The Art of Mortgage Pre-Approval

Buying a home can feel like a cutthroat process.

But getting mortgage preapproval can help you, especially in a hot house market.

What Is Mortgage Preapproval?

Mortgage preapproval comes in the form of a letter from a lender that states that you qualify for a loan of a certain amount and at a certain interest rate based on an evaluation of your credit and financial history.

The letter is an offer, but not a commitment, to lend you a specific amount. It’s good for up to 90 days, depending on the lender.

You’ll want to shop for homes within the price range of your preapproved mortgage.

Armed with a letter of preapproval, you can show sellers that you are a serious homebuyer with the means to purchase a home. In the eyes of the seller, preapproval can often push you ahead of other potential buyers who have not yet been approved for a mortgage.

Once you find a house that you want to buy, you can make an offer. And if the seller accepts, it’s time to finalize your mortgage application.

A loan underwriter will review your application and conduct other due diligence measures, such as having the house appraised to make sure it is valued at the price it’s selling for.

If all goes well, the lender will issue a commitment letter, which officially seals the deal on your loan, and you can schedule a closing date.

Preapproval vs. Prequalification

As you begin to look into getting a mortgage, you may encounter another term: prequalification.

Getting prequalified for a mortgage is not the same as being preapproved. It’s actually a relatively simple process in which a lender looks at a few financial details, usually self-reported, such as income, assets, and debt, and estimates how much of a mortgage the lender thinks you can afford.

Prequalification gives you an idea of what your monthly payment might be and provides a chance to shop around with various lenders to see what types of terms and interest rates they offer. (Prequalification is not a guarantee that you will actually qualify for a mortgage.)

Taking out a mortgage is a huge step, of course. Prequalification can be useful, because it gives you an idea of how much house you can afford.

This home affordability calculator can also help in estimating how much you can afford.

Getting preapproved is a more complicated process. You’ll have to fill out an application with your chosen lender, agree to a credit check, and provide information about your income and assets.

Recommended: Preapproval vs. Prequalification: Key Differences to Know

Upping Your Odds of Preapproval

There are a number of steps you can take to increase your chances of preapproval or to increase the amount your lender may approve.

Build Your Credit

When you apply for any type of loan, lenders want to see that you have a history of properly managing your debt before offering you credit themselves.

You can build your credit history by opening and using a credit card and paying your bills on time. Or you could consider having regular payments, such as your rent, tracked and added to your credit score.

Recommended: What Credit Score is Needed to Buy a House?

Check Your Credit

If you’ve established a credit history, a first step before applying for a mortgage is to check your credit reports, which are a history of your credit compiled from sources like banks, credit card companies, collection agencies, and the government.

The information is collected by the three main credit reporting bureaus, Transunion, Equifax, and Experian. You’ll want to make sure that the information on your credit reports is correct. Ordering the reports is free .

If you find any mistakes, contact the credit reporting agencies immediately to let them know. You don’t want any incorrect information weighing down your credit score, putting your chances for preapproval at risk.

The free credit reports provided by the nationwide credit reporting agencies do not include your credit score, a number typically between 300 and 850. You can purchase your score directly from the credit reporting agencies, or from FICO®. Your credit card company may provide your credit score for free.

Or you could try an app that updates your credit score weekly and tracks your spending at no cost.

Stay on Top of Debt

Your ability to pay your bills on time has a big impact on your credit score. And if your budget allows, you can make payments in full.

If you have any debts that are dragging down your credit score—for example, debts that are in collection—it’s smart to work on paying them off first, as this can give your score a more immediate boost.

Recommended: How Much Debt is Too Much to Buy a Home?

Watch Your Debt-to-Income Ratio

Your debt-to-income ratio is your monthly debt payments divided by your monthly gross income. If you have $1,000 a month in debt payments and make $5,000 a month, your debt-to-income (DTI) ratio is $1,000 divided by $5,000, or 20%.

Mortgage lenders typically like to see a DTI ratio of 36% or less.

Lenders may assume that borrowers with a high DTI ratio will have a harder time making their mortgage payments. If you’re seeking preapproval for a mortgage, it may be beneficial to keep the ratio in check by avoiding large purchases. For example, you may want to hold off on buying a new car until you’ve been preapproved.

Prove Consistent Income

Your lender will want to know that you have enough money coming in each month to cover a potential mortgage payment, so the lender will likely want proof of consistent income for at least two years (that means pay stubs, W-2s, etc.).

For some potential borrowers, such as freelancers, this may be a tricky process since they may have income from various sources. Keep all pay stubs, tax returns, and other proof of income and be prepared to show them to your lender.

What Happens If You’re Rejected?

Rejection hurts. But if you aren’t preapproved, or you aren’t approved for a large enough mortgage to buy the house you want, you also aren’t powerless. You can ask the lender why it said “no.” This will give you an idea about what you might need to work on in order to secure the mortgage you want.

Then you may want to work on the factors that your lender saw as a sticking point to preapproval. You can continue to work to boost your credit score, lower your DTI ratio, or save for a higher down payment.

If you’re able to pay more upfront, you will typically lower your monthly mortgage payments. Once you’ve worked to make yourself a better candidate for a mortgage, you can apply for preapproval again.

The Takeaway

In a competitive market, having a mortgage preapproval letter in hand may give a house hunter an edge. After all, the letter states that the would-be buyer qualifies for a home loan of a certain amount.

If you’re shopping for a mortgage, give SoFi a look. SoFi mortgage loans come with competitive rates and as little as 5% down.

It takes just two minutes to check your rate.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

What to Know about FHA 203K loans

Buying a fixer-upper is sometimes romanticized by pop culture. While it’s fun to dream, the reality of home renovation is that it can be laborious and draining, especially if the home needs serious help.

Repair work requires energy and resources, and it can be difficult to secure a loan to cover both the value of the home and the cost of repairs—especially if the home is currently uninhabitable. Most lenders won’t take that sort of chance.

But if you have your heart set on buying a fixer upper, an FHA 203(k) loan can help.

The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD), insures loans for the purchase and substantial rehab of homes. It is also possible to take out an FHA 203(k) loan for home repairs only, though it might not be your best option if that’s all you need.

If you have the vision to revive a dreary house, here’s info about FHA 203(k) loans and other home improvement loan options.

What Is an FHA 203(k) home loan?

Section 203(k) insurance lets buyers finance both the purchase of a house and its rehabilitation costs through a single long-term, fixed- or adjustable-rate loan.

Before the availability of FHA 203(k) loans, borrowers often had to secure multiple loans to obtain a mortgage and a home improvement loan.

The loans are provided through HUD-approved mortgage lenders and insured by the FHA. The government is interested in rejuvenating neighborhoods and expanding homeownership opportunities.

Because the loans are backed by the federal government, you may be able to secure one even if you don’t have stellar credit. Rates are generally competitive but may not be the best, because a home with major flaws is a risk to the lender.

The FHA 203(k) process also requires more coordination, paperwork, and work on behalf of the lender, which can drive the interest rate up slightly. Lenders also may charge a supplemental origination fee, fees to cover review of the rehabilitation plan, and a higher appraisal fee.

The loan will require an upfront mortgage insurance payment of 1.75% of the total loan amount (it can be wrapped into the financing) and then a monthly mortgage insurance premium.

Applications must be submitted through an approved lender .

What Can FHA 203(k) Loans Be Used For?

Purchase and Repairs

Other than the cost of acquiring a property, rehabilitation may range from minor repairs (though exceeding $5,000 worth) to virtual reconstruction.

If a home needs a new bathroom or new siding, for example, the loan will include the projected cost of those renovations in addition to the value of the existing home. An FHA 203(k) loan, however, will not cover “luxury” upgrades like a pool, tennis court, or gazebo (so close!).

If you’re buying a condo, 203(k) loans are generally only issued for interior improvements. However, you can use a 203(k) loan to convert a property into a two- to four-unit dwelling.

Your loan amount is determined by project estimates done by the lender or the FHA. The loan process is paperwork-heavy. Working with contractors who are familiar with the way the program works and will not underbid will be important.

Contractors will also need to be efficient: The work must begin within 30 days of closing and be finished within six months.

Mortgage LoanMortgage Loan

Temporary Housing

If the home is indeed unlivable, the 203(k) loan can include a provision to provide you with up to six months of temporary housing costs or existing mortgage payments.

Who Is Eligible for an FHA 203(k) Loan?

Individuals and nonprofit organizations can use an FHA 203(k) loan, but investors cannot.

Most of the eligibility guidelines for regular FHA loans apply to 203(k) loans. They include a minimum credit score of 580 and at least a 3.5% down payment.

Applicants with a score as low as 500 will typically need to put 10% down.

Your debt-to-income ratio typically can’t exceed 43%. And you must be able to qualify for the costs of the renovations and the purchase price.

Again, to apply for any FHA loan, you have to use an approved lender. (It’s a good idea to get multiple quotes.)

Home Improvement Loan Options

The FHA 203(k) provides the most comprehensive solution for buyers who need a loan for both a home and substantial repairs. However, if you need a loan only for home improvements, there are other options to consider.

Depending on the improvements you have planned, your timeline, and your personal financial situation, one of the following could be a better fit.

Other Government-Backed Loans

In addition to the standard FHA 203(k) program, there is a limited FHA 203(k) loan of up to $35,000. Homebuyers and homeowners can use the funding to repair or upgrade a home.

Then there are FHA Title 1 loans for improvements that “substantially protect or improve the basic livability or utility of the property.” The fixed-rate loans may be used in tandem with a 203(k) rehabilitation mortgage.

The owner of a single-family home can apply to borrow up to $25,000 with a secured Title 1 loan.

With Fannie Mae’s HomeStyle® Renovation Mortgage, homebuyers and homeowners can combine their home purchase or refinance with renovation funding in a single mortgage. There’s also a Freddie Mac renovation mortgage, but standard credit score guidelines apply.

Cash-Out Refinance

If you have an existing mortgage and equity in the home, and want to take out a loan for home improvements, a cash-out refinance from a private lender may be worth looking into.

You usually must have at least 20% equity in your home to be eligible, meaning a maximum 80% loan-to-value (LTV) ratio of the home’s current value. (To calculate LTV, divide your mortgage balance by the home’s appraised value. Let’s say your mortgage balance is $225,000 and the home’s appraised value is $350,000. Your LTV is 64%, which indicates 36% equity in the home.)

A cash-out refi could also be an opportunity to improve your mortgage interest rate and change the length of the loan.

PACE Loan

For green improvements to your home, such as solar panels or an energy-efficient heating system, you might be eligible for a PACE loan .

The nonprofit organization PACENation promotes property-assessed clean energy (or PACE) financing for homeowners and commercial property owners, to be repaid over a period of up to 30 years.

Home Improvement Loan

A home improvement loan is an unsecured personal loan—meaning the house isn’t used as collateral to secure the loan. Approval is based on personal financial factors that will vary from lender to lender.

Lenders offer a wide range of loan sizes, so you can invest in minor updates to major renovations.

Home Equity Line of Credit

If you need a loan only for repairs but don’t have great credit, a HELOC may provide a lower rate. Be aware that if you can’t make payments on the borrowed funding, which is secured by your home, the lender can seize your home.

The Takeaway

If you have your eye on a fixer-upper that you just know can be polished into a jewel, an FHA 203(k) loan could be the ticket, but options may make more sense to other homebuyers and homeowners.

SoFi offers cash-out refinancing, turning your home equity into renovation money.

Or maybe a home improvement loan of $5,000 to $100,000 seems like a better way to turn your home into a haven.

Check your rate today.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

Staircase Remodel Cost & Ideas

Outdated stairs are not a lost cause. Before considering a whole staircase remodel or replacement, there may be cosmetic changes that could be made to improve the appearance of the staircase before making structural changes to improve the functionality of the stairs.

Deciding what the ultimate goal is and looking at the costs to complete the staircase remodel will help frame the decision about how to move forward with the project.

How Do You Remodel Stairs?

That’s the million-dollar question, really (and don’t worry, that’s not a budget estimate). Staircases are the sum of their parts, and each of those parts presents an opportunity for a refresh that may help retain the value of your home. Staircases are more than just a large structure used to move from one level of a house to another. They can be a major decorative element in a home.

Your staircase remodel may be superficial, but still visually effective, like painting spindles, re-staining treads, and risers, or adding or removing a carpet runner. It may involve carpentry work, like replacing the handrails, newel posts, and spindles for a different profile or materials upgrade. Or, it may be structural—making major changes to the bones of the staircase and the walls it’s housed within.

Understanding the various project scopes from the outset can help you not take on more than you intend, while also helping ensure that the selected home improvements are worth your time and money.

Recommended: Home Improvement Cost Calculator

Staircase Elements and Materials

Being familiar with essential staircase anatomy can help refine project goals and have productive conversations when getting estimates for the job. The focus here will be on interior stairs, as outdoor staircases materials, pricing, and regulations will differ even though the two share elements.

Treads

The stair tread is the part of the stair that is stepped on and what is likely pictured when thinking of stairs. They’re often made of wood, although they may have another finish layer on top, such as tile or carpet.

Risers

Stair risers are the vertical pieces that connect the treads—the piece of the staircase in front of your toes as you’re walking up. Risers might be made of wood or an engineered wood product for extra strength.

Spindles, aka Balusters

Spindles, a term used interchangeably with balusters, are the parts that go from the stair treads to the handrail to create the side of a stairway where there’s not a wall. There are a variety of materials to use that will suit the style of the home. More traditional staircases might have wooden spindles, while a more modern aesthetic might use metal.

Handrails

This part is simply the rail where you put your hands. There may be more than one handrail piece in staircases with turns or angles. Wood, composite, and metal are all standard, although, like other parts of a staircase, there is room for creativity.

Newel Posts and Post Caps

The heftier vertical posts that go in line with the spindles and create endings to the railing are the newel posts, and the post cap is the decorative element that tops the newel post. If the staircase has an open side with a railing, the newel post will be at the base of the staircase, as well as at any turns or landings along the way, as handrails start and end in newel posts. Materials mirror those of spindles.

Estimating Project Scope and Cost

Being familiar with these parts of the staircase, individually or together, can be helpful when deciding on design and organization of the remodel—even if it’s being done piecemeal. For example, refinishing the stair treads now and replacing the spindles and handrail later, or repainting the whole staircase so it has an updated look until replacing it is affordable might be budget-friendly options.

Painting Stairs

•   Using paint made to withstand the wear and tear this high-traffic area is prone to is essential for the paint job to be long lasting. Look for floor, deck, or heavy-duty paint. Water-based, not oil-based paints, will prevent discoloration, especially on light colors.
•   Other important considerations in painting stairs are proper preparation (cleaning and sanding), protecting neighboring surfaces, and priming the stairs so the paint will adhere correctly.
•   For DIY projects, materials are the main costs and can be between $175 and $350.

◦  An average indoor residential staircase will require one gallon of paint at $30 to $40 per gallon. If the handrail, spindles, and/or newel posts will be a different color than the treads or risers, an additional gallon of paint will be needed. Polyurethane, at about $50 per gallon, will help protect the new paint finish.

◦  Other necessary materials, if they aren’t already owned, are sandpaper, paint rollers or brushes, tape, and drop cloths, costing about $45 to $70.

◦  Priming will add about $25 to $30 dollars to the job, including the cost of additional rollers and brushes.

◦  Depending on the state of the current stairs, allot $25 to $100 for solvents, carpet removal, and cleaning supplies.
•   To hire a professional to complete the work, the cost may range from $350 to $400 and will depend on the finishes chosen.

Refinishing Stairs

•   Another option for changing the color of a staircase, refinishing requires additional time and materials. It might also seem like a more daunting task than painting for some people.
•   Involves stripping off the current finish with solvents and sanding, which is easier to do on flat stair treads than turned spindles or even vertical risers.
•   Refinishing the spindles or handrail won’t involve much extra cost, but will take extra time.
•   Materials will be similar to those required for painting, with some additions.

◦  Use of a chemical solvent ($40 per gallon) and plastic scraper is recommended to strip the original finish. Solvent manufacturers recommend using heavy-duty rubber gloves and a respirator mask in a well-ventilated area when using these products, which might cost approximately $45.

◦  Tack cloth to clean up after sanding.

◦  Staining will show imperfections in the finished product that painting might hide, so preparation is doubly important if going this route. A power sander will make the job easier and faster. This piece of equipment can be rented for about $15 per day or purchased for about $50.
•   Hiring a professional to do this work will range in cost from $60 to $75 per hour, and can take about two hours to complete a staircase with 10 treads.

Replacing Staircase Components

•  Swapping elements like spindles, newel posts and caps, or handrails for a different style can change the overall look of a staircase.
•  Replacing carpet-covered treads with a stained-wood tread, or vice versa, can help rectify an outdated look.
•  If the staircase has historic elements, getting spindles or other pieces to match other elements in the home might require custom work if replacements can’t be found through architectural reuse or salvage sources.
•  Costs to replace parts of a staircase will vary depending on what is being replaced.

◦  Every job will include costs for tools, prep and finish materials, and disposal of old materials.

◦  Hiring a carpenter is approximately $45 per hour.

◦  Midrange costs for unfinished wood replacement parts are approximately $100 per newel post, $7 per spindle, $30 per stair tread, $18 per stair riser, and $8 per foot of handrail.

Total Replacement

•  Completely replacing a staircase is logistically and financially complex.
•  It can be a necessary option when faced with structural changes or a complete design overhaul.
•  Consulting a building or remodeling professional, such as a licensed construction engineer or residential architect, about safety and fire code and potential structural implications for the home is a good step to take.
•  Using midrange materials, the cost of a new staircase averages around $1,800 to $3,500, depending on its location in the house, design specifics, and finishes. Labor would be an additional cost.

Recommended: Average Cost To Remodel A House

The Takeaway

The average cost to remodel a staircase varies greatly according to the scope of the project, from basic repainting to a total replacement. But there are many budget-friendly changes you can make so your staircase will contribute, rather than detract, from your home’s style.

Is your goal to make the space to feel brighter, more open, unique? Making less-expensive changes, like fresh paint or new spindles can completely change the feel of a staircase—and the living space that surrounds it, making a house feel like a home.

Simple updates may be manageable using money set aside in a savings account, and avoiding taking on debt to pay for renovations is always ideal. But for larger upgrades to something like a staircase, extra funding might be necessary. A home improvement loan could be the thing that makes it possible for your staircase to become a showcase.

SoFi offers unsecured, fixed-rate personal loans that offer lower interest rates than you’ll typically find with credit cards. Checking your rate takes just two minutes.

Learn more about loan options from SoFi.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Source: sofi.com

Are Kit Homes Worth the Investment?

You can order anything on the internet these days—even a house. But as with other online purchases, it’s a good idea to do some research first.

Kit houses are often considerably more affordable than a new home custom built from the ground up. And just like other homes, they have the capacity to appreciate in value (though it’s not guaranteed).

Read on to learn whether or not a kit home might be the right investment for you.

What Is a Kit Home?

Kit homes, or modular homes, are sent to buyers in pieces so they can construct the building themselves (albeit usually with professional help). Think of it like an IKEA purchase, except you’re buying the whole house, not just a set of drawers… and you might need a crane to get the pieces together.

Remember the Sears mail-order kit homes? The catalog, debuting in 1908, offered all the materials and blueprints to build a house. Sears is estimated to have sold around 75,000 kit houses by the time the catalog was discontinued, in 1940. Many of the homes are still standing.

These days, kit houses come in a huge variety of designs and styles, from one-room log cabins to three-bedroom homes with sleek, contemporary designs. Many companies offer a menu of layout options, or buyers may be able to customize the features of a kit home before it’s sent to the construction location.

(Note: Kit homes are different from mobile homes. They’re built on a standard foundation, just like any other “brick-and-mortar” house, and cannot be moved to a new location once they’ve been installed.)

How Much Do Kit Houses Cost?

Case in point: According to HomeAdvisor, the average modular home costs $40 to $80 per square foot in and of itself. But with all of those other factors considered, the organization estimates that modular homes end up costing $100 to $200 per square foot, which works out to a range of $180,000 to $360,000 for a 1,800-square-foot home—or $270,000 on average.

That doesn’t count any land purchase, property taxes, or furnishings. So make no mistake about it: Even with a kit, building your own home is an expensive venture.

As with any other kind of house, a kit home’s cost depends in part on its size, design, and quality of materials. And while you can find kit home shells online for shockingly low prices, it’s important to understand that the cost of the kit home is just the start of the total building project cost.

A buyer must also consider any shipping cost and taxes, the cost of the foundation, the cost of preparing the property to be built on (including clearing the land, connecting to the grid, digging wells, and installing septic, if necessary), and, usually, the labor costs of actually putting the home together.

That said, HomeAdvisor estimates that the cost of building the same size custom home from scratch using contractors ranges from $350,000 to more than $1 million. So if you have an undeniable urge to DIY your homeownership venture, a kit house might well be the more affordable option. Just remember, either way, it won’t be cheap!

Furthermore, whether or not a kit home ends up being a more cost-effective choice often depends on location. While kit houses are almost always cheaper than homes designed by contractors when you’re living in an urban area, for those in rural zones, it may be cheaper to do it the old-fashioned way.

Recommended: Home Affordability Calculator

Do Kit Homes Hold Their Value?

One of the main reasons many people choose to become homeowners is to put money into an asset that has the capacity to appreciate in value over time. That way they can feel assured that the money they’re spending to keep a roof over their heads isn’t disappearing into the ether and that they can sell the home later and make a profit.

The good news: Many real estate professionals agree that kit or modular homes can appreciate in value over time and are often appraised similarly to stick-built homes (as opposed to mobile homes, which often depreciate in the same way that vehicles do).

But as with all things in life, and particularly in money, nothing is guaranteed. A kit home’s existing and ongoing value will depend on its location, quality, and level of maintenance, and just like other houses, might benefit from home improvement projects before selling.

Recommended: Renovation and Remodeling Cost Calculator

Can You Finance a Kit Home?

Even with their relatively low costs, kit homes are often expensive enough that most buyers will be unable to pay in cash and will need to finance the project. However, because a kit home is not an existing structure, the most common route for financing is a construction loan rather than a traditional mortgage.

Construction loans work differently than mortgages do: They’re much shorter-term loans, generally needing to be paid off in a year or less—although construction-to-permanent loans, which roll over into a traditional 15- or 30-year mortgage once the home has been constructed, do exist.

Construction loans can also be used for significant home renovations, such as building a home addition. For smaller home improvement projects, a personal loan will often suffice.

Keep in mind that because construction loans don’t come with collateral (i.e., an already-standing home structure) for the lender to repossess should the loan agreement fall through, they can be harder to qualify for than traditional mortgages.

Recommended: How Do Construction Loans Work?

The Takeaway

Kit homes allow buyers to avoid the costs of a custom stick-built home by delivering blueprints and materials to put a house together. But the base price of a modular home is just one part of the total expense.

Whether your homeownership journey involves a kit home or contractors, or you opt to purchase an existing home, SoFi offers financial products that could help make your dreams a reality.

SoFi offers a range of mortgages with competitive rates and a down payment as low as 5%, and also offers no-fee, low-interest personal home improvement loans of up to $100,000.

Either way, you’ll open the door to a host of exclusive member benefits.

Find your rate on a SoFi fixed-rate mortgage in two minutes.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

SOHL21016

Source: sofi.com

Is It Worth Doing a Laundry Room Remodel?

Laundry rooms are the workhorses of the home. They’re also often sandwiched into small spaces, or in areas of the home that aren’t all that convenient, causing some homeowners to consider a remodel.

Whether you should undertake a laundry room remodel depends on what you plan to use it for, its size, the kinds of appliances you need, and any special décor touches you’d like to add.

A remodel might be worth it if it creates a perky and efficient space or creates a room that has a dual function.

Before Starting Your Laundry Room Remodel

If you’ve been thinking about giving your laundry room a clean start, you’ve probably got a lot of ideas and inspiration swimming in your head.

Before embarking on your project, you want to really think through what you’re hoping to accomplish by asking yourself the following questions.

What’s the Scope of the Project?

Some remodels involve small improvements like new paint and cabinetry, while others call for tearing through walls, moving plumbing, or even relocating your laundry room to another area of the home.

Appliances should also be addressed. Will you need a new washer and dryer, or do you plan on using the ones you currently have?

What Do You Plan to Use Your Laundry Room For?

While most laundry rooms are used solely for handling laundry, others also act as mudrooms and storage for cleaning supplies, sports gear, and bulk shopping items like bottled water, paper products, and even pet food.

What your laundry room is used for will affect the laundry room remodel ideas available to you.

How Often and When Do You Do Laundry?

If you have a large family and do frequent washing and drying, that will influence the design of your new laundry room. You may need ample counter space for folding, for example, a fold-down ironing board, or bins to hold each person’s clean clothing.

If you tend to do the laundry during the day, you may consider adding a window. Are you more of a nighttime launderer? Under-cabinet lighting may help weary eyes.

What Are Your Must-Haves?

Some homeowners struggle with disorganization and need bins and baskets to keep things tidy. Others are looking to add features like a sink, or build out their laundry room to accommodate more counter space.

Whatever your desire, it’s a good idea to list what you can’t live without so you can build them into your budget.

How Much Can You Spend?

The scope of your project will dictate your budget and how you plan to pay for your remodel.

Some homeowners, seeing a laundry room remodel as a way to increase their home’s value, may opt to borrow to pay for the project. Others may choose to keep things scaled down so they don’t spend beyond what they have on hand.

Recommended: Home Improvement Cost Calculator

Laundry Room Remodel Ideas

Now that you’ve got the foundation of your project mapped out, it’s time to envision how your laundry room remodel will take shape. That will depend on the following factors.

If You Have Limited Space

Small laundry rooms can still pack a punch, thanks to creative ways to maximize your available space. You can do that by tucking laundry baskets under counters, adding a rod under cabinets to hang clothes, and using wall space for hooks to hang laundry bags or baskets that can hold clothespins, detergent, and dryer sheets.

Don’t forget that laundry rooms don’t need to be true rooms; if you’re short on space, consider tucking your washer and dryer into an unused closet and installing a farmhouse door for easy access.

Depending on its size, you can then use the prior laundry room as a guest room, home office, nursery, or kids’ playroom.

Recommended: Closet Remodel Guide

If You’ll Be Using the Room for More Than Cleaning Clothes

The list of ways to use a laundry room is endless, and will largely depend on each household’s needs.

•   Got a large dog? You might consider installing a pet-washing station, especially if you are already planning on undertaking plumbing work.
•   Need a quiet place to conduct conference calls at home? A fold-down workstation meets both needs.
•   Larger families may tuck an additional fridge in the laundry room.
•   People who love to entertain may find storage for plates and glassware in the laundry room.

Your Budget

A laundry room remodel can quickly add up if new plumbing, cabinetry, and construction work are involved.

If you find yourself running beyond what you’re willing to spend, think of creative ways to get the laundry room you want without breaking the bank.

That might entail painting cabinets instead of replacing them, using open shelving instead of custom built-ins, and opting for durable paint in place of tiled backsplashes.

Recommended: Easy Home Improvement Projects for Beginners

DIY vs. Calling In an Expert

Many homeowners are comfortable with do-it-yourself projects. In a laundry room remodel, these might include painting, replacing cabinetry, and installing shelving and hanging rods.

Other projects—moving water lines, installing new sinks or drywall, and demolition— require hiring a professional. Mapping out which projects you will need to outsource will affect your budget and may also affect the scope of your project.

Paying for It

Smaller laundry room remodels, or those that require just a new coat of paint, a new washer, and dryer, or a retrofitting of shelving to maximize storage space can be done with fairly little outlay, especially if you do it yourself or have a friend or family member lend a hand.

Larger ones, or those that call for extensive demolition, architecture work, or the services of a general contractor, will be more expensive, of course.

The size of the project—and therefore how much money you’ll need—matters, as does your timeline for paying back any loan.

Here are some options:

•   Cash
•   A home improvement loan, aka personal loan. Your home isn’t used as collateral to secure the loan.
•   A home equity loan or a revolving home equity line of credit, which do use your home as collateral.
•   Cash-out refinance, which replaces your mortgage with a new loan for more than you owe. The difference goes to you in cash, for home improvements or anything else.

The Takeaway

Laundry room ideas range from DIY tweaks to soap-operatic overhauls. A laundry room remodel may increase the value of your home or simply make life a little easier. Start by listing what you want to achieve and how you’re going to pay for it.

SoFi offers a range of ways to pay for home improvements like a more inviting space in which to do laundry or a room that does double duty.

If you need a home loan (with as little as 5% down), an investment property loan, a cash-out refi, or an unsecured personal loan, SoFi offers all of them at competitive rates.

Plus you become a SoFi member, which comes with a laundry list of perks.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

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Source: sofi.com

What Is a Deed in Lieu?

Buying a home is a major responsibility. If you are unable to continue paying the mortgage on your house, what happens next? You’ve heard of foreclosure and know it can get rather nasty. But did you realize there’s another option called a deed in lieu of foreclosure?

This option may be a bit less stressful than foreclosure, has less of a negative impact on a credit report, and may be faster to complete.

What Is a Deed in Lieu of Foreclosure?

Where a foreclosure may involve the court and a lengthy process, the alternative, deed in lieu of foreclosure, is fairly simple.

If your lender agrees, you simply hand over the deed and the lender releases the lien on the property. You may be released from any balance you owed on the mortgage (there may be exceptions if you owe more than the home is worth).

And while a deed in lieu will appear on your credit report, it doesn’t have as severe an impact as a foreclosure.

The lender might even offer you financial assistance to spruce up the home to make it more sellable.

Recommended: Tips On Buying a Foreclosed Home

Working With the Lender

Your lender may only consider a deed in lieu of foreclosure in certain situations.

The lender might require that you first put your home on the market as a short sale or explore a loan modification.

If you’re completely unable to pay, start by contacting your lender and asking if a deed in lieu of foreclosure is an option. If it is, you’ll be given an application and asked for documents proving your inability to pay the mortgage. The documents will show your income and expenses, as well as bank account balances.

This process can take 30 days or more.

If your application is approved, you may want a real estate lawyer to review it to help you understand whether you are fully released from the financial obligations tied to the mortgage. For example, if the lender sells the home for less than the remaining mortgage balance, are you responsible for that deficiency?

Once you are comfortable with the title-transferring agreement, you and the lender will sign it, and it will be notarized and recorded in public records.

At this point, you will be notified how long you have to leave the home.

When to Consider a Deed in Lieu

One instance when a deed in lieu may be a good idea is if you owe more on your home than it is worth, as long as the agreement stipulates that you won’t owe the difference between the value of the home and what you owe.

If you are unable to continue paying your mortgage, realize that a foreclosure will leave a nasty mark on your credit report for seven years and make it difficult or impossible for you to take out another mortgage for years.

A deed in lieu will appear on your credit report, but it may not have the same lasting effect. Your credit score will drop, but long term, it may not affect your ability to take out a loan.

Benefits of a Deed in Lieu

There are advantages for both the borrower and the lender when it comes to a deed in lieu. For both, the big benefit is not having to go through the long and expensive process of foreclosure.

Because a deed in lieu is an agreement between you and the lender and not an order from a court, you may have a little more flexibility in terms of when you vacate the property.

With foreclosure, you are sometimes forced to vacate within days by local law enforcement. With a deed in lieu, you may even be able to work out an arrangement where you rent the property back for a period. The lender gets a little rent money and you have more time to figure out your next move.

This option is more private than a foreclosure, if you’re worried what the neighbors think.

The benefits from the lender’s perspective include avoiding litigation and court time.

Drawbacks of a Deed in Lieu

There’s no getting out of a deed in lieu completely unscathed. It will appear on your credit report, even if it’s not as damaging as a foreclosure.

It may still be difficult to get another mortgage in subsequent years.

If you owe more than your home is worth, you may still be on the hook for the difference between the appraised property value and what you owe.

You may be denied a deed in lieu if there are other liens or tax judgments on the property, or if the home is in bad condition and requires maintenance to sell.

Recommended: Home Affordability Calculator

Being Smart About Your Mortgage

The best thing to do, if at all possible, is to avoid getting into a situation where you can’t afford to pay your mortgage. If you’re having short-term financial issues, talk to your lender immediately to see if there is the possibility of delaying a few months’ payment or setting up a loan modification.

The lender wants to help you; it’s easier to work out an agreement now than several months down the road, when you haven’t paid your mortgage at all and are facing foreclosure.

If you do end up in a situation where you are unable to continue paying your mortgage and you aren’t offered options, consider a deed in lieu of foreclosure as a faster and easier solution than a foreclosure.

If you’re just starting to consider buying a home, calculate how much in mortgage payments you can afford each month. Don’t forget to calculate insurance and interest as well.

It’s also best for any buyer to understand mortgage basics.

Recommended: Mortgage Calculator

The Takeaway

If you can’t get a short sale or loan modification approved, a deed in lieu of foreclosure may be the best option. Rather than go through the foreclosure process, a deed in lieu allows a borrower to sign a property over to the lender.

Credit will take a significant hit, though not as bad as with a foreclosure.

If you’re looking for a mortgage, an investment property loan, or a cash-out refi, SoFi offers a range of options, with a mortgage loan officer guiding you every step of the way.

Check your rate on a SoFi mortgage in two minutes.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

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Source: sofi.com

Understanding Seller Concessions

Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.

Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.

To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.

Recommended: How Much Are Closing Costs on a New Home?

What Are Seller Concessions?

Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.

Closing costs usually range from 2% to 5% of a home’s purchase price. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.

Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.

Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.

Recommended: Home Buyer’s Guide

What Costs Can Seller Concessions Cover?

A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.

There are also types of prepaid expenses and home repairs that can be requested as a seller concession.

Some common examples of eligible costs include the following:

•   Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.

•   Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.

•   Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.

•   Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.

•   Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.

•   Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.

•   Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500, based on location.

•   Recording fees: Some local governments may charge a fee to document the purchase of a home.

•   HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.

•   Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)

•   Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.

Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.

Recommended: Home Improvement Calculator

Rules and Limits for Seller Concessions

Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.

Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.

Here’s a breakdown of how concessions work for common types of loans.

Conventional Loans

Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.

With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.

If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.

For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:

•   Up to 3% when the down payment is less than 10%
•   Up to 6% when the down payment is 10-25%
•   Up to 9% when the down payment is greater than 25%

FHA Loans

FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.

For this type of mortgage, seller concessions are limited to 6% of the home sale price.

VA Loans

Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.

VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.

Seller Concession Advantages

There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.

Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.

Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.

Seller Concession Disadvantages

Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.

When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.

Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.

The Takeaway

Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.

The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.

SoFi offers home loans with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.

Buying a home? Find out how much you could qualify for with SoFi.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

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Source: sofi.com

How Much Does It Cost to Refinance a Mortgage?

As a homeowner makes monthly payments on a mortgage, each payment typically contains a mixture of principal and interest. The interest is money paid to the lender with the principal portion reducing the homeowner’s outstanding balance on the mortgage. As the balance goes down, more of each payment will go towards the principal, although it’s a gradual process.

As the balance decreases, the homeowner has an increasing amount of equity in the home (given that the home’s value doesn’t decrease). Homeowner’s equity is the portion of the property that’s “free and clear,” what the owner owns without a mortgage on it—and, once the owner has a certain amount of equity in the home, then they may be able to borrow against it, such as through a refinance.

What is the Average Cost to Refinance a Mortgage?

In April 2020, ClosingCorp reported on the average national mortgage closing costs for a single family home in 2019:

•  When including taxes, the figure was $5,749.
•  When excluding taxes, the figure was $3,339.

These figures included the following expenses:

•  Lender’s title
•  Owner’s title
•  Appraisal
•  Settlement fees
•  Recording fees
•  Land surveys
•  Transfer tax

And a few things to consider:

•  Closing costs vary widely from state to state, with Indiana having the lowest average at $1,909 and the District of Columbia the highest at $25,800.
•  Not all lenders charge the same in closing costs.
•  Refinancing closing costs can be similar to when purchasing a home but there may be some differences.

What are the Typical Equity Requirements?

Lenders typically want at least 20% of equity (80% loan to value) to exist for a refinance to take place, although that ratio is not universal.

Here’s an example of equity. If a home is worth $150,000 and the current mortgage loan is $100,000, then there is $50,000 in equity, with a loan to value ratio of 66.6% ($100,000/$150,000). This scenario, therefore, fits the typical loan to value parameter required by many lenders for a refinance to take place.

People refinance their mortgages for numerous reasons. They can include:

•  They need cash, perhaps to do some home remodeling; this may be called a cash-out refinance;
•  Rates are lower than when they bought the home and they want to take advantage of a lower rate; sometimes, the refinance may shorten the term of the mortgage with the borrower’s goal being to pay less interest over the life of the loan—and these scenarios are sometimes called “rate and term” refinances;
•  Consolidating debt, perhaps balances on high interest credit cards; this is another example of a cash-out refinance.

To refinance, a homeowner takes out a new loan against a piece of real estate, pays off the current loan(s) on that property, and then, if applicable, uses the remaining funds for another purpose, whether that’s to consolidate credit card balances or to get a new roof.

Recommended: How to Refinance a Mortgage

In general, refinancing a mortgage comes with costs that are similar to purchasing a home. These costs vary from lender to lender—and what a particular lender charges a borrower may depend upon the loan amount among other factors. Borrower credit scores may play a role in the interest rate.

Role of Credit Scores

Having what lenders would consider a “good” score can help a borrower get a more attractive rate and, if the credit score has improved since the initial mortgage loan was taken out, that could be a reason to refinance all by itself. FICO® Scores can be checked here .

Experian provides insights into credit score ranges:

•  Exceptional: 800 to 850
•  Very good: 740 to 799
•  Good: 670 to 739
•  Fair: 580 to 669
•  Very poor: 300 to 579

Experian notes that conventional lenders may approve applications with a FICO Score of 620 or higher, with ones in the mid-700s and above giving borrowers an even better shot of getting a low rate. Besides the credit score, lenders typically review other elements of a borrower’s history, including recent credit applications, track record of making payments on time, how much available credit is being used (known as a “credit utilization ratio”) and so forth. Major red flags can include bankruptcies and foreclosures.

Borrowers who see errors on their credit reports can contact credit bureaus to request corrections, which may help when refinancing.

A better interest rate is one way to save money over the life of the refinance loan. Another way to be cash savvy is to compare closing costs among lenders before deciding which one to choose for the refinance.

What are Some Mortgage Refinancing Fees?

This is not intended to be a comprehensive list. Rather, it’s an overview of some of the more common fees charged during a refinance.

Loan Application Fee
Some lenders may charge this fee when a borrower applies to refinance. Sometimes, it’s paid upfront, although some lenders will waive the fee if the process is completed. Typically, if a borrower pays this fee and the application is turned down, this fee is not refundable.

Loan Origination Fee
Some lenders will charge a fee, perhaps 1% of the loan amount, to pay for their time while they investigate the borrower’s ability to repay the loan.

Home Appraisal
Lenders typically want to know the current value of the home to determine how much a person can borrow against it. There can be circumstances when they won’t require one on a refinance.

Credit Report Fees
A lender may decide to use data from multiple credit reports from different bureaus, although the FICO Score is the most commonly used. Fees charged for this item may vary, based upon a lender’s policies.

Title Search and Insurance
This search identifies liens on the property along with other issues with ownership, with the insurance covering the lender in case any problems arise after the refinance has taken place.

Settlement Fees
This covers the paperwork and processes involved in closing the loan.

Mortgage Points/Discount Points
Lenders can offer borrowers the ability to pay mortgage points at closing time to lower their interest rates. A point equals 1% of the money being borrowed. So, for example, a lender may be willing to lower the interest rate by 0.25% for each 1% of the loan amount that’s paid up front. If the refinance loan amount was $200,000, for example, a borrower under this arrangement could pay $2,000 for each point to lower the interest rate, which in turn could help save a significant amount of interest payments over the life of the loan.

When is it Smart to Refinance?

This topic can be broken down into two questions:

•  When can a borrower refinance a home loan?
•  When does it make sense to do so?

In response to the first question, the borrower should check to see if a current mortgage agreement has a prepayment penalty. Credit Karma notes that, although it’s become less common to see this feature in mortgages since the 2008 housing crisis, they do still exist.

A prepayment penalty, as the name suggests, is a penalty that a borrower may incur when paying off the mortgage during the first few years—which can be included when refinancing the property during that designated timeframe. The amount and timetable of a prepayment penalty, if included in mortgage terms, varies by lender. And, if one is applicable, they can cost a borrower thousands of dollars.

If there is not a prepayment penalty involved, then the borrower can likely apply to refinance (although whether they qualify depends upon their financial circumstances and lender requirements).

Moving on to the second question, there are specific times when it may make sense to refinance. When considering whether a refinance is a good idea, think about the closing costs and calculate how long it would take to recoup them.

Here’s an example. Let’s say that refinancing to a lower rate causes a payment to go down by $100 a month. If closing costs were $3,500, then it would take 35 months to recoup the costs and start to see savings. If the borrower planned to sell the house in two years, then refinancing may not be the right strategy. If, however, the borrower intended to stay in the house, long term, it may be an idea to explore.

Other people may decide to refinance to shorten their loan’s term, say from 30 years to 15. Monthly payments may well go up, but a lower interest rate and a shorter term can help those borrowers pay less over the life of their loans. This loan amortization calculator can show how much interest may be saved.

Other people may decide to refinance, in order to switch their adjustable rate mortgage (ARM) to a fixed rate one. Someone might have originally taken out an ARM because of its low initial rate but now may want the security of knowing there won’t be future rate increases.

Yet another strategy is a cash out refinance where equity in a person’s home can be used to perform home repairs or consolidate high-interest debt. In some cases, this can be a great strategy; other times, the reduction in home equity may not be worth the trade-off.

Mortgage Refinancing With SoFi

No matter your reasons for refinancing a mortgage, SoFi can help you save money. SoFi offers competitive rates, exclusive member discounts, and guidance from mortgage loan officers and member specialists. Plus, at SoFi, there are never any hidden fees.

Discover more about home loans at SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Source: sofi.com

What Is A Conventional Home Loan?

Nothing compares to scrolling through listings until you find the home with the perfect garden, garage, and floors. Then comes the less fun part: figuring out how to finance your home purchase.

For the vast majority of people, acquiring a new home means taking out a mortgage, a loan for the part of the house cost that isn’t covered by the down payment.

U.S. homeownership hovers near 66%, and millennials continue to be the biggest share of buyers. What kind of loan do most go for? The 30-year fixed-rate mortgage. But conventional loan requirements vary, and some may find that a government-sponsored loan is a better fit.

Let’s take a closer look at conventional loan requirements and the difference between FHA and conventional loans.

Conventional Mortgages Explained

Conventional mortgages are insured by private lenders, not a government agency, and are the most common type of home loan.

Then there are government-guaranteed home loans. FHA loans are more commonly used than VA loans (for service members, veterans, and eligible surviving spouses) and USDA loans (rural housing). Government loans are often easier to qualify for.

Taking out a conventional home loan means that you are making an agreement with a lender to pay back what you borrowed, with interest.

And unlike with an FHA loan, the government does not offer any assurances to the lender that you will pay back that loan. That’s why lenders look at things like your credit score and down payment when deciding whether to offer you a conventional mortgage and at what rate.

See how SoFi can help make your
dream home a reality.

Two Main Types of Conventional Loans

Fixed Rate

A conventional loan with a fixed interest rate is one in which the rate won’t change over the life of the loan. If you have a “fully amortized conventional loan,” your monthly principal and interest payment will stay the same each month.

Although fixed-rate loans can provide predictability when it comes to payments, they may initially have higher interest rates than adjustable-rate mortgages.

Fixed-rate conventional loans can be a great option for homebuyers during periods of low rates because they can lock in a rate and it won’t rise, even decades from now.

Adjustable Rate

Adjustable-rate mortgages have the same interest rate for a set period of time, and then the rate will adjust for the rest of the loan term.

The major upside to choosing an ARM is that the initial rate is usually set below prevailing interest rates and remains constant for six months to 10 years.

A 7/6 ARM of 30 years will have a fixed rate for the first seven years, and then the rate will adjust once every six months over the remaining 23 years. A 5/1 ARM will have a fixed rate for five years, followed by a variable rate that adjusts every year.

An ARM may be a good option if you’re not planning on staying in the home long term. The downside, of course, is that if you are, your interest rate could end up higher than you want it to be.

Most adjustable-rate conventional mortgages have limits on how much the interest rate can increase over time. These caps protect a borrower from facing an unexpectedly steep rate hike.

Conventional Home Loan Requirements

Conventional mortgage requirements vary by lender, but almost all private lenders will require you to have a cash down payment, a good credit score, and sufficient income to make the monthly payments.

Many lenders that offer conventional loans require that you have enough cash to make a decent down payment. Even if you can manage it, is 20% down always best? It might be more beneficial to put down less than 20% on your dream house.

You’ll also need to demonstrate a good credit history. For example, you’ll want to show that you make loan payments on time every month.

Each conventional loan lender sets its own requirements when it comes to credit scores, but generally, the higher your credit score, the easier it will be to secure a conventional mortgage at a competitive interest rate.

Most lenders will require you to show that you have a sufficient monthly income to meet the mortgage payments. They will also require information about your employment and bank accounts.

How Do FHA and Conventional Loans Differ?

One of the main differences between FHA loans and conventional loans is that the latter are not insured by a federal agency.

FHA loans are insured by the Federal Housing Administration, so lenders take on less risk. If a borrower defaults, the FHA will help the lender recoup some of the lost costs.

FHA loans are easier to qualify for, and are geared toward lower- and middle-income homebuyers. They require at least 3.5% down.

Additionally, the loans are limited to a certain amount of money, depending on the geographic location of the house you’re buying. The lender administering the FHA loan can impose its own requirements as well.

An FHA loan can be a good option for a buyer with a lower credit score, but it also will require a more rigorous home appraisal and possibly a longer approval process than a conventional loan.

Conventional loans require private mortgage insurance if the down payment is less than 20%, but PMI will automatically terminate when the loan balance reaches 78% of the original value of the mortgaged property, unless the borrower asked to stop paying PMI once the balance reached 80% of the original property value.

FHA loans require mortgage insurance, no matter the down payment amount, and it cannot be canceled unless you refinance into a conventional loan.

The Takeaway

A conventional home loan and FHA loan differ in key ways, such as credit score requirements. If you’re ready to make your dream house a reality, you’ll want to size up your eligibility and your mortgage options.

SoFi offers fixed-rate home loans with as little as 5% down and terms of 10, 15, 20, and 30 years.

It takes just two minutes to get prequalified online.



SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

7 Signs it’s Time for a Mortgage Refinance

Maybe you’ve considered refinancing your mortgage, but you’ve only dipped your toe in the exploratory waters. Is now the right time? Will rates stay low? Could they go lower?

It can be hard to know when to take the plunge.

Whether you purchased a home recently or bought a home years ago, you probably noticed that average mortgage rates continued to hover near historic lows in early 2021.

But as with any financial rate or data point, it is hard—if not impossible—to time the market or predict the future.

Homeowners often look to refinance when it could benefit them in some way, like with a lower monthly payment. Refinancing is the process of paying off a mortgage loan with new financing, ideally at a lower rate or with some other, more favorable, set of terms.

Here are seven signs that locking in a lower mortgage rate now could be the right move.

1. You Can Break Even Fairly Quickly

Refinancing a mortgage costs money—generally 2% to 5% of the principal amount. So if you are refinancing to save money, you’ll likely want to run numbers to be sure the math checks out.

To calculate the break-even point on a mortgage refinance—when savings exceed costs—do this:

1. Determine your monthly savings by subtracting your projected new monthly mortgage payment from your current monthly payment.
2. Find your tax rate (e.g., 22%) and subtract it from 1 for your after-tax rate.
3. Multiply monthly savings by the after-tax rate. This is your after-tax savings.
4. Take the total fees and closing costs of the new mortgage loan and divide that number by your monthly after-tax savings. This yields the number of months it will take to recover the costs of refinancing—or the break-even point.

For example, if you’re refinancing a $300,000, 30-year mortgage that has a fixed 6% rate to a new 4% rate, refinancing will reduce your original monthly payment from $1,799 to $1,432—a monthly savings of $367. Assuming a tax rate of 22%, the after-tax rate would be 0.78, which results in an after-tax savings of $286.26. If you have $12,000 in refinancing costs, it will take nearly 42 months to recoup the costs of refinancing ($12,000 / $286.26 = 41.9).

The length of time you intend to own the home can affect whether refinancing is worth the expense. You’ll want to run the calculations to make sure that you can break even on a timeline that works for you.

The rate and fees usually work in tandem. The lower the rate, the higher the cost. (“Buying down the rate” means paying an extra fee in the form of discount points. One point costs 1% of the mortgage amount.)

If you’re shopping, each mortgage lender you apply with is required to give you a loan estimate within three days of your application so you can compare terms and annual percentage rates. The APR, which includes the interest rate, points, and lender fees, reflects the true cost of borrowing.

2. You Can Reduce the Rate by at Least 0.5%

You may have heard conflicting ideas about when you should consider refinancing. The reason is that there is no one-size-fits-all answer; individual loan scenarios and goals differ.

One commonly espoused rule of thumb is that the home refinance rate should be a minimum of two percentage points lower than an existing mortgage’s rate. What may work for each individual depends on things like loan amount, interest rate, fees, and more.

However, the combination of larger mortgages and lenders offering lower closing cost options has changed that. For a large mortgage, even a change of 0.5% could result in significant savings, especially if the homeowner can avoid or minimize lender fees.

Maybe rates are low enough that you choose to take a higher rate with a no closing cost refi.

3. You Can Afford to Refinance to a 15-Year Mortgage

When you refinance a loan, you are getting an entirely new loan with new terms. Depending on your eligibility, it is possible to adjust aspects of your loan beyond the interest rate, such as the loan’s term or the type of loan (fixed vs. adjustable).

If you’re looking to save major money over the duration of your mortgage loan, you may want to consider a shorter term, such as 15 years. Shortening the term of your mortgage from 30 years to 15 years will likely cost you more monthly, but it could save thousands in interest over the life of the loan.

For example, a 30-year $1 million loan at a 7.5% interest rate would carry a monthly payment of approximately $6,992 and a total cost of around $1,517,172 over the life of the loan.

Refinancing to a 15-year mortgage with a 5.5% rate would result in a higher monthly payment, about $8,171, but the shorter maturity would result in total loan interest of around $470,750—an interest savings over the life of the loan of about $1,046,422 vs. the 30-year term.

One more perk: Lenders often charge a lower interest rate for a 15-year mortgage than for a 30-year home loan.

4. You’re Interested in Securing a Fixed Rate

Borrowers may take out an adjustable-rate mortgage because they may get a lower rate (at least initially) than on a fixed-rate mortgage for the same property. But just as the name states, the rate will adjust with market fluctuations.

Typically, ARMs for second mortgages such as home equity lines of credit are “pegged” to the prime rate, which generally moves in lockstep with the federal funds rate. First mortgage ARM rates are tied more closely to mortgage-backed securities or the 10-year Treasury note.

Even though ARM loans come with yearly and lifetime interest rate caps, if you believe that interest rates will move higher in the future and you plan to keep your loan for a while, you may want to consider a more stable fixed rate.

Refinancing to a fixed mortgage can protect your loan against rate increases in the future and provide the security of knowing how much you’ll be paying on your mortgage each month—no matter what the markets do.

5. You’re Considering an ARM

You may also be considering a move in the other direction—switching from a fixed-rate mortgage to an adjustable-rate mortgage. This could potentially make sense for someone with a 30-year fixed loan but who plans to leave their home much sooner.

For example, you could get a 7/1 ARM with a potential lower interest rate for the first seven years, and then the rate may change once a year, when up for review, as the market changes. If you plan to move on before higher rate changes, you could potentially save money.

It’s best to know exactly when the rate and payment will adjust, and how high. And it’s important to understand the loan’s margin, index, yearly and lifetime rate caps, and payments.

6. You’re Considering a Strategic Cash-Out Refi

In addition to updating the rate and terms of a mortgage loan, it may be possible to do a cash-out refinance, when you take out a new loan at a higher loan amount by tapping into available equity.

The lender will provide you with cash and in exchange will increase your loan amount, which will likely result in a higher monthly payment.

If you go this route, realize that you’re taking on more debt and using the equity you have built up in your home. Market value changes may result in a loss of home value and equity. Also, a mortgage loan is secured by your home, which means that the lender can seize the property if you are unable to make mortgage payments.

A cash-out refi may make sense if you use it as a tool to pay less interest on your overall debt load. Using the cash from the refinance to pay off debts carrying higher rates, like credit cards, could be a good move.

Depending on loan terms and other factors, a lower rate may allow for overall faster repayment of your other debts.

7. Your Financial Situation Has Improved

When putting together an offer for a mortgage, a lender will often take multiple aspects into consideration. One of those is prevailing interest rates. Another is your financial situation, like your credit history, credit score, income, and debt-to-income ratio.

The better your personal financial situation in the eyes of the lender, the more creditworthy you are—and the better the terms your loan offer could be.

Therefore, it may be possible to refinance your mortgage loan into better terms if your financial situation has improved since you took out the original loan, especially when paired with relatively low market rates.

The Takeaway

Is it time to refinance? Is the prospect of a lower interest rate or different loan term exciting? Locking in a lower rate now could help you achieve your long-term goals by freeing up cash for other stuff, like retirement or a big vacation.

Sometimes folks spend so much time sweating the small purchases (like the dang lattes) when really, it’s the big money moves—like refinancing—that can make the biggest difference over time.

If you’re interested in refinancing, you may want to look for a lender that’s offering competitive rates and great customer service.

That’s SoFi.

SoFi offers a regular mortgage refinance and a cash-out refinance.

Check your rate in two minutes.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

MG18113

Source: sofi.com