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“Mortgagor” is just another word for someone who is borrowing money from a mortgage lender (the “mortgagee”) to purchase real estate. It’s not every day that you see the term “mortgagor” and it doesn’t roll off the tongue easily. You might even think perhaps it’s misspelled. But when it comes to financial matters, half the battle is understanding the jargon. In this case, the good news is that even if you have never heard of a mortgagor, it’s just another word for being the borrower on a home loan.

The Function of a Mortgagor

The mortgage universe can be a bit complex and it’s helpful to understand the basics of mortgages. So let’s take a closer look at the mortgagor’s role. The mortgagor makes monthly payments to the mortgagee as specified in the loan agreement. The terms of a mortgage can vary widely. For example, depending on the applicant’s credit history, the interest rate may be higher or lower than the average.

A mortgagor may choose from different types of mortgage loans. Some loans have a fixed interest rate and a term of 30 years, though many lenders offer loan lengths of 20, 15, or 10 years. A fixed-rate mortgage has an interest rate that remains the same during the life of the loan. A variable-rate mortgage is one in which the interest rate moves up and down with the market.

The bottom line: Mortgagors must pay back the loan in a timely fashion. If not, mortgagees can force foreclosure of the home or other real estate — the collateral for the loan.


💡 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.

How a Mortgagor Gets a Mortgage Loan

A mortgagor applies to a mortgagee for a mortgage. Conventional mortgage loans are originated by private lenders like banks, credit unions, and mortgage companies. Certain private lenders also originate FHA, VA, and USDA loans; those loans are insured by the Federal Housing Administration, Department of Veterans Affairs, and U.S. Department of Agriculture. Government-backed loans are often easier to qualify for and may have more lenient terms and lower interest rates.

No matter what kind of mortgage loan you seek, expect to jump through some hoops and produce much documentation to prove you are creditworthy and have the means to pay back what you borrow. A prospective lender will do a hard credit inquiry into your credit scores and credit history. So it’s helpful to understand what makes up your credit scores. Important factors include your credit history, how long you’ve had your lines of credit open, your payment history, and debt-to-income ratio, which is the total amount of your monthly debt payments divided by your gross monthly income. If your debt-to-income ratio is high, that may be a no-go in the eyes of a lender, who may see you as tapped out with no real wiggle room to take on a mortgage.

To purchase a home, buyers often take on a mortgage loan for the price minus any money they put forth as a down payment. While you may be able to get an FHA loan with 3.5% down, or a VA loan with no down payment at all, the median down payment is around 13% of the value of the home.

Contractual Obligations of Mortgagors

A deal is a deal is a legally binding deal. Once the ink dries on that mortgage, you’re locked into your commitment to pay as you said you would. If you veer off course, you’re at risk of losing the home, as there is a lien on the real property as collateral for the loan. At the very least, late or missed payments will cause your credit score to dip, which could be problematic the next time you need to show your credit score, be it for a car loan or maybe even to a potential employer.

Equity of Redemption

If this phrase sounds important, it is. You’ll be thankful for it if you have gotten behind on your mortgage. Equity of redemption, also called right of redemption, will give you a chance to get caught up and keep your home before a foreclosure sale.

When you miss payments, the mortgagee can start the foreclosure process. The lender can take back the house and sell it at auction to pay off the debts. If this process has begun, you may be able to redeem the mortgage using equity of redemption. Understand that you’ll need to come up with the money to pay off the principal, interest, and expenses under equity of redemption. Realistically, if you’re in financial trouble, a funding source to pay off the loan is unlikely.

Some states have a law that gives mortgagors the right to redeem the home for a period of time after the foreclosure sale. With the statutory right of redemption, usually the borrower must pay the bid price, plus interest and fees, to the buyer of the property at the foreclosure sale.

Rights of Mortgagors

While it doesn’t have to be a battle royal, when it comes to mortgagee vs. mortgagor, the mortgagee holds the keys to the kingdom. The lender puts up the money, and if the borrower can’t make the mortgage payments, the lender has the right to take the house. That’s not to say you are without a few good things in your back pocket, like the aforementioned rights of redemption. You can also ask that your mortgage be transferred to a third party, but only if the mortgagee is not in possession of the property.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Mortgagors vs Mortgagees

To lessen any confusion, here’s a quick look at who does what.

The Takeaway

Understanding the lingo can help you be more confident as you embark on your homebuying journey. Do your research, pull together your financial documents, find a home you love and soon you, too, could become a mortgagor.

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.

Photo credit: iStock/fizkes

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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Buyers who learn how to negotiate house prices lay the foundation for a mutually acceptable deal. Whether you’re a first-time homebuyer or not, these strategies to negotiate home prices may help you score a property at the price that works best for you.

Why You Should Negotiate House Prices

While negotiating the price of a home as a buyer can seem intimidating, the benefits often outweigh the fear. For starters, negotiating lets the seller know you’re serious about the home. And if the asking price is over what you feel comfortable with, negotiating can help you see if there is any wiggle room.

A successful negotiation gives you the opportunity to create a concise offer that you’re happy with and that helps you stay within your budget. It feels great to get the house you want without putting yourself in a stressful financial situation.

Things to Know Before Negotiating Home Prices

Know Your Market

The market will dictate how much leverage you have to negotiate a home price. So start by determining whether it’s a hot seller’s market or a buyer’s market.

The power is typically in your hands if the number of homes for sale exceeds the number of willing buyers. Markets can vary from city to city and neighborhood to neighborhood. So check with your real estate professional to be certain what type of market you’re working with.

Know the Value of an Agent

Can you buy a house without a real estate agent? Sure, but it’s not a decision to make lightly.

Besides the fact that real estate agents know what’s reasonable for the current market conditions, they have valuable experience that can help you navigate offers and counteroffers. And because they aren’t emotionally attached to the outcome, they are better set up to get the best deal without making ​​excessive concessions.

But you don’t want to work with just any agent. You want to work with someone who is a buying and selling expert, has connections with other agents in the area, and is knowledgeable about the community you’re interested in.

Got your eye on a house for sale by owner? You can find a real estate agent or go it alone.

Recommended: Finding a Good Real Estate Agent When Buying a House

How Much Can You Negotiate on Average?

One of the best ways to get an idea of how much you can negotiate is to research the prices of “comps,” recently sold homes in your target area that are similar to the property you’re trying to buy.

A real estate agent will have access to market trends. But you can obtain the information yourself on sites like Zillow, Realtor.com, Redfin, and Trulia. If you’re moving from out of state, this guide to the cost of living by state can give you a sense of what housing expenses to expect. In a large state such as California, it’s helpful to consider the cost-of-living breakdown for individual cities.

Zillow also lists how long for-sale properties have been on the market, which can give you some insight into how negotiable a list price may be.

Unless you’re in a hot seller’s market, you may be able to offer 10% under the asking price and even ask the seller to pay closing costs or certain other concessions.

How to Negotiate a House Price as a Buyer

Once you have a sense of the market and an agent to help you negotiate, the next step is to get your finances in order so you’ll be in a strong position to negotiate. Sellers are apt to be most enthusiastic about buyers who have been preapproved, as opposed to prequalified, for a mortgage.

While both involve a lender taking a peek at your financial information, such as income, credit history, debts, and assets, preapproval involves an in-depth application and verification process. It’s a great way to send your offer to the front of the pile.

If you already own a home, selling it ahead of time could also put you in a better position to negotiate: It means you won’t have to wait until your home is sold to go forward with the buying process.

This “chain-free” approach requires careful timing and possibly setting up a temporary living space. While it’s not feasible for everyone, it is an option to keep in mind if you’re hoping to increase your odds of success in a competitive market.

Recommended: How Long Does a Mortgage Preapproval Last?

Now it’s time to make a smart offer.

Tips on Negotiating House Prices

Keep Your Cool

From the first time you walk through the home, it’s a good idea not to show all your cards by appearing overeager, even if you’re totally in love with the place. If you come across as desperate for the house, sellers may feel they can expect a higher offer from you.

Don’t be afraid to point out any drawbacks that give you pause, and give yourself time to shop around before you get serious about putting money on the table.

Get an Inspection

Found a property you love? While your mortgage lender might not require a home inspection — and while forgoing one may make your offer more appealing to the seller — it’s probably in your best interests to have one.

Without a home inspection, the only information you have about the house comes from what the seller is able (or willing) to disclose and what you observe during your tour. Home inspections can reveal hidden issues like cracks in the foundation or plumbing problems.

Along with helping you plan for unforeseen repair costs ahead of time, the inspection can also give you leverage to ask the sellers to knock down their price a bit, offer you a credit for closing costs, or fix the problem themselves. Your real estate agent can help you decide how to negotiate the house price after the inspection.

Put Your Offer in Writing

Many experts recommend putting your offer in writing and adding as much detail as possible. That way you avoid any disagreements on what was said and can negotiate on factors beyond price.

When competing against multiple offers on a house, buyers may waive one or all contingencies to sweeten their offer. Contingencies are simply conditions that must be met in order to close the deal.

An appraisal contingency can be an opportunity to negotiate the home price or back out if the property does not appraise at the price in the purchase contract.

A clear title contingency also gives the buyer a way out if liens or disputes are associated with the property.

And it can’t hurt to ask for help with closing costs.

Plead Your Case

In a competitive market, you might also consider adding a personalized letter to your offer. It might sound cheesy, but selling a home can be just as emotionally fraught as buying one. Describing why you love the house or how you imagine your family growing with the property can help your offer stand out from others, even if you aren’t the highest bidder.

Avoid offending a seller with a lowball offer, particularly if you’re negotiating in a seller’s market or purchasing a beloved property that’s been in the family for years. If you do decide to bid around 20 percent under the asking price, make sure you’re willing to walk away.

When it comes time to make an offer, consider not only the list price but closing costs and any repair or renovation expenses.

Knowing When to Walk Away From an Offer

Although you’ll generally hear back on (realistic) offers within a few business days, sellers aren’t legally obligated to respond to your offer at all. Including an expiration date in your offer will give you a firm calendar date on which you’ll know for a fact you didn’t get the home, which means you’ll be able to redirect your efforts.

Purchasing a home can take a long time. There’s no reason to waste your energy when it’s a moot point.

A seller who responds to your offer but who isn’t inclined to move on the price of the house might be willing to instead make repairs that are needed and that are identified during the inspection of the property. And consider asking the seller to throw in items like furniture or play equipment that they might be planning to take with them. If they decline and you still don’t feel good about the price, it’s time to walk away.

The Takeaway

Negotiation goes on in love and war, in a salary decision, with parents and toddlers, and in real estate. If you’re a buyer, the more you know about negotiating home prices, the better.

As important as it is to shop around for the right home — and negotiate for the right price — it’s also important to find the right home mortgage loan. SoFi offers competitive fixed-rate mortgage loans, and qualified buyers can put down as little as 3%.

FAQ

How do you politely ask for a lower price?

Rely on your real estate agent to help you determine a good offer price. Then consider writing a personal letter to accompany the offer, addressing the seller by name if possible and conveying, in a friendly tone, a sincere message about what you like about the house or how you can imagine your family living there.

How much can you negotiate when buying a house?

How much you can negotiate depends on how “hot” the market is. In a competitive seller’s market you may not be able to negotiate at all. Rely on your real estate agent to guide you. A property that has been on the market for a long time may provide more opportunity for negotiation.

What is not a smart way to negotiate when buying a home?

Avoid making a very low initial offer — you risk offending the seller. And don’t criticize the seller’s taste by, say, pointing out that the kitchen decor isn’t to your liking. Finally, if you are preapproved for a mortgage that is greater than your offer price, don’t tip your hand; instead, ask your lender to tailor the preapproval letter to the amount you are offering.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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.

For those who are at or getting close to retirement age and are looking for ways to rev up their cash flow, a reverse mortgage may seem like a wise move. After all, the TV ads make them look like a simple solution to pump up the money in one’s checking account.

A reverse mortgage can be a way to translate your home equity into cash, but, you guessed it: There are downsides along with the benefits. Whether or not to take out a reverse mortgage requires careful thought and research.

Here, you’ll learn the pros and cons to these loans, so you can decide if it’s the right move for you and your financial situation.

Reverse Mortgages 101

There are many different types of mortgages out there. Here are the basics of how reverse mortgages work.

•   A reverse mortgage is a loan offered to people who are 62 or older and own their principal residence outright or have paid off a significant amount of their mortgage. You usually need to have at least 50% equity in your home, and typically can borrow up to 60% (or more, but not 100%) of the home’s appraised value.

•   The lender uses your home as collateral in order to offer you the loan, although you retain the title. The loan and interest do not have to be repaid until the last surviving borrower moves out permanently or dies. A nonborrowing spouse may be able to remain in the home after the borrower moves into a health care facility for more than 12 consecutive months or dies.

•   Here’s another aspect of how reverse mortgages work: Fees and interest on the loan mean that over time, the loan balance increases and home equity decreases.

•   You may see reverse mortgages referred to as HECMs, which stands for Home Equity Conversion Mortgage. This is a popular, federally insured option.

💡 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.

Pros of Reverse Mortgages

A reverse mortgage offers older Americans the opportunity to turn what may be their largest asset — their home — into spendable cash. There are a variety of ways in which this can be attractive.

Securing Retirement

Many seniors find themselves with a fair amount of their net worth rolled up in their home but without many income streams. A reverse mortgage is a relatively accessible way to cover living expenses in retirement.

Paying Off the Existing Home Loan

While you have to have some of your home loan paid down in order to qualify for a reverse mortgage, any remaining mortgage balance is paid off with reverse mortgage proceeds. This, in turn, can free up more cash for other expenses.

No Need to Move

Those who take out reverse mortgages are allowed to remain in their homes and keep the title to their home the entire time. For established seniors who aren’t eager to pick up and move somewhere new — or downsize — to lower expenses, this feature can be a major benefit.

No Tax Liability

While most forms of retirement funding, like money from a traditional 401(k) or IRA, are considered income by the IRS, and are thus taxable, money you receive from a reverse mortgage is considered a loan advance, which means it’s not.

Heirs Have Options

Heirs can sell the home, buy the home, or turn the home over to the lender. If they choose to keep the home, under HECM rules, they will have to either repay the full loan balance or 95% of the home’s appraised value, whichever is less.

Thanks to FHA backing, if the home ends up being worth less than the remaining balance, heirs are not required to pay back the difference, though they’d lose the house unless they chose to pay off the reverse mortgage or refinance the home.

Recommended: Guide to Cost of Living by State

Cons of Reverse Mortgages

As attractive as all of that may sound, reverse mortgages carry risks, some of which are pretty serious.

Heirs Could Inherit a Loss

While heirs may not be forced to pay the shortfall of an upside-down reverse mortgage, inheriting a home in that scenario could come as an unpleasant surprise. Keeping a home in the family is an accessible way to build generational wealth and ensure that heirs have a home base for the future. Therefore, the potential for them to lose — or have to refinance — the house can be painful.

Losing Your Home to Foreclosure

Unfortunately, losing your house with a reverse mortgage is a possibility. You’ll still be required to pay property taxes, any HOA fees, homeowners insurance, and for all repairs, along with your regular living expenses, and if you can’t, even with the reverse mortgage proceeds, the house can go into foreclosure.

Reverse Mortgages Are Complicated

As you probably realize this far into an article explaining the pros and cons of reverse mortgages, these loans aren’t exactly simple. Even if you understand the basics, there may be caveats or exceptions written into the documentation.

Before applying for an HECM, you must meet with a counselor from a HUD-approved housing counseling agency. The counselor is required to explain the loan’s costs and options to an HECM, such as nonprofit programs, or a single-purpose reverse mortgage (whose proceeds fund a single, lender-approved purpose) or proprietary reverse mortgages (private loans, whose proceeds can be used for any purpose).

Impacts on Other Retirement Benefits

Although your reverse mortgage “income” stream isn’t taxable, it may affect Medicaid or Supplemental Security Income benefits, because those are needs-based programs. (Proceeds do not affect Social Security or Medicare, which are non-means-tested programs.)

Costs of Reverse Mortgages

Like just about every other loan product out there, reverse mortgages come at a cost. You’ll pay:

•   A lender origination fee

•   Closing costs

•   An initial and annual mortgage insurance premium charged by your lender and paid to the FHA, guaranteeing that you will receive your expected loan advances.

These can be rolled into the loan, but doing so will lower the amount of money you’ll get in the reverse mortgage.

Reverse Mortgage Requirements

Not everyone is eligible to take out a reverse mortgage. While specific requirements vary by lender, generally speaking, you must meet the following:

•   You must be 62 or older

•   You must own your home outright (or have paid down a considerable amount of your primary mortgage)

•   You must stay current on property expenses such as property taxes and homeowners insurance

•   You must pass eligibility screening, including a credit check and other financial qualifications

Recommended: How Homeownership Can Help Build Generational Wealth

Is a Reverse Mortgage Right for You?

While everyone interested in a reverse mortgage needs to weigh the pros and cons for themselves, there are some instances when this type of loan might work well for you:

•   The value of your home has increased significantly over time. If you’ve built a lot of equity in your home, you probably have more wiggle room than others to take out a reverse mortgage and still have some equity left over for heirs.

•   You don’t plan to move. With the costs associated with initiating a reverse mortgage, it probably doesn’t make sense to take one out if you plan to leave your home in the next few years.

•   You’re able to comfortably afford the rest of your required living expenses. As discussed, if you fall delinquent on your homeowners insurance, flood insurance, HOA fees, or property taxes, you could lose your home to foreclosure under a reverse mortgage.

There are options to consider. They include a cash-out refinance, home equity loan, home equity line of credit, and downsizing to pocket some cash.

The Takeaway

A reverse mortgage may be a way to turn your home equity into spendable cash if you’re a qualified older American, but there are important risks to consider before taking one out. While reverse mortgages can free up funds, they are complicated, can involve fees, and can wind up putting your home into foreclosure if you can’t keep up with payments.

Reverse mortgages are just one of many different mortgage types out there — all of which can be useful under the right circumstances. SoFi doesn’t offer reverse mortgages at this time but has an array of home loan products that may meet your needs.

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.

Photo credit: iStock/Prostock-Studio

*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.

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

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

1. Estimate Your Budget

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

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

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

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

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

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

2. Choose a Mortgage Type and Term

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

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

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

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

•   A fixed-rate or adjustable-rate mortgage

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

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

•   If you should opt for an interest-only mortgage

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

3. Get Preapproved

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

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

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

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

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

•   Bank statements

•   Paystubs

•   Tax returns

•   W-2s

•   Retirement account statements

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

•   Identification

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

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

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

4.Find a Property and Make an Offer

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

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

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

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

5. Submit a Mortgage Application

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

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

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

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

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

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

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

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

6. Be Patient and Avoid New Debt

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

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

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

Recommended: What’s a Mortgage Commitment Letter?

7. Get a Home Inspection

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

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

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

8. Go Through the Mortgage Underwriting Process

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

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

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

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

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

Recommended: Local Housing Market Trends

9. Close on Your New Home

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

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

•   Lender fees

•   Appraisal and survey fees

•   Title service

•   Recording fees

•   Home warranty costs

•   First year’s premium of PMI

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

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

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

The Takeaway

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

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

FAQ

What are the first steps of applying for a mortgage?

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

What are the steps of mortgage loan processing?

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

How long is a mortgage loan in processing?

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

How do you know when your mortgage loan is approved?

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

What should I avoid after applying for a mortgage?

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

Photo credit: iStock/MicroStockHub

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

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

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

Real estate investments make money through appreciation and rental income. Real estate can diversify a portfolio and act as a hedge against inflation, since landlords can pass rising costs to tenants. But the down payment on multifamily investment properties? At least 20%, or 25% to get a better rate.

It’s true that eligible borrowers may use a 0% down U.S. Department of Veterans Affairs (VA) loan for a property with up to four units as long as they live there. But those loans serve a relative few and are considered residential financing. Properties with more than four units are considered commercial.

So how can a cash-poor but curiosity-rich person tap the potential of multifamily properties? By not footing the entire bill themselves.

Can You Buy a Multifamily Property With No Money?

When you buy real estate, you typically have two options: Buy with cash or finance your purchase with a mortgage loan.

There are various types of mortgages. If you take out a home loan, you’ll likely need to pay a portion of the purchase price in cash in the form of a down payment. The minimum down payment you make will depend on the type of mortgage you choose — the average down payment on a house is well under 20% — and it will help determine what terms and interest rates you’ll be offered by lenders.

This money needs to come from somewhere, but it doesn’t necessarily need to come from your own savings account. When investors buy multifamily properties with “no money down,” it just means they are using little to no personal money to cover the upfront costs.

If you don’t have much cash of your own, there are several ways that you can fund the purchase of a multifamily investment property.


💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($806,500 in most places, or $1,209,750 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.

6 Ways to Pay for a Multifamily Property

Find a Co-Borrower

If you don’t have the money to front the costs of a property yourself, you may be able to partner with a family member, friend, or business partner. They may have the money to cover the down payment, and you might pull your weight by researching properties or managing them.

When you co-borrow with someone, you’ll each be responsible for the monthly mortgage payments. You’ll also share profits in the form of rents or capital gains if you sell the property.

Give an Equity Share

You may give an equity investor a share in the property to cover the down payment. Say a multifamily property costs $750,000, and you need a 20% down payment. An equity investor could give you $150,000 in exchange for 20% of the monthly rental income and 20% of the profit when the property is sold.

Borrow From a Hard Money Lender

Hard money loans are offered by private lenders or investors, not banks. The mortgage underwriting process tends to be less strict than that of traditional mortgages. Depending on the property you want to buy, no down payment may be required.

These loans (also called bridge loans) have high interest rates and short terms — one to three years is typical — with interest-only payments the norm. For this reason, they may be used by investors who may be looking to flip the property in short order, allowing them to make a profit and pay off the loan quickly.

House Hack

House hacking refers to leveraging property you already own to generate income. For example, you might rent out an in-law suite or list your property on Airbnb.

Another option: You could rent out your primary residence and move into one of the units in a multifamily property you buy. This way, you’d probably generate more income than if you had rented out the unit to a tenant.

Finally, you could hop on the ADU bandwagon if you own a single-family home. Accessory dwelling units can take the form of a converted garage, an attached or detached unit, or an interior conversion. The rental income can be sizable. To fund a new ADU, homeowners may tap home equity, look into cash-out refinancing, or even use a personal loan.

Seek Seller Financing

If you don’t have the cash for a down payment on a property, you may be able to forgo financing from a lending institution and get help instead from the seller.

With owner financing, there are no minimum down payment requirements. Several types of seller financing arrangements exist:

•   All-inclusive mortgage: The seller extends credit for the entire purchase price of the home, less any down payment.

•   Junior mortgage: The buyer finances a portion of the sales price through a lending institution, while the seller finances the difference.

•   Land contracts: The buyer and seller share ownership until the buyer makes the final payment on the property and receives the deed.

•   Lease purchase: The buyer leases the property from the seller for a set period of time, after which the owner agrees to sell the property at previously agreed-upon terms. Lease payments may count toward the purchase price.

•   Assumable mortgage: A buyer may be able to take over a seller’s mortgage if the lender approves and the buyer qualifies. FHA, VA, and USDA loans are assumable mortgages.

Invest Indirectly

Not everyone wants to become a landlord in order to add real estate to their portfolio. Luckily, they can invest indirectly, including through crowdfunding sites and real estate investment trusts (REITs).

The Jumpstart Our Business Startups Act of 2013 allows real estate investors to pool their money through online real estate crowdfunding platforms to buy multifamily and other types of properties. The platforms give average investors access to real estate options that were once only available to the very wealthy.

REITs are companies that own various types of real estate, including apartment buildings. Investors can buy shares on the open market, and the company passes along the profits generated by rent. To qualify as a REIT, the company must pass along at least 90% of its taxable income to shareholders each year.

As investment opportunities go, REITs can be a good choice for passive-income investors.


💡 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.

The Takeaway

Buying a multifamily property with no money down is possible if you take the roads less traveled, including leveraging other people’s money. And if you have the means to make a down payment on a property, your first step is to research possible home mortgage loans.

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

Can I buy a multifamily home with an FHA loan?

It is possible to buy a property with up to four units with a standard mortgage backed by the Federal Housing Administration (FHA) if the buyer plans to live in one of the units for at least a year. The FHA considers homes with up to four units single-family housing. The down payment could be as low as 3.5%. There are loan limits.

A rarer product, an FHA multifamily loan, may be used to buy a property with five or more units. The down payment is higher. You’ll pay mortgage insurance premiums upfront and annually for any FHA loan.

Is a multifamily property considered a commercial property?

Properties with five or more units are generally considered commercial real estate. Commercial real estate loans usually have shorter terms, and higher interest rates and down payment requirements than residential loans. They almost always include a prepayment penalty.

Photo credit: iStock/jsmith

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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