How Rising Inflation Affects Mortgage Interest Rates

Rising inflation can shrink purchasing power as prices of goods and services increase. This, in turn, can affect interest rates and the cost of borrowing. While the inflation rate doesn’t have a direct impact on mortgage rates, the two do tend to move in tandem.

What does that mean for homebuyers looking for a home loan and for homeowners who want to refinance a mortgage? Simply that as inflation rises, mortgage rates may follow suit.

Understanding the difference between the inflation rate and interest rates, and what affects mortgage rates for different types of home loans, matters in terms of timing.

Inflation Rate vs. Interest Rates

Inflation is defined as a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index, to determine how to direct monetary policy.

What to Learn from Historical Mortgage Rate Fluctuations

Inflation Trends for 2021 and Beyond

As of May 2021, the U.S. inflation rate had hit 5% as measured by the Consumer Price Index, representing the largest 12-month increase since 2008 and moving well beyond the 2% target inflation rate the Federal Reserve aims for.

While prices for consumer goods and services were up across the board, the biggest increase overall was in the energy category.

Rising inflation rates in 2021 are thought to be driven by a combination of things, including:

• A reopening economy

• Increased demand for goods and services

• Shortages in supply of goods and services

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. State reopenings have spurred a wave of “revenge spending” among consumers.

Although the demand for goods and services is up, supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in steadily rising inflation.

Fed Chair Jerome Powell said in June 2021 that he anticipates a continued rise in the U.S. inflation rate in 2021. This is projected to be followed by an eventual dropoff and return to lower inflation rates in 2022.

In the meantime, the Fed has discussed the possibility of an interest rate increase, though there are no firm plans to do so yet. Some Fed bank presidents, though, have forecast an initial rate increase in 2022.

Recommended: 7 Factors that Cause Inflation – Historic Examples Included

Is Now a Good Time for a Mortgage or Refi?

It’s clear that there’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

It simply means that if you’re interested in buying a home it could make sense to do so sooner rather than later. Despite the economic upheaval in 2020 and the rise in inflation that’s happening now, mortgage rates have still held near historic lows. If the Fed decides to pursue an interest rate hike, that could have a trickle-down effect and lead to higher mortgage rates.

good mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you’re able to afford.

The same is true if you already own a home and you’re considering refinancing an existing mortgage. With refinancing, the math gets a bit trickier.

You might want to determine your break-even point when the money you save on interest charges catches up to what you spend on closing costs for a refi loan.

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage – Step-By-Step Guide 

The Takeaway

Inflation appears to be here to stay, at least for the near term. Understanding what affects mortgage rates and the relationship between the inflation rate vs. interest rates matters from a savings perspective.

Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan.

SoFi offers fixed-rate home loans and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.

Photo credit: iStock/Max Zolotukhin

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.


LTV 101: Why Your Loan-to-Value Ratio Matters

Are you thinking about taking out a home loan or refinancing your mortgage? If so, knowing your loan-to-value (LTV) ratio, or the loan amount divided by the value of the property, is important.

Let’s break down LTV: what it is, how to calculate it, and why it matters. (Hint: It could help save you a lot of money.)

LTV, a Pertinent Percentage

The relationship between the loan amount and the value of the asset securing that loan constitutes LTV.

To find the loan-to-value ratio, divide the loan amount by the value of the property.

LTV = (Loan Value / Property Value) x 100

Here’s an example: Say you want to buy a $200,000 home. You have $20,000 set aside as a down payment and need to take out a $180,000 mortgage. So here’s what your LTV calculation looks like:

180,000 / 200,000 = 0.9 or 90%

Here’s another example: You want to refinance your mortgage (which means getting a new home loan, hopefully at a lower interest rate). Your home is valued at $350,000, and your mortgage balance is $220,000.

220,000 / 350,000 = 0.628 or 63%

As the LTV percentage increases, the risk to the lender increases.

Why Does LTV Matter?

Two major components of a mortgage loan can be affected by LTV: the interest rate and private mortgage insurance (PMI).

Interest Rate

LTV, in conjunction with your income, financial history, and credit score, is a major factor in determining how much a loan will cost.

When a lender writes a loan that is close to the value of the property, the perceived risk of default is higher because the borrower has little equity built up—and therefore, little to lose.

Should the property go into foreclosure, the lender may be unable to recoup the money it lent. Because of this, lenders prefer borrowers with lower LTVs and will often reward them with better interest rates.

Though a 20% down payment is not essential for loan approval, someone with an 80% LTV is likely to get a more competitive rate than a similar borrower with a 90% LTV.
The same goes for a refinance or home equity line of credit: If you have 20% equity in your home, or at least 80% LTV, you’re more likely to get a better rate.

If you’ve ever run the numbers on mortgage loans, you know that a rate difference of 1% could amount to thousands of dollars paid in interest over the life of the loan.

Let’s look at an example, where two people are applying for loans on identical $300,000 properties.

Person One, Barb:

•  Puts 20%, or $60,000, down, so their LTV is 80%. (240,000 / 300,000 = 80%)

•  Gets approved for a 4.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $197,778 in interest over the life of the loan

Person Two, Bill:

•  Puts 10%, or $30,000, down, so their LTV is 90%. (270,000 / 300,000 = 90%)

•  Gets approved for a 5.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $281,891 in interest over the life of the loan

Bill will pay $84,113 more in interest than Barb, though it is true that Bill also has a larger loan and pays more in interest because of that.

So let’s compare apples to apples: Let’s assume that Bill is also putting $60,000 down and taking out a $240,000 loan, but that loan interest rate remains at 5.5%. Now, Bill pays $250,571 in interest;

The 1% difference in interest rates means Bill will pay nearly $53,000 more over the life of the loan than Barb will.

Mortgage CalculatorMortgage Calculator

PMI or Private Mortgage Insurance

Your LTV ratio also determines whether you’ll be required to pay for PMI. PMI protects your lender in the event that your house is foreclosed on and the lender assumes a loss in the process.

Your lender will charge you for PMI until your LTV reaches 78% (by law, if payments are current) or 80% (by request).

PMI can be a substantial added cost, ranging from 0.5% to 2.25% of the value of the loan per year. Using our example from above, a $270,000 loan at 5.5% with a 1% PMI rate translates to $225 per month for PMI, or about $18,800 in PMI paid until 20% equity is reached.

How Does LTV Change?

LTV changes when either the value of the property or the value of the loan changes.

If you’re a homeowner, the value of your property fluctuates with natural market pressures. If you thought the value of your home increased significantly since your last appraisal, you could have another appraisal done. You could also potentially increase your home value through remodels or additions.

The balance of your loan should decrease over time as you make monthly mortgage payments, and this will lower your LTV. If you made a large payment toward your mortgage, that would significantly lower your LTV.

Whether through an increase in your property value or by reducing the loan, decreasing your LTV provides you with at least two possible money-saving options: removal of PMI and refinancing to a lower rate.

The Takeaway

The loan-to-value ratio affects two big components of a mortgage loan: the interest rate and private mortgage insurance. A lower LTV percentage typically translates into more borrower benefits.

Whether you’re on the hunt for a new home loan or a refinanced mortgage, it’s a good idea to shop around for the best deal. Check out what SoFi has to offer.

See if a SoFi mortgage or refi is a good fit in just a few clicks.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.



Everything You Need to Know About Hypothecation

Hypothecation may be a word you’ve never heard, but it describes a transaction you’ve probably participated in. Hypothecation is what happens when a piece of collateral, like a house, is offered in order to secure a loan.

Auto loans and mortgages involve hypothecation since the lender can repossess the car or house if the borrower is unable to pay.

There are, though, some more subtle details to understand about hypothecation—and rehypothecation—particularly if you’re in the market for a home loan. Read on to learn about hypothecation loans.

What Is Hypothecation?

Hypothecation is essentially the fancy word for pledging collateral. If you’re taking out a secured loan—one in which a physical asset can be taken by the lender if you, as the borrower, default—you’re participating in hypothecation. (Hypothecation is also possible in certain investing scenarios, which we’ll talk briefly about later.)

Some of the most common hypothecation loans are auto loans and mortgages. If you’ve ever purchased a car, it’s likely you have (or had) a hypothecation loan, unless you were able to pay the full purchase price in cash.

Importantly, just because the asset is offered as collateral doesn’t mean that the owner loses legal possession or ownership rights of that asset. For instance, with an auto loan, the car is still yours, even though the lender might hold the title until the loan is paid off.

You also maintain your right to the positive parts of ownership, such as income generation and appreciation. This is perhaps most obvious in the case of homeownership. Even if you’re paying a mortgage on your property, you still have the right to lease the place out—and you can still collect the rental income.

However, the lender has the right to seize the property if you fail to make your mortgage payments. (Which would be a bad day for both you and the renters alike.)

Why Is Hypothecation Important?

Hypothecation makes it easier to qualify for a loan—particularly a loan for a lot of money—because the collateral means the transaction is less of a risk for the lender.

For instance, hypothecation is the only way that most people are able to qualify for mortgages. If those loans weren’t secured with collateral, lenders might have very steep eligibility requirements to lend hundreds of thousands of dollars!

There are loans where hypothecation is not present, however. They are also known as unsecured loans. A personal loan is a good example.

Because unsecured loans are riskier for the lending institution, they tend to be harder to qualify for and carry higher interest rates than secured loans.

It’s a trade-off: With an unsecured loan, you’re not at risk of having anything repossessed from you, and you can use the money for just about anything you want.

On the other hand, if comparing, say, a car loan and personal loan of equal length, you’re likely to pay more interest over the life of the unsecured loan and be subject to a stricter eligibility screening to get the loan in the first place.

Recommended: Smarter Ways to Get a Car Loan

Hypothecation in Investing

Along with hypothecation in the context of a secured loan on a physical asset, like a house or a car, hypothecation can also occur in investing—though usually not unless you’re taking on more advanced investment techniques.

Hypothecation occurs when investors participate in margin lending, which involves borrowing money from a broker in order to purchase a stock market security (like a share of a company).

This technique can help active, short-term investors buy into securities they might not otherwise be able to afford, which can lead to gains if they hedge their bets right.

But here’s the catch: The other securities in the investor’s portfolio are used as collateral and can be sold by the broker if the margin purchase ends up being a loss.

TL;DR: Unless you’re a well-studied day trader, buying on margin probably isn’t for you and you probably don’t have to worry about hypothecation in your investment portfolio. But you should know it can happen in investing, too!

Recommended: What Is Margin Trading?

Hypothecation in a Mortgage

As mentioned above, a mortgage is a classic example of a hypothecation loan: The lending institution foots the six-digit (or seven-digit) cost of the home upfront but retains the right to seize the property if you’re unable to make your mortgage payments.

Given the staggering size of most home loans and the risk of losing the home, you may wonder if taking out a mortgage is worth it at all.

Even though any kind of loan involves going into debt and taking on some level of risk, homeownership is still often seen as a positive financial move. That’s because much of the money you’re paying into your mortgage each month usually ends up back in your own pocket in some capacity … as opposed to your landlord’s pocket.

When you pay a mortgage, you’re slowly building equity in the home. And since most homes have historically tended to increase in value, or appreciate, you can often end up making a profit even after factoring in whatever interest you pay on the mortgage—most or all of which is likely tax-deductible.

A Note on Rehypothecation

There is such a thing as rehypothecation, which is what happens when the collateral you offer is then, in turn, offered by the lender in its own negotiations.

It’s like hypothecation inception. We have to go deeper.

But this, as anyone who lived through the 2008 housing crisis knows, can have dire consequences. Remember The Big Short? Rehypothecation is part of the reason the housing market became so fragile and eventually fell apart entirely, and thus is practiced much less frequently these days.

The Takeaway

Hypothecation is the process in which a piece of collateral, like a house or car, is offered as part of the negotiation of a loan. Mortgages are a classic example of hypothecation—and hypothecation is the reason most of us are able to qualify for such a large loan.

If you’re looking to finance or refinance a home, SoFi offers a range of fixed-rate mortgages with terms ranging from 10 to 30 years.

Prequalifying takes just two minutes, and mortgage loan officers are standing by to help guide you through every step of the process.

It’s quick and easy to find your rate.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.



31 Real Estate Listing Terms Explained

As you read real estate listings, you may come across industry jargon and certain catchphrases again and again. Paying attention to and understanding these terms can provide valuable clues about the home and the seller’s situation.

What follows is a real estate glossary that can help you decipher listings and figure out what a realtor is really saying about a property.

Real Estate Listing Terms Decoded

Real estate has a language all its own. To figure out which homes may be worth looking at, and which might not, you may want to use this handy real estate translator next time you peruse the listings.

1. Cozy

While this descriptor may bring to mind a comfy armchair and a steaming mug of cocoa, in real estate, “cozy” tends to mean “small.” The home may have minimal square footage, meaning each room may have very limited space.

2. Charming

“Charming” is often another code word for a house with a small footprint, and may also indicate an older construction — which may, indeed, be charming, but might also end up needing costly repairs and renovations.

3. Cottage

This is yet another word that sounds like it’s invoking a feeling when it may really be invoking a size — and that size may be on the smaller side. Cottages tend to be one- to two-bedroom houses and, again, might also be dated.

4. Hidden gem

These words might indicate a nice home in an out-of-the-way location or a home in a popular and trendy locale that needs some work. Either way, it can indicate that the property offers a great opportunity for the right buyer, though you may have to put in some work or make some sacrifices.

5. Investor special

That sounds like a good thing, right? But a real estate agent might use this phrase to mean a house is in pretty rough shape and will take significant work to make livable– as in, you may only be able to buy it for cash or with a rehab loan.

6. Fixer

A listing agent may use this term as a shortening of “fixer-upper.” In other words: major renovations are likely going to be needed.
Recommended: The Cost of Buying a Fixer-Upper

7. Good bones

A home with “good bones” is typically one that needs some renovation and repair, but whose original construction is solid and whose layout is desirable. In other words, the skeleton of a great home is there, but you may need to do some work to flesh it out.

8. Move-in ready

Here’s a phrase you want to see in your real estate listings: “Move-in ready” typically means a home doesn’t need any major, mandatory repairs and is ready for you to start living in as soon as you’ve closed on the property. Of course, this term does indicate that the seller probably has a lot of leverage to demand the highest possible offer on the home

9. Turnkey

Basically a synonym for move-in ready–just turn the key and you’re all set to go!

10. Lives large

This indicates that the home may appear small in terms of square footage, but when you are actually in the property and walking around, it feels a lot more spacious.

11. Room to roam

A home with “room to roam” is typically one with a larger-than-average lot with lots of room to create outdoor living/play spaces or grow a garden.

12. As-is

If you see the words “as-is” in a real estate listing, proceed with some caution: This typically indicates that there are repairs or renovations that need to be done that the current owner is washing their hands of and passing off to the buyer.

13. Handyman special

This is another term that can indicate that a property needs a lot of work — thus making it a good opportunity for a handy homeowner, since the house may be priced lower than other, more turnkey, homes in the area.

14. Priced to sell

“Priced to sell” often indicates that the seller is pretty set on the price they’ve offered–you probably won’t be able to negotiate it down too far or get anywhere with a low-ball offer.

15. Serious buyers only

This term is usually meant to keep casual browsers or open-house visitors who are “just-looking” at bay. The seller likely doesn’t want to waste their time with people who aren’t seriously considering making an offer.

16. Custom

While “custom” sounds cool, it may or may not be. This term indicates that the property includes some built-to-order features or additions that appealed to the previous owners. These features, however, may or may not be to your taste.

17. Unique

“Unique” is another word that can go either way. It could be used to describe a lovely, one-of-a-kind feature, like a rooftop patio. Or, it could be used to describe something odd-ball, like a sunroom converted into a photographer’s darkroom.

18. Loft

“Loft” indicates that the home is large, open, and airy, with high ceilings and few interior walls. The bedroom, for instance, may be situated on an open second-floor landing that looks out directly onto the living room below. This may make for a picturesque living situation, but also one with relatively little privacy, so depending on who you live with, take heed.

19. Vintage

You might be able to guess from the name that “vintage,” when it comes to real estate listing terms, is generally code for “really outdated.” Those 1960s appliances might look cute in the pictures… but how much more life do they have in them before they need to be replaced?

20. Rustic

At its best, “rustic” might mean natural wood fixtures and a kind of casual, barn-inspired theme. At its worst, “rustic” might mean old, unprofessionally constructed, or poorly maintained.

21. Modern

Here’s a tricky one. Although you might assume “modern” means that a place is newly constructed and contemporary in style, it can also refer to mid-century modern, an era of architecture and design that took place between the 1930s and 1950s.

22. Great potential

In a similar vein to “good bones” or “hidden gem,” a home with “great potential” is typically one that provides an opportunity for the right buyer — but which likely needs some work to get there.

23. TLC

Short for “tender, loving care,” TLC is yet another term in real estate listings that typically indicates the home in question needs some renovations and repairs before it’s comfortable — or even livable.

24. Well-maintained

This is another term that sounds good on its surface — and might be! However, it can also be a yellow light. “Well-maintained” often indicates that a property has some age on it. (After all, if it’s new, there’s nothing that has needed maintenance yet). An older home isn’t automatically a bad thing, but it does mean you may be faced with upgrades or appliance replacements sooner rather than later.

25. Original details

As with “well-maintained,” “original details” suggests that the home has some older features that you may love, but may also require some maintenance/upgrading in the future.

26. Up-and-coming neighborhood

An up-and-coming location is one that might actively be evolving or drawing new residents. However, it can also indicate that the neighborhood may still contain a fair number of run-down homes and have a way to go before it’s considered a hot housing market.

27. Built-ins

Built-ins are features like bookshelves, benches or cabinets that are permanently built into the home itself, and are fairly common in older construction. Built-ins can be charming and convenient, but can also limit the flexibility you have in arranging and decorating the space as you see fit.

28. Motivated seller

“Motivated seller” may mean almost the opposite of “priced to sell” (above): It indicates that the seller is motivated to make a deal go through and may be willing to hear lower offers or make negotiations in order to get it to happen.

29. Location, location, location

Perhaps one of the most common real-estate-related catchphrases, if a listing puts a heavy emphasis on a property’s location, it could potentially indicate that the house itself leaves something to be desired (even if the location it’s in is fantastic).

30. Natural landscaping

“Natural landscaping” might indicate that there’s actually very little landscaping at all. Rather, the property might have lots of wild-growing flora that needs to be cleared to create an organized outdoor living space.

31. REALTOR (in all caps)

Although “real estate agent” and “realtor” are often used interchangeably, REALTOR is actually a term trademarked by the National Association of REALTORS (NAR) . Real estate agents can only use the title REALTOR in all caps if they are members of NAR, and adhere to the organization’s strict code of ethics.

The Takeaway

If you feel like property listings are sometimes written in a foreign language, you’re not entirely off-base. Listing agents often use terms that may be well-known in real estate circles, yet are unfamiliar to the average first-time home-buyer.

Agents may also use vague-sounding terms and phrases to make a home’s less-appealing qualities sound more attractive.

Knowing how to decode real estate listings can be a great first step toward finding the perfect home. Another step you may want to take is to pre-qualify for a mortgage.

SoFi offers home loans with as little as 5% down. It only takes two minutes to find out if you pre-qualify and what your options are for potential rates.

House hunting? Learn more about SoFi home loans today.

Photo credit: iStock/irina88w

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Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.
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.


Everything You Need to Know About Remodeling Recessed Lighting

For homeowners looking for relatively small projects to better enjoy and increase the value of their homes, remodeling with recessed lighting is a good move. That’s because upgrading your current lighting to recessed can lighting has the potential to create a more functional—possibly more energy-efficient—lighting scheme that could make your home feel more welcoming to buyers when the time comes to sell.

What Is a Recessed Light?

Recessed lighting is a lighting fixture that is set into a ceiling, virtually flush with the ceiling rather than hanging down from it. They’re often referred to as “can lights” or “downlights.”

Installation requirements for and the recessed lighting fixtures themselves are different for a remodel than new construction, depending on access to the area above the ceiling.

Generally speaking, it’s more common to have access to that space while a house is being constructed than for a house that’s already built. But for remodeling projects that do have that access, recessed lights for either new construction or remodels should work.

There are two main parts to a recessed light—housing and trim—with multiple options for each. The two parts can be purchased together in a kit or they can be purchased separately.

Housing: The housing is the portion set into the ceiling and, depending on the type of fixture, can be visible or fairly hidden, and plain or decorative. It’s the part that is actually mounted to the ceiling and houses the bulb socket.

Trim: The trim is the most visible part of a recessed lighting fixture. Some types of trim are merely a ring covering up the edge of the housing, allowing more of the inner housing to be visible. Other types of the trim cover more of the housing, placing the emphasis on the level of illumination or where the light is directed.

Homeowners who want to change the look of existing recessed lighting can usually change the trim without needing to replace the housing. This is called retrofitting.

Recommended: Renovation vs. Remodel: What’s the Difference?

What To Consider When Deciding To Add Recessed Lighting

There are a host of factors to consider when planning to add recessed lighting to an existing home, from what function the lighting will perform to the style of light that will work with the architecture of the home, as well as project cost and more.


Will the light be to generally light up the room? Or will it be to draw focus to a piece of art?

To add general lighting to a room—a living room, for instance—ambient downlights will provide even lighting throughout the room. The number and placement of lights will depend on the size and shape of the room.

If the goal is to have better lighting when performing certain tasks, such as in a kitchen, spotlights placed in areas above where those tasks are done will serve this purpose well.

A good example of this is bright lighting placed over the kitchen sink area so those dirty dishes can come out sparkling clean, or over a counter section where most of the food preparation is done.

Some people might have artwork or architectural detail to accent. For those purposes, recessed lighting that can be pointed in the desired direction would be optimal.


There are four main bulb categories: incandescent, halogen, compact fluorescent (CFL), an LED, all in a variety of wattages. Recessed lighting kits may also come with integrated lighting is soft, bright, or daylight color temperatures. Custom installations are available with lighting that can be adjusted with smart technology. It’s best to check the package information for the correct type of lightbulb and maximum wattage for the fixture.

Incandescent bulbs, the long-time classic, provide general lighting with a warm glow. Halogen bulbs have a similar color temperature to incandescents. The main difference between the two is the gas inside of each: Incandescents are filled with a gas such as argon or nitrogen, while halogens are filled with … a halogen gas. Halogen bulbs are more energy-efficient than incandescents, using 20% to 30% less energy.

Four Ways to Upgrade Your Home


The cost to install recessed lighting in an existing home is dependent on several factors. How many lights will be installed? What type of recessed lighting will be installed? Will there be labor costs if the job will be done by a professional? How much drywall repair and repainting will be needed after the installation is complete?

On average, recessed lighting costs about $360 per fixture when installation is being done by a professional. A typical kitchen, for instance, might require six fixtures, for a total cost of $2,160. This cost can vary, of course, based on the number and type of fixtures, trim, and bulbs chosen.

Recessed lighting is a common feature in kitchen and bath remodels, both of which have a high return on investment. While the lighting itself might not be the ultimate selling point for someone thinking of purchasing a home, updating the lighting when undertaking a remodeling project just might add to that ROI.

Recommended: The Top Home Improvements to Increase Your Home’s Value

The Takeaway

Adding recessed lighting to your home is one way to increase the cozy factor while maintaining the home’s value for a relatively small investment. Understanding the scope of the job will make it easier to estimate how much it might cost and how best to pay for it based on your particular financial situation.

Looking into rebate programs or federal and state financial assistance programs might help with the costs associated with adding recessed lighting to a home. Another option may be a personal loan to help pay for the project costs.

SoFi unsecured personal loans have no fees and low rates, with funding in as little as three days. Checking your rate takes just two minutes via an easy online process.

Learn more about personal loans from SoFi.

Photo credit: iStock/Yulia Romashko

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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

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.


How Do Reverse Mortgages Work?

Traditionally considered a last-ditch source of cash for eligible homeowners, reverse mortgages are becoming more popular.

Older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool to fund home renovations, consolidate debt, pay off medical expenses, or simply improve their lifestyles.

So what is a reverse mortgage? It’s a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment, or a line of credit.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house, or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Reverse mortgages aren’t for everyone. They eat up home equity and incur fees and interest. Depending on your age, home equity, and goals, alternatives like personal loans, a cash-out refinance, or a home equity loan may be a better fit.

Most Common Kind of Reverse Mortgage

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM), which can also be used later in life to help fund long-term care. The current loan limit is $822,375.

HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD).

If the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, the reverse mortgage loan needs to be paid back if no other borrower is listed on the loan. That was the status quo at least.

A new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as he or she continues to occupy the home as a principal residence, is still married, and was married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021 HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. They will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor. To find one, you can search for a counselor on the HUD site.

The counselor may cover eligibility requirements, the financial ramifications if you decide to go forward, and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable.

The counselor may also share alternatives. The goal is that you will be able to make an informed decision about whether a reverse mortgage is right for your situation.

Nearly 42,000 HECMs were awarded in 2020.

How Does a Reverse Mortgage Work?

To qualify for an HECM, all owners of the home must be 62 or older, and have paid off their home loan or have a considerable amount of equity.

Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed.

The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•  Income, assets, monthly living expenses, and credit history

•  On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or age of an eligible non-borrowing spouse, and current interest rates.

Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria. Borrowers or their

Loan Costs

An HECM loan includes several charges and fees. They include:

•  Mortgage insurance premiums

  Upfront fee: 2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit (whichever is less)

  Annual fee: 0.5% of the outstanding loan balance

•  Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000. The origination fee cap is $6,000)

•  Third-party charges

•  Service fees

•  Interest

Your lender can let you know which of these are mandatory.

Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

A lender or agent services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements, and disburses loan proceeds to you.

In return, they could charge you a monthly service fee of up to $30 if the loan interest rate is fixed or adjusts annually. If the interest rate can adjust monthly, the maximum monthly service fee is $35.

Third-party fees could include an appraisal fee, surveys, inspections, title search, title insurance, recording fees, and credit checks.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more info about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($822,375), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums.

In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

Pros and Cons of Reverse Mortgages

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing.

Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses, or buying a vacation home (although this is not true for the single-purpose variety).

How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit, or some combination of the three.

You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

The money from a reverse mortgage counts as a loan, not as income. As a result, Social Security and Medicare are not affected, and payments are not subject to income tax.

An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again:

Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

You’ll need to keep up property taxes and insurance, repairs, and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate, and loan fees, and whether they choose a lump sum, line of credit, monthly payment, or combination.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash. Here are suggestions:

Cash-out refi. If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan. A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC). A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Some lenders will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

Home equity loan. A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage makes sense for some older people who need to supplement their cash flow. But many factors must be considered: the youngest homeowner’s age, home value, equity, loan rate and costs, heirs, and payout type. Retirees have options.

SoFi offers a cash-out refinance, which involves taking out a home loan with new terms for more than you owe and pocketing the difference in cash.

SoFi also provides fixed-rate unsecured personal loans of $5,000- $100,000.

Need a financial boost? Consider a personal loan or a refinance with SoFi.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.


Preapproved vs. Prequalified: What’s the Difference?

What does it mean to be prequalified or preapproved for a mortgage? The two words are often used interchangeably, but they aren’t the same thing and don’t carry the same weight when a hopeful homeowner is ready to buy.

Here’s a look at how these two steps vary, how each can play a significant part in any home buying strategy, and how one in particular can increase the chances of having a purchase offer accepted when there are multiple offers on a house.

Getting Prequalified for a Mortgage

Getting prequalified is a relatively quick and easy process.

You, the mortgage applicant, provide a few financial details to a lender. The lender uses this unverified information, usually along with a soft credit pull, to let you know approximately how much you may be able to borrow and at what terms.

Because prequalification is an estimate of what the lender thinks you can probably afford based on the data input, the lender may ask some clarifying questions around income, assets, employment, and debt. You likely won’t be asked to provide any documentation at this point, so it’s pretty painless.

Getting prequalified can give an applicant a general idea of loan programs and the amount they may be eligible for.

But because the information provided has not been verified, there’s no guarantee that the loan or amount will be approved.

That doesn’t make this step irrelevant, though. Prequalification can help you in a few ways.

•  It can give you an idea of how much house you can afford.

•  It can alert you to loan programs you may be eligible for.

•  It can tell you what your monthly payment might look like when you do get approved for a mortgage.

It might be tempting to blow through this step by providing incomplete or embellished financial information to lenders—or to skip the prequalification process entirely. But who wants to fall in love with a house they can’t potentially afford? And who wouldn’t want to weed out any mortgage programs or lenders that don’t suit their needs?

Mortgage LoanMortgage Loan

Getting Preapproved for a Mortgage

Once you decide on a mortgage lender or lenders, you can begin the preapproval process.

Preapproval typically takes longer than prequalification and requires a thorough investigation of your income sources, employment history, assets, credit history, and other financial commitments and debts.

Verification of this information, along with a hard credit pull from all three credit bureaus, allows the lender to complete a preapproval of the loan before you shop for an eligible property.

When seeking preapproval, besides filling out an application, you may be asked to submit the following to a lender for verification:

•  Social Security number or some other form of identification

•  Two most recent pay stubs

•  W-2 statements for the past two years

•  Tax returns from the past two years

•  Sixty days’ worth of documentation (or a quarterly statement) of the activity in checking, savings, and investment accounts

•  Residential addresses from the past two years, including contact information for rental companies or landlords, if applicable

The lender may require backup documentation for certain types of income in order to qualify for a mortgage. For example, rental property owners may be asked to show lease agreements. Freelancers may be asked to provide 1099 forms, bank statements, a profit and loss statement, a client list, or work contracts.

Buyers also can expect to have to explain negative information that might show up during a credit check. (To avoid any surprises, proactive buyers can get annual free credit reports from A credit report shows all balances, payments, and derogatory information but does not give credit scores. It may help potential borrowers identify and amend errors before applying for a loan.)

Those who have filed for bankruptcy in the past may have to show documentation that it has been discharged. Applicants face a waiting period, which varies with the lender and whether they are seeking a conventional vs. government home loan, after a bankruptcy dismissal or discharge and before being eligible for new loan approval.

The lender will need to verify the amount and source of the down payment you plan to provide. If your parents are kicking in some cash, for example, the lender will ask for a gift letter that confirms that the money is a gift and not a loan. Some loan programs may require you to contribute a certain amount of your own money (sometimes 5%) to the loan before a gift can be applied. Generally, investment properties are not eligible for gift funds.

Those taking a loan or withdrawal from a 401(k) also typically will have to show the paperwork. And any sudden changes in finances may have to be explained—so it’s important to have a paper trail.

Three Reasons to Get Preapproved

Sounds like a lot of work, right? But preapproval has at least three selling points:

1. Preapproval lets you know the specific amount you are qualified to borrow from the lender, instead of just an estimate. You can always purchase a house for less than the preapproved amount.

2. Going through preapproval before house hunting could take some stress out of the loan process by breaking up the borrower and property underwriting portions of the loan. Underwriting, the final say on mortgage approval or disapproval, comes after you’ve been preapproved, found a house you love and agreed on a price, and applied for the home loan.

3. Being preapproved for a loan helps to show sellers that you’re a vetted buyer. The lender can provide a preapproval letter that indicates the willingness to lend you a particular amount, and the interest rate and fees you can expect to pay on that loan (though it’s not a guarantee that you’ll get the loan).

Depending on the real estate market, sellers might receive offers from multiple buyers. Having a preapproval letter could improve the chances that your offer will be selected, especially if other offers lack a preapproval letter.

The letter tells the seller that your credit, income, and assets have been reviewed and approved by a lender to move forward and that if the property is eligible, the loan should close with no issues to derail the purchase.

Time Is of the Essence

A preapproval letter usually expires in 90 days because pay stubs, bank statements, and so on are considered dated after 90 days.

If the information needs to be updated and reverified after that point, the preapproval letter can be reissued with a new expiration date.

If you’re seeking loan preapproval, you may benefit from mortgage rate shopping within a focused period—generally 14 to 45 days, varying by the credit score model each lender uses—to avoid dragging down your credit score.

If you apply for mortgages with several lenders within the condensed time frame, and each makes a hard pull of your credit, it will count as just one hard inquiry.

Finalizing the Mortgage Application

After you find the house you want to purchase and the seller has accepted the offer, the next step is to finalize your mortgage application and move toward final loan approval.

You don’t have to choose a mortgage from the same place a preapproval letter came from.

Once the lender receives the property appraisal and title report, a loan underwriter reviews the data and issues a loan commitment letter or final approval. This means that the loan has been fully approved and a closing date can be scheduled.

The lender may perform another credit check right before a loan closes. Applying for any new credit cards or auto loans, or making large credit purchases during the home buying process could affect final mortgage approval.

Some borrowers choose to lock in the interest rate offered by the lender once they find a home they want to buy. This freezes the mortgage rate for a predetermined period.

It’s a good idea to verify the time period to make sure the rate is in effect through the escrow closing date, and to review the fully executed purchase contract with the lender for closing and loan contingency timelines to be sure contract dates can be met.

Finally, even if you pass the loan approval process with flying colors, the home being purchased might not. The lender will likely order an appraisal to be sure the selling price is accurate and that the property type (single-family home, farm, etc.) and condition are eligible for home loan financing.

If the sales price is higher than the appraised value, you may have to go back to the negotiating table, walk away from the deal, or come up with cash to make up the difference.

What If My Preapproval Didn’t Pan Out?

Being turned down for a mortgage—or not being able to borrow as much as expected—can be disappointing. But it doesn’t have to put a stop to home buying hopes.

If you are in that boat, you might want to try to understand why you were not eligible.
You could:

•  Consider another loan product or lender where you might meet the lending criteria.

•  Work on improving whatever put a damper on your home loan qualification.

•  Find a home that’s better suited to your budget if you were preapproved for a lower loan amount than expected.

The Takeaway

Preapproval vs. prequalification: If you’re serious about buying a house, do you know the difference? Getting prequalified and then preapproved may increase the odds that your house hunt will lead to homeownership.

SoFi offers a range of fixed-rate mortgage loans with competitive rates and low down payment options.

Looking at investment properties? SoFi has loans for those, too.

It’s a snap to get prequalified and view your rate.

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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See for more information.



Make an Offer on a House in 6 Steps

It can be hard to find the sweet spot when making an offer on a home, but the home-buying process involves more than naming a price.

Assuming that you’ve been preapproved for a mortgage and that you’re finding homes in your price range, there’s a usual method to follow in submitting an offer that stands out but also protects you.

In a red-hot market chock-full of bidding wars, waived contingencies, and cash buyers, a house hunter may end up making multiple offers without success and getting caught up in the frenzy. (One suburban Washington, D.C., fixer-upper attracted 88 offers in four days, 76 of them for all cash, and sold for well over the list price.)

But let’s imagine a less heated market. Here’s a general guide to submitting an offer that can take you from homebuyer to homeowner.

Let’s Make a Deal

1. Determine Your Offer Price

A home’s listing price is often determined by comparing it to similar homes in the area that are for sale, then adjusting up or down based on additional amenities or detrimental issues. But as the old saying goes, “A home is generally worth what someone is willing to pay for it.”

You might find a property that’s fairly well priced, but you may want to adjust your offer if you feel that it’s priced too high or needs a lot of work.

There are lots of things to consider when trying to find the right offer price.

•  A common way to break down a listing amount is by price per square foot, but that often includes only the heated, livable spaces. A home can (and should) be priced higher than average for the area if it includes extra rooms like a garage or attic, outbuildings, or extra land. Workmanship or permitting can play a role.

•  Check the home’s history on the multiple listing service. It records every transaction related to the house, including previous buy and sell dates, price fluctuations, and how long the home has been on the market. It can give you a good idea of where the sellers are coming from.

•  Take a look at other properties in the area that have recently sold. Is the price per square foot more or less than the home you have your eye on? One key to an accurate read on the local market is to ensure that you’re comparing apples to apples when it comes to the number of bedrooms, bathrooms, square footage, garage space, and other amenities.

2. Incorporate All the Fees

It can also be important to look at factors not directly related to the price of the property that could affect your overall cash flow. One big consideration is closing costs, which typically average 2% to 5% of the total cost of the home.

Some closing costs are traditionally split by the buyer and seller, but if you’re short on cash, you may consider a higher offer price as long as the seller pays your portion of the closing costs.

It’s also important to estimate the amount of money you’ll spend making repairs or changes to the property once you move in. As long as the repairs are not related to health or safety issues, which could affect financing, one tactic could be to lower your offer price in order to free up cash for future upgrades.

3. Determine Your Earnest Money Deposit

Earnest money is a good-faith deposit that buyers place with the offer upfront, usually amounting to around 1% to 2% of the offer price, to show that they are serious.

It’s held in escrow by the title company, and showing purchase intent is one way to help a buyer get to the top of the seller’s list.

Customs and laws pertaining to an earnest money deposit can vary from state to state, and even from county to county, so it’s important to understand the rules that determine when the money is (and isn’t) refundable.

4. Protect Yourself With Contingencies

The time between a signed offer and closing day is called the due diligence period, and it’s when the buyer will normally set up a home inspection and possibly a land survey or other inspections for specialty items, such as a septic system or a pool, and the lender will order an appraisal.

Because the contract is signed before inspections and the appraisal take place, contingencies give you an out if you discover a deal-breaker.

Here are the most common contingencies:

•  Financing. This lays out the specifics of the financing that will be used by the buyer, which must be fully approved by the lender within the contingency period. This protects the buyer in case financing falls through.

•  Appraisal. If the appraisal comes back lower than the agreed-upon price, the seller and buyer may find themselves renegotiating.

•  Inspection. The buyer usually has 10 days after signing the contract to order an inspection, and the contingency remains in place until it comes back without uncovering any major issues with the property that were previously unknown. Based on the findings, the buyer can cancel the contract or negotiate repairs or the purchase price.

•  Title search. A preliminary title report shows the home’s past and present owners and any liens or judgments against the property. If any title disputes are unable to be resolved before closing, you have the option to exit the sale.

In some situations, the list of contingencies can be long. But once they’re all satisfied and lifted during the given time frames, the option to buy turns into a binding commitment to purchase the home.

5. Submit a Written Offer

In real estate, the best way to make an offer official is to put it in writing. If you’re working with a real estate agent, the agent will have a form that you can fill out together that lists the offer price and contingencies and covers all the state rules and regulations.

If you’re flying solo, working with a real estate lawyer or title company can help to ensure that your offer covers all the necessary legal language and is legally valid.

This concept goes both ways. As the buyer, it’s a smart idea to make sure all correspondence, counteroffers, and property disclosures are put in writing by the seller as well.

6. Move Ahead, Move On, or Move Things Around

Once you submit your written offer, one of three things is likely to happen: The sellers sign the document and enter into a binding contract, they reject the offer outright, or they submit a counteroffer.

In this last case, the sellers might counter back with changes that are better suited to them. (If your offer includes a price reduction to accommodate repair costs, for example, the seller might ask for the full asking price and offer a credit back at closing instead.)

A counteroffer puts the ball back in the buyer’s court for approval, rejection, or another counteroffer, and it can keep going back and forth until both parties agree to the terms and sign the document or one party calls it a day.

What If You Change Your Mind?

Contingencies give you a way out in the event of some unforeseen issue, but what if you just decide you don’t want the house?

Although the laws vary by state on this topic as well, in most instances a buyer is allowed to withdraw an offer until the moment the offer is accepted, However, once the offer document is signed by both parties, it’s considered a binding agreement.

At that point, the sellers may be well within their rights to walk away with your earnest money.

The Takeaway

How to make an offer on a house? It pays to understand comps, contingencies, the temperature of the market, earnest money, and counteroffers.

If you’re just starting to shop for a mortgage, getting a feel for your rate and loan amount might be inspiring.
SoFi offers fixed-rate home loans with competitive rates and as little as 5% down.

Find your rate in a snap today.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.



5/1 ARM Explained: Everything You Need to Know

Mortgage shoppers have multiple options, including the adjustable-rate mortgage (ARM). Is a 5/1 ARM a good choice? A lot depends on how long borrowers plan to keep the property and whether they can cover higher mortgage payments if interest rates go up.

While most borrowers will opt for a conventional 30-year fixed-rate mortgage, some may decide that an adjustable-rate loan is a better fit.

Recommended: Understanding the Different Types of Mortgage Loans

Here’s a closer look at ARMs and the 5/1 ARM in particular.

Anatomy of an ARM

An adjustable-rate mortgage often has a lower initial interest rate—for as little as six months to as long as 10 years—than a comparable fixed-rate mortgage.

Then the rate “resets” up (or, sometimes, down) based on current market rates, with caps dictating how much the rate can change in any adjustment.

With most ARMs, a rate adjustment happens once a year. And ARMs are usually 30-year loans.

Recommended: Adjustable Rate Mortgage (ARM) vs. Fixed Rate Mortgage

What Is a 5/1 ARM?

You’ll see adjustable-rate mortgage loans typically come in the form of a 3/1, 7/1, and 10/1, but the most common is the 5/1 ARM.

With a 5/1 ARM, the interest rate is fixed for the first five years of the loan, and then the rate will adjust once a year—hence the “1.”

Adjustments are based on current market rates for the remainder of the loan.

5/1 ARM Rates

An ARM interest rate is made up of the index and the margin. The index is a measure of interest rates in general. The margin is an extra amount the lender adds, and is usually constant over the life of the loan.

Caps, or limits, on how high (or low) your rate can go will affect your payments.

Let’s say you’re shopping for a 5/1 ARM and you see one with 3/2/5 caps. Here’s how the 3/2/5 breaks down:

•   Initial cap. Limits the amount the interest rate can adjust upward the first time the payment adjusts. In this case, the first adjustment, after five years, can’t be higher than 3%.
•   Cap on subsequent adjustments. In the example, the rate can’t go up more than 2% with each adjustment after the first one.
•   Lifetime cap. The rate can’t go up more than 5% for the life of the loan.

A mortgage payment spike after a rate adjustment can lead to payment shock.

Then again, a 5/1 ARM borrower may be able to save significant cash over the first five years of the loan.

Let’s say a borrower has a choice between a 30-year fixed-rate mortgage loan and a 5/1 ARM. Here’s the difference between the two loans after five years, using hypothetical interest rates, based on a loan amount of $300,000.

The 30-year fixed-rate loan has a rate of 3.8%, a monthly payment of $1,398 (not including taxes, insurance, or closing costs), and a total loan payout of $83,820. The remaining loan balance after five years is $270,456.

A 5/1 ARM has an initial interest rate of 3.0%, a monthly payment of $1,265, and a total loan payout of $75,840. The borrower owes $266,719 after five years.

Over the initial five-year period, the 5/1 ARM borrower would save the following:

Monthly savings = $133.00

Five-year savings = nearly $8,000

Of course, that represents only five years of a typical 30-year mortgage loan.

5/1 ARM Loan Pros and Cons

Borrowers should be aware of all the upsides and downsides of adjustable-rate mortgages.

5/1 ARM Pros

A lower interest rate upfront.
The initial five-year mortgage period usually comes with a lower interest rate than a fixed-rate mortgage. This can be an advantage for new homeowners who lack the cash needed to furnish the home and pay for landscaping and maintenance. And first-time homebuyers may gravitate toward an ARM because lower rates increase their buying power.

Potential for long-term benefit. If interest rates dip or remain steady, an ARM could be less expensive over a long period than a fixed-rate mortgage.

Could be good for short-term homeowners. Some buyers may only need a home for five years or less (for example, business professionals who think they’ll move or be transferred). These borrowers may get the best of both worlds with a 5/1 ARM: lower interest rates and no risk of much higher rates later on, as they’ll likely sell the home and move before the interest rate adjustment period kicks in.

5/1 ARM Cons

Risk of higher long-term interest rates. The good fortune with a 5/1 ARM runs out after five years, when the likelihood of higher interest rates increases. The loan could eventually reset to a rate leading to loan payments the borrower finds uncomfortable or unaffordable.

Higher overall home loan costs. As interest rates rise with a 5/1 ARM, homeowners will likely pay more over the entire loan than they would have with a fixed-rate home loan.

Refinancing fees. You can refinance an ARM to a fixed-rate loan, but you can also expect to pay some significant fees. Typically, mortgage loan refinancing costs 3% to 6% of the total cost of the loan.

Possible prepayment penalty. Some ARMs require special fees or penalties if you refinance or pay off the ARM early (usually within the first three to five years of the loan). And some loans have prepayment penalties even if you make only a partial prepayment.

Possible negative amortization. Some loans have payment caps. Payment caps limit the amount of payment increases, so payments may not cover all the interest due on your loan. The unpaid interest is added to your debt, and interest may be charged on that amount. You might owe the lender more later in the loan term than you did at the start. Be sure you know whether the ARM you are considering can have negative amortization, the Federal Reserve advises.

Recommended: How To Avoid Paying a Prepayment Penalty

Is a 5/1 ARM Right for You?

Is a 5/1 ARM loan a good idea? It depends on your finances and goals.

In general, adjustable-rate mortgages make more sense when there’s a sizable interest rate gap between ARMs and fixed-rate mortgages. If you can get a great deal on a fixed-rate mortgage, an adjustable-rate mortgage may not be as attractive.

If you plan on being in the home for a long time, then one fixed, reliable interest rate for the life of the loan may be the smarter move.

As the Fed says, an ARM presents a trade-off: You get a lower initial rate in exchange for assuming more risk over the long run. The advantages must be weighed along with the risk that an increase in interest rates will lead to higher monthly payments in the future.

Your best bet on ARMs? More tips from the Fed:

•   Talk to a trusted financial advisor or housing counselor.
•   Get information in writing about each ARM program of interest before you have paid a nonrefundable fee. •  Ask the lender or broker about anything you don’t understand, such as index rates, margins, caps, and negative amortization.
•  If you apply for a loan, you will get more information, including the annual percentage rate (APR) and a payment schedule, and whether the loan has a prepayment penalty. The APR takes into account interest, points paid on the loan, any fees paid to the lender, and any mortgage insurance premium. You can compare APRs on similar ARMs and compare terms.
•  Shop around and negotiate for the best deal if you’ve chosen to take out an adjustable-rate mortgage.

The Takeaway

A 5/1 ARM offers borrowers a temporary perk, but they assume risk over the long run. Tempted by a sweet introductory rate? It’s a good idea to go in with eyes wide open about rate adjustments, prepayment penalties, and your homeownership goals.

If one sweet fixed rate from here to eternity—well, up to 30 years—sounds good, SoFi offers fixed-rate home loans as well as mortgages for second homes and investment properties.

There’s never a prepayment penalty. If you’re curious, find your rate in a flash.

Learn more about SoFi home loans today.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.



The Ultimate Home Inspection Checklist

A home inspection checklist can help house hunters know what they’re getting into—whether a property will likely be more of a nuisance than a nest.

In a hot market, some buyers skip all contingencies, including the home inspection, taking on risk.

Others are opting to have an inspection done before making an offer. In a time of bidding wars, that can mean multiple home inspections and offers.

In a seller’s market, many properties are sold “as is,” which means sellers won’t negotiate for repairs even after an inspection.

But in any market, a home inspection checklist will help prevent you from buying a home at the top of your budget that will soon need big fixes.

What’s on a House Inspection Checklist?

According to the American Society of Home Inspectors, here are the common items evaluated in a general professional inspection.

Note that a general home inspector—whose average cost ranges from $280 to $400—might suggest a separate inspection by a specialist if the inspector spots a potential problem but thinks an expert should evaluate it further.

Heating and Air System

Depending on your geographical location and the weather there, a finely tuned heating, ventilation, and air conditioning (HVAC) system might be a top priority on your home inspections list.

Does the house you’re considering have an HVAC system? An older property might not, in which case you might want to research and price the purchase and installation of a system.

If the property does have HVAC, does it work and how old is it? If it doesn’t work, or work well, you’ll want to find out what it will cost to repair or replace it.

If the system is practically vintage, the Department of Energy says it might be worthwhile to replace it, as newer models are more efficient and likely to lower your energy costs.

Plumbing System

It’s easy to forget about pipes when you’re walking through a home. You can’t see them, but they heavily affect daily life and are not always simple to repair.

Ask your home inspector to check all plumbing work for possible leakage, as a leaky pipe can lead to water damage and additional repair work.

An inspector could also check drainage throughout the home, the condition of the garbage disposal and water heater, and overall water pressure. If the home is older and has a septic tank, that could be inspected, too.

Check out the SoFi guide
to first-time home buying.

Electrical System

A professional home inspection will likely include an evaluation of a property’s entire electric system, ensuring that it is up to safety standards outlined by the National Electrical Code.

The functioning of the electrical box, outlets, switches, and lighting will be checked, as well as the state of the wiring throughout the home.

If the house has solar panels, you might want to make sure they’re in working order and ask for the maintenance history.


No matter the type of roof, the home inspector will check its condition and age.

A roof in good shape helps ensure against leaks and provides some level of insulation. It’s also important to know if you’re buying a home with a roof at the end of its lifespan, so you can set aside money to replace it when needed.

Replacing a roof can run from about $5,570 to $11,400, HomeAdvisor notes.

Floors, Walls, Ceilings

Put the bones of the house on your house inspection checklist.

Structural components like these will likely be looked at in your home inspection. You’ll want to be sure the floors are level. And consider the floors cosmetically. Is the carpeting new? Are there wooden floors that need refinishing?

Look for cracks in the drywall or plaster that make up the walls and ceiling as well. Sometimes cracks are a natural change as walls expand and contract with weather changes. But it’s good to know if all you’ll need is spackle and paint or if repairs will require a lot more time and money.

Foundation, Attic, Basement, Attic

A home inspector will crawl through a foundation space, checking for stability and that it is up to national safety codes.

A basement will be checked for dampness and good ventilation for moisture control.

And if the home has an attic, your inspector will check to see that the beams and rafters (which support the roof) look secure and distress-free.


Homes generally lose heat through the windows, walls, roof, and attic. Proper sealing and insulation can be a good way to prevent this, lowering energy costs.

If your prospective home is quite old, it’s possible it has no insulation, and you might want to consider the cost of adding it. If the home has been insulated, the home inspector will check its condition and look for gaps.


Exterior walls will be evaluated, with an eye toward any damaged bricks, shingles, or siding or bubbling paint. Other important exterior components are chimneys, gutters and downspouts, doors, and windows. You might also want to check for moisture.

If water collects and stands anywhere on the property—because of poorly hung gutters or a leaking sprinkler, for example—you may want to nip it in the bud to avoid mold growth and/or water damage. Check for pests like termites or cockroaches as well.


If a refrigerator, stove, and washer and dryer are part of the deal, have your inspector make sure they are in good working order.

If the home comes with few to no appliances, determine how much adding them will cost.

Choosing a Home Inspector

If you’re using a real estate agent, chances are your agent can recommend a few home inspectors they’ve worked with before.

Then again, a home inspector your agent referred may feel obligated to go easy on the inspection.

Whether you’re using a buyer’s agent or not, some consumer advocates say it’s a good idea to find your own inspector.

Other things to put on your house-hunting checklist: Know your credit score, and get prequalified and preapproved for a home loan.

The Takeaway

A home inspection checklist can unearth problems that can be a dealbreaker, possibly a negotiating tool, or something a buyer is willing to accept and deal with. The curb appeal is great, the staging superb, but house inspection lists offer a probing look at what lies beneath.

Shopping for a home and a loan?

SoFi offers fixed-rate mortgages with little down for qualified buyers, as well as investment property loans.

It takes two minutes to find your rate.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (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 Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See 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.