when my loan moves to a new servicer?

If your loan has been transferred to a new servicer, the new company will send you a letter and you will need to send your monthly payments to them. The terms of the original loan will never change, no matter who the servicer is.

Photo credit: iStock/MicroStockHub

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

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

SOHL-Q224-1903402-V1

If you think you need a down payment of 20% of a property’s price in order to start home shopping, think again. Most homebuyers put down a significantly smaller amount. Opting for a lower down payment has the benefit of getting you into a home sooner than if you scrimped and saved for years. And you might reap the benefit from market appreciation as soon as you own a property.

Prospective homeowners may explore such options as mortgages with lower down payments (some are even available with 0% down to qualified borrowers), as well as down payment assistance programs.

Learn more here, including:

•   What is a down payment?

•   How much money should you put down to buy a house?

•   How can you lower down payment requirements when buying a property?

What Is a Down Payment?

First, the basics: What exactly is a down payment? A down payment is the amount of money that goes paid, in cash, toward the purchase price of the home. It must cover the gap between the purchase price of the home and the amount of the mortgage.

A down payment determines what kind of loan you can get, whether or not you’ll pay private mortgage insurance (PMI), what your monthly payment will be and even what your interest rate will be. A down payment doesn’t include closing costs.


💡 Quick Tip: Don’t overpay for your mortgage. Get a competitive rate by shopping around for a home loan.

How Much Should You Put Down on a House?

You might be wondering how much is a down payment and how long it will take you to save that down payment amount for. Here are some options to consider when it comes to down payment amounts:

•   20% Down payment: Many people believe mortgage lenders say this is the amount they must come up with, though that is not true. Yes, a bigger down payment lowers your mortgage. Your monthly mortgage payment is lower because of your higher down payment, and you’ll pay less interest over the life of the loan. Also, when your down payment is above 20%, your lender does not require you to purchase PMI, which can save you hundreds of dollars each month.

But paying 20% can take a lot of cash out of your pocket when you buy your home. For example, 20% on a home that costs $400,000 is $80,000 dollars. There are many people who want to buy a property, but simply can’t come up with that amount of cash or at least not until they’ve saved for a considerable amount of time.

•   8% Down payment: This is the average down payment on a house for first-time homebuyers, according to the National Association of Realtors®. (For repeat homebuyers, the figure jumps to 19%.) Making this much of a down payment means you won’t avoid PMI in most cases, but you’ll be able to buy a home with a smaller down payment and without having to save as much money. For a house that costs $400,000, that’s $32,000 you need to come up with.

•   3% to 5% Down payment: With a down payment between 3% and 5%, you’ll have a higher monthly payment because your loan amount is higher than if you were able to make a larger down payment. You’ll also pay more each month because of the PMI payment. Lower down payments mean you’ll also pay more interest over the life of the loan.

However, the main benefit of a low-down-payment loan is you’re able to buy a home sooner than if you wait to save a full 20%. For a $400,000 home, a 3% down payment is $12,000 and a 5% down payment is $20,000. Some loans have the option of eliminating PMI once the loan’s remaining principal balance drops to or below 80% of the original mortgage.

•   0% Down payment: Zero down payment options come with higher monthly payments, and there may be certain restrictions or qualifications (say, a certificate of eligibility for military members). They may be niche programs specific to a group of people or locality. Some zero-down programs do not require PMI, but may have an upfront cost to fund their own mortgage insurance, like USDA loans (more on those in a minute).

Considerations to Determine Your Down Payment

The large amount of cash typically needed makes first time homebuyers wonder how they can afford a down payment and if it’s possible to figure out how to lower a down payment on a house. A couple of points to consider:

•   It is possible to get a lower mortgage payment by paying down principal on your home with a larger down payment. A 20% down payment on a house eliminates the need to pay PMI every month, which saves you even more on your monthly payment. In this way, a larger down payment can benefit your cash flow and overall financial situation.

•   However, 20% of the price of a home in your market may be hard to save for. You can learn how to buy a house with no money down, but there are also 3%, 3.5%, or 5% down payment options available. A lower down payment may be able to help you buy a home sooner. You can begin reaping the benefits of home ownership that much soon and hopefully your home’s value will rise, contributing to your personal wealth.

Recommended: First-Time Home Buyer Programs

How to Lower Down Payment Requirements?

If you’re moving towards purchasing a home, you might be wondering if you can lower your down payment before closing. Generally speaking, you have a handful of options for lowering your minimum down payment amount requirement as you take out a home mortgage loan and become a homeowner.

Buy a Home in an Area Approved for USDA Loans

USDA loans have 0% down payment requirements, so if you can find a home in an area approved by USDA (typically but not always in a rural location), you may be able to get a 0% down payment loan. For the USDA loan, there are property and income requirements which are determined by the county you live in (or want to live in).

Use a VA Loan to Buy a Home

Qualifying veterans, active duty, National Guard, and Reserve members of the military can use a VA loan, a mortgage that comes with zero-down-payment financing.


💡 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!^{†^}

Pay the Minimum Amount for a Down Payment

One solution is to look for a loan without potentially restrictive eligibility requirements, as with a USDA or VA loan, and instead shop around for a loan that has low down payment policies. Many lenders offer mortgages with as little as 3% down, which may work well for some homebuyers.

Find a Down Payment Assistance (DPA) Program

Down payment assistance programs vary from area to area as far as requirements and amounts go. If you really need down payment assistance, try to buy a home in an area that offers one of these options. DPAs are usually reserved for first-time homebuyers or low- to moderate-income buyers. They typically come in three forms:

•   Second mortgage. DPAs are often offered in the form of a second mortgage with low or zero interest rates. Some second mortgages may not need to be repaid after living in the home for a certain period of time, while others may only need to be repaid when the property is sold.

•   Grant. With a grant, the money you receive is not expected to be repaid. However, there may be requirements for living in the home as a primary residence for a certain number of years for the grant to be forgiven.

•   Tax credit. Tax credits can reduce the amount of federal tax you owe if the local housing finance agency (HFA) issues you a mortgage credit certificate. This certificate can free up money for down payment and closing costs.

Some examples of DPA programs across the U.S. include:

•   Kentucky: Borrowers can receive up to $10,000 repayable over a 10-year period at 3.75% interest via the Kentucky Housing Corporation.

•   California: CalHFA has down payment assistance loans of up to the lesser of 3.5% of the purchase price or appraised value to qualifying homebuyers.

•   New York City: The HomeFirst Down Payment Assistance Program offers up to $100,000 for first-time homebuyers who qualify.

•   Montana: Borrowers can qualify for up to $15,000 in assistance for a down payment from Montana Housing. Repayment is either due when the home is sold or in the form of a 15-year loan.

•   Chenoa Fund: The Chenoa Fund is a nationwide down payment assistance program for creditworthy individuals on FHA loans up to 5% of the down payment needed for low- to moderate-income households. Both repayable and forgivable options are available.

In some areas, DPA programs can be hard to find or difficult to qualify for. Your lender can be an excellent resource if you need help buying a home with a small down payment. Discuss options with a representative and see what is available.

Negotiate for Lender Credits

Lenders want your business, especially in a high-rate environment. You can ask for credits to be applied to your closing costs. When your closing costs are covered by the lender, you can put more of your money toward your down payment.

Ask for Seller Concessions

When you negotiate the purchase of property, you can ask for seller concessions. These typically determine home’s purchase price and which closing costs the seller is willing to pay. Like lender credits, you can put more of your own money towards the down payment when a seller can cover some of your closing costs.

Ask for a Gift from Family

Of course, not every prospective homebuyer is blessed with a relative who has money in the bank they might give you or lend to you with generous repayment terms. But if you are in a spot and unable to come up with the funds otherwise, you might see if anyone is able and willing to help you out.

The Takeaway

While they may come with higher monthly mortgage payments, lower down payment mortgages can help borrowers buy homes sooner. Lowering your down payment requires a good amount of research on the part of the borrower, exploring different loans, programs, and other options to help you afford a property.

Even then, you may not find a perfect solution. That’s why it can be important to choose a mortgage partner who’s willing to be with you every step of the way.

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

How much money to put down on a house in 2024?

Deciding on how much money to put down depends on your individual financial situation, the area in which you live, and programs you’re able to qualify for. While putting down 20% could save you the money you would pay towards PMI, you may be able to get into a house sooner by paying a lower down payment amount (from 0% to 3.5%). First-time homebuyers are currently putting down 8% on average.

How can I get my house down payment lowered?

To get your down payment lowered, you can try: financing with a zero-down loan (such as a USDA or VA loan), asking for seller concessions, negotiating for lender credits, and looking for down payment assistance programs.

Will mortgage interest rates go down 2024?

It is looking likely that mortgage interest rates will stabilize or decline. At the start of 2024, both the Mortgage Bankers Association and Fannie Mae were calling for rates to decline to the 6% to 6.5% range in the year ahead.

Does having a cosigner lower your down payment?

A cosigner can help you qualify for a mortgage, but it won’t change the requirements of the mortgage. Different loan programs will each have their own down payment requirements.

Photo credit: iStock/aydinmutlu

*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.

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