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How Long Does a Mortgage Preapproval Last?

Mortgage preapprovals more than 3 months old are generally considered out of date, but letters can last as long as 180 days. Depending on how long your search is, you may need to renew it more than once before closing on a home.

Having a letter of preapproval from a financial institution can help ensure that you’re ready to snap up a home you love.

What Is a Mortgage Preapproval Letter?

A letter of preapproval can be an essential part of the home-buying process. It shows sellers that you are serious about buying a home and that a lender is likely to give you a mortgage quickly.

A preapproval letter is a lender’s written statement that it is willing to lend you a specified amount of money for a mortgage, although it’s not quite a commitment.

The lender will review your credit history, income, and assets to determine the amount you qualify for. The letter will then state that number and may outline stipulations to gain the loan, such as maintaining your employment or not taking on any additional debt.

A preapproval letter can help you focus on homes that are in your price range. This is important in competitive markets when you won’t want to waste time reviewing homes that are out of your budget. A preapproval letter can also signal to sellers that you are a serious buyer, and many sellers require one before accepting an offer.

Letters of preapproval may last anywhere from 90 to 180 days, though many view anything older than 3 months as out of date. That time frame tends to work, since homebuyers, on average, shop for a home for three to six weeks, according to the Home Buying Institute.

Recommended: Tips for Buying in a Hot House Market

Mortgage Prequalification vs. Mortgage Preapproval

Since they sound similar, it’s worth mapping out the difference between prequalification and preapproval.

Mortgage Prequalification

Prequalification is a key first step in the mortgage process.

You will tell lenders about your income, assets, and debts to get a sense of the loan programs and rates you might receive.

Lenders use that unverified information, and usually a soft credit inquiry, to give a ballpark estimate of how much you may be able to borrow and at what terms.

This estimate is useful because it can give you an idea of how much house you may be able to afford. Prequalification can also give you an idea of what your monthly mortgage payment would look like.

However, prequalification does not mean that a lender is guaranteeing a loan. At this stage, your loan qualifying information is typically not verified.

Mortgage Preapproval

The mortgage preapproval process is an examination of your income, employment, assets, debt, and creditworthiness, and it represents the next step in buying a home.

When considering you for preapproval, lenders will scrutinize:

•   Income: Employees will need to provide pay stubs, W-2s, and tax returns from the past two years, as well as documentation of any additional income, such as work bonuses. Self-employed workers often need two years’ worth of records and a year-to-date profit and loss statement, although many lenders and loan programs are flexible.

•   Assets and liabilities: You’ll need to provide proof of savings, investment accounts, and any properties. Lenders view assets as proof that you can afford your down payment and closing costs and still have cash reserves. The lender will also look at monthly debt obligations to calculate your debt-to-income ratio.

•   Credit score: Your credit score is a numerical representation of your credit history. It reflects debt you’ve taken on and whether you’ve made payments on time.

Recommended: What Is Considered a Bad Credit Score?

Once your lender has reviewed the information, it may offer a letter of preapproval stating the maximum mortgage amount that you have been preapproved for, how long the letter is good for, and any conditions that need to be met for final loan approval.

A preapproval may help you compete with homebuyers who are purchasing in cash. Some sellers won’t even consider offers that don’t have at least a preapproval, so this letter makes it more likely they will select your offer on a property.

It’s possible that even after preapproval, the lender may choose not to issue a mortgage. A lender, for example, might withhold final approval if it discovers previously undisclosed financial information that changes qualifying eligibility, or if the property you want to purchase is not eligible for lending because of its condition.

To sum it all up:

Mortgage Prequalification
Mortgage Preapproval

•   Doesn’t require a credit check

•   Checks credit history

•   Is based on financial assumptions

•   Is based on verified facts

•   Provides an estimated mortgage amount

•   Provides an offer to lend a specific amount

•   Is less reliable than preapproval

•   Is much more reliable than prequalification

Check out local real estate
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your home-buying journey.

How quickly a mortgage preapproval can be completed can vary by lender and how quickly documentation has been supplied, but it could range from 24 hours to 10 days.

Importantly, receiving preapproval from a lender does not obligate you to use them. If home loans with more desirable terms are available, it would be smart to look into them.

What to Do When Your Preapproval Expires

Lenders put an expiration date on preapproval letters because they need to have your most up-to-date financial information on hand. The credit, income, debt, and asset items they reviewed for your preapproval typically need to be updated after 90 days.

You might leave your job and no longer have a steady income, or a financial emergency may have taken a big bite out of your savings. As a result, the lender will want to reassess your finances.

If you’re using the same lender you will need to provide updated pay stubs and bank statements, and your credit may be checked again.

You can minimize the effect of “hard pulls” on your credit score by avoiding seeking a renewal when you’re not actively shopping for a home, and by working with only one lender during the preapproval stage.

If your finances have mostly stayed the same, your lender is likely to renew your preapproval.

Finalizing Your Mortgage

If you find a house while your mortgage preapproval is still valid, you can move on to finalizing your mortgage application. At this point, in many cases, lenders will check again to see if there have been any changes to your financial situation.

The mortgage underwriter will review all the information, order an appraisal of the chosen property, get a copy of the title insurance, and consider your down payment. Then comes the verdict: approved, suspended (more documentation is needed), or denied.

Your mortgage is not officially approved until you receive a final commitment letter. After you have the letter, a closing date can be scheduled.

Buyers may want to minimize changes, like applying for other loans or credit, when a home loan is in underwriting.

The Takeaway

How long is a mortgage preapproval good for? Ninety to 180 days, though a letter older than 3 months is generally considered out of date. Getting prequalified is a good precursor to getting preapproved.

If you’re ready to start house hunting, check out the fixed-rate home loans SoFi offers. You may be able to put as little as 5% down.

Get prequalified for a SoFi Home Loan in just two minutes.

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.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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Understanding Your Mortgage APR

Your APR, or Annual Percentage Rate, is an important term for any potential homebuyer to know. Distinct from your interest rate, your mortgage APR tells you the overall cost of your mortgage loan, taking into account both your interest rate as well as any additional costs.

Understanding what an APR is and how it can impact your loans is critical when borrowing any loan, especially a mortgage. Here’s a primer on what elements make up an APR and how you can calculate it.

What Is APR?

APR stands for Annual Percentage Rate, and it’s used to measure the cost of borrowing money from lenders for various reasons, such as your mortgage loan. While it’s often presented at the same time as your interest rate, it isn’t the same thing.

APR is expressed as a percentage and takes into account not only the interest rate, but also many of the costs that are associated with the loan. When it comes to borrowing a mortgage, these costs can include items such as origination fees, application fees, processing fees, discount points, and other types of fees that lenders may charge.

APR provides a more comprehensive picture of the total cost of the mortgage loan since it gives you an overall view of the fees and costs you would have to pay that are included in the finance charge. If you compare just the interest rate, the additional fees and costs aren’t represented, which could give you an incomplete picture when it comes to determining the actual cost of the loan.

Since not all lenders charge the same fees or interest rates, comparing APRs is usually a better way to compare the total cost of your loan from one lender to another.

Why Is APR Important When Taking Out a Mortgage?

Knowing the APR can help consumers be more informed while comparison shopping for loan products. Thanks to the Truth in Lending Act , lenders are required to disclose the APR of their loans, as well as all fees and charges associated with a loan.

The APR should include all finance charge fees, which can make it easier for borrowers to sort through loan comparisons to find the right mortgage.

How Are Interest Rates Calculated?

As we’ve discussed, APR and interest rate aren’t the same, but your interest rate does impact your APR. So, how exactly are interest rates calculated?

Your interest rate is a percentage of your mortgage rate. What that percentage will be, depends on what type of mortgage loan you have. For instance, with a fixed-rate mortgage, you’ll pay the same interest rate for the entire time you have the loan. With an adjustable rate mortgage, on the other hand, your rate will fluctuate throughout the life of the loan. Also, keep in mind that any unpaid interest gets added to the mortgage principal. This means you’ll have to pay interest on that interest.

Your lender will determine your specific interest rate based on your financial specifics, such as your credit score, as well as the current economic conditions and market interest rates. Lenders usually use their own unique formula to calculate interest rates, which is why your rate can vary from lender to lender — and why it’s important to shop around for rates.

Recommended: APR vs. Interest Rate: What’s The Difference?

How to Calculate Your APR

If you want to be extra thorough and calculate the APR yourself, there’s a way to make that happen. Be warned, it’s not necessarily a super fun math project, but hey, where there’s a formula, there’s a way, right?

To get started, you’ll have to know the approximate monthly Principal and Interest (P&I) payment on your loan. Maybe your lender has already told you what it would be, but if not, you could calculate it with an online mortgage calculator or by hand. You’ll need to have a loan amount, interest rate and a term in years. And remember, right now, we’re just trying to give an idea of the difference between the interest rate and the APR.

Once you have the monthly P&I payment calculated, you’ll then be able to calculate the APR, which you can do with this calculator . Keep in mind that because we don’t know what your applicable APR loan fees will be, we suggest using a ballpark estimate. Let’s say that the loan costs that will impact your APR are 2% of your loan amount. So, if your loan amount is $200,000, your loan costs for calculating the APR will be $4,000.

Why You Need to be Careful When Using APR to Compare Mortgages

So you’ve got the APRs for all the mortgage offers you’re considering. Your APR is important to consider because it factors in the expense of additional fees over the life of your mortgage. If you’re applying for a 30-year mortgage, those fees are spread over 30 years.

But do you plan to live in your home for the full 30 years of your mortgage and never refinance your mortgage? If you sell your home after five years, rather than staying for the duration of your 30-year loan, you’ll still have to pay for the loan fees (such as origination fees).

That’s why it’s important to consider and compare APRs when choosing a mortgage. If you plan on living in the home for a limited time, a lender that offers fewer fees might be a better choice than a lender with a low APR but lots of fees. You’ll want to make sure to consult with your financial advisor before making this decision.

When you’re mortgage shopping, you also may want to proceed with caution when comparing the APRs of fixed-rate and adjustable-rate mortgages if you are using an online calculator. The APR on adjustable-rate loans may not be an accurate representation of the cost of the loan since some calculators cannot anticipate the frequency or amounts of the interest rate changes.

Recommended: Tips When Shopping for a Mortgage

The Takeaway

If you’re ready to take the next step in your home-buying journey, the first step is taking stock of your mortgage options. Comparing each loan’s APR is a quick and easy way to see how your offers stack up but remember it isn’t the only factor to take into account.

One way to start the process of mortgage shopping is by checking out SoFi mortgages. We offer a variety of mortgage loans, so you can select the option that works best for you. You can start the application online and find out if you’re pre-qualified in just minutes.

Learn how a mortgage with SoFi can help you buy the house of your dreams. Start today!

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.
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.com/legal.


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woman in pool

Swimming Pool Installation: Costs, Ideas, and Tips

If, as they say, the American Dream is to own your own home, then the sensational sequel, for many people, is to have your own swimming pool installed.

Few other home improvements have the same potential to turn a property into an oasis for parties, playtime for the kids, or simply hanging out and spoiling yourself.

But paying someone to build that backyard paradise could become a nightmare without the right swimming pool financing in place. (Unless you happen to have $30,000 to $60,000 lying around, of course. That’s the average cost of adding an inground pool.)

How to Finance a Swimming Pool

If you don’t have enough saved to pay upfront for a pool — or even if you do — you might be wondering what types of loans or other options are appropriate for this type of backyard remodel.

There are several pool financing choices available to homeowners — including personal loans and cash-out refinancing; home equity loans and home equity lines of credit; or credit cards and options offered through a pool company.

Before you take the plunge into financing a pool, you may want to consider the pros and cons of each type, including the overall costs of borrowing and whether you might qualify for a particular type of loan. Understanding some of the different ways you can finance a pool can help you decide what’s right for you. So, take a deep breath — we’re diving in.

Using a Cash-Out Refinance to Pay for a Pool

Homeowners who have enough equity built up in their house may want to check into doing a cash-out refinance.

With this strategy, borrowers replace their existing mortgage with a new mortgage for a larger amount. Then, they can use the lump-sum of cash they get back to pay for a pool (or pretty much anything they want).

Pros of a Cash-Out Refinance

When interest rates are low (as they are now), a cash-out refinance can have a few benefits.

•   Eligible homeowners typically can borrow up to 80% of their home’s equity, which could be enough to cover the cost of putting in a pool — and maybe even some extras, like a new barbecue or lounge chairs.

•   Borrowers with good or improved credit, or those who bought their home when interest rates were higher, may be able to refinance to a lower interest rate.

•   A mortgage interest tax deduction may be available on a cash-out refinance if the money is used for capital improvements on your property. (Consult with a tax professional for more details as they apply to your situation.)

Cons of a Cash-Out Refinance

There are some downsides to going the refi route, including:

•   Borrowers must go through the mortgage application process all over again to get a new loan, which usually means submitting updated information, getting an appraisal, and waiting for approval.

•   If your credit isn’t great (maybe your credit cards are maxed out from other improvements), you may not be able to get the new loan.

•   Borrowers may have to pay closing costs, generally from 2% to 6% of the total loan amount. (That’s the old loan plus the lump sum that’s being added.)

•   If the term on the new mortgage is longer than the remaining term on the original loan, it could mean more years of making payments (and paying more in interest overall).

•   Your mortgage is a secured loan, which means if you can’t make your payments, you could risk foreclosure.

Using a Home Equity Line of Credit to Finance a Pool

Another way borrowers can use their home’s equity to finance a pool is to take out a home equity line of credit (HELOC).

A HELOC is a revolving line of credit that uses your home as collateral. It works much like a credit card in that:

•   The lender gives you a credit limit to draw from, and you only repay what you borrow, plus interest.

•   As you pay back the money you owe, those funds become available to you again for a predetermined “draw” period. (Usually 10 years.)

Pros of a HELOC

Here’s why a HELOC can be a popular way to pay for home improvements:

•   Borrowers only pay interest based on the amount they actually borrow, not the entire amount for which they were approved, as you would with a regular loan.

•   The interest rates are generally lower than credit cards and unsecured personal loans.

•   The interest on HELOC payments might be tax deductible, according to IRS rules , if the funds were used to “buy, build, or substantially improve your home.”

•   A HELOC may be easier to obtain than some other types of loans, and the costs might be lower.

Cons of a HELOC

Just as with a credit card, if borrowers aren’t careful, a HELOC can become problematic. Here’s why:

•   HELOCs generally come with a variable interest rate, which means when interest rates increase, the monthly payments could go up. Although there may be a cap on how much the rate can increase, some borrowers might find it difficult to plan around those fluctuating payments.

•   HELOCs are easy to use — and overuse. Some of the same things that can make a HELOC appealing (easy access to cash, lower interest rates, and tax-deductible interest) could lead to overspending if borrowers aren’t disciplined.

•   Adding a HELOC could affect your ability to take out other loans in the future. When lenders are deciding whether to offer a loan, they look at a borrower’s existing debt load. If you add a HELOC to a mortgage, car loans, and maybe some credit cards and other debt, it could appear to increase the risk that you won’t be able to make payments.

•   Just as with a cash-out refinance, the borrowers’ home is used as collateral, which means the lender could foreclose if something happens and you can’t make your mortgage payments.

Using a Home Equity Loan for Pool Financing

A home equity loan is yet another way to tap into the money you’ve already put into your home. But unlike a HELOC, borrowers receive a lump sum of money.

Pros of a Home Equity Loan

Home equity loans have a few positives that make them worth considering for financing a swimming pool.

•   Unlike HELOCs, which typically come with a variable interest rate, home equity loans usually have a fixed interest rate. The borrower can expect a reliable repayment schedule for the duration of the loan.

•   Because it’s a secured loan, the lender may consider it a lower risk, so the loan may be easier to get and the interest rate may be lower than other options.

•   And, once again, there is a potential tax break. If the loan is used for capital improvements to the home, the interest may be deductible.

Cons of a Home Equity Loan

There are two main downsides to a home equity loan.

•   Borrowers may run into a long list of fees when closing on a home equity loan. Some aren’t that high, but they can add up.

•   Borrowers might put their home at risk for foreclosure if they can’t make their loan payments.

Using a Personal Loan

You don’t necessarily have to tap into your home’s equity to finance a swimming pool. Financial institutions offer unsecured personal loans that can be used for this purpose.

If you haven’t owned your home for long, or if your home hasn’t gone up much in value while you’ve owned it, a personal loan may be an option. Here are some pros and cons:

Pros of a Personal Loan for Pool Financing

Applying for an unsecured personal loan can be a much more straightforward process than getting a secured loan.

•   With a personal loan, borrowers don’t have to wait for a home appraisal or wade through the other paperwork necessary for a loan that’s tied to their home’s equity. There generally are fewer fees. And if the loan is approved, you may get your money faster.

•   Because your home isn’t being used as collateral, the lender can’t foreclose if you don’t make payments. (That doesn’t mean the lender won’t look for other ways to collect, however.)

Cons of a Personal Loan for Pool Financing

Cost is the big factor when comparing personal loans to other borrowing options.

While it may be easier and less expensive upfront to get an unsecured personal loan, interest rates may be higher for this type of loan than a loan that requires collateral. However, borrowers who have good credit and don’t appear to be a risk to lenders still may be able to obtain loan terms that work for their needs.

Should You Finance a Pool?

Installing a pool is an expensive home improvement, so you may want to (or have to) borrow some money to pay for all or part of the project.

If you do decide to borrow, it’s pretty easy to go online and research multiple lenders to find the best loan terms for you. Once you’ve estimated how much money you may need, you can shop lenders to find the best interest rate and loan length, and to get an idea of how much your monthly payments will be. You also can check on all the upfront costs of getting the loan. If timing is important, you also can ask how quickly you’ll find out if you qualify and how long it might take to get your money.

The Takeaway

If you’re considering using a loan or line of credit to pay for your pool project, there are several financing options.

Applying for a personal loan tends to be a simpler process than what might be required for other types of loans — and you won’t have to use your home as collateral. Another plus: Online personal loans, like those available through SoFi, can be ready in just a few days. But each type of financing has some pros and cons, so it can be useful to shop around and see what would work best for you.

Pool Financing FAQs

Q: What credit score is needed for pool financing?

A: Every lender has its own process for evaluating a borrower’s creditworthiness — and different types of loans can have varying requirements. If your credit score is in the fair range (below 670) you still may qualify for a personal loan with some lenders. But the better your credit, the better the chances are that you can qualify for more types of loans, lower interest rates and/or a higher loan amount.

Q: Is it smart to finance a pool?

A: Borrowers who have enough cash saved to pay upfront for a pool may still want to consider financing all or a part of their purchase if they want to keep that cash accessible for emergencies and other needs. Financing with a low-interest loan (when you can afford the payments) can make paying for a pool manageable. But before you borrow a large sum, you may want to consider how long you plan to live in your current home, how much pool maintenance might cost each month, if you’ll actually use the pool enough to make it a worthwhile purchase, and if the value added to your home is worth the investment.

Q: How hard is it to get pool financing?

A: A lot depends on your credit and how much you hope to borrow. Lenders want to be certain borrowers can pay their loans. If you have a track record of making late payments, or if you already have a high debt-to-income ratio, it may be difficult to qualify for a pool loan. You may choose to wait until your financial situation improves before you apply for a loan.

Q: Don’t pool companies usually offer financing?

A: Yes, but that financing likely will come from a financial institution the pool company works with — not the pool company itself. If you get a loan offer through a pool company, compare the rates and other terms to those offered by a few lenders before signing on the dotted line.

Q: What about using a credit card?

A: If you’re only financing a portion of the pool’s cost, you could consider using a card with a low- or zero-interest introductory rate. But if you can’t pay off the balance during the introductory period and the rate flips to a higher rate, financing the entire amount or even a chunk of the cost could get expensive.

Q: How long is the typical pool loan?

A: The length will depend on the type of loan you choose and could range from a few years (for a personal loan) to decades. Borrowers can shop for a repayment pace that suits their needs when they research pool loans.

Ready to dive in? Explore SoFi’s personal loans and see if we can help you build the pool of your dreams.

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.com/legal.

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.
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.
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.

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What Is a Piggyback Mortgage Loan?

At its simplest, a piggyback mortgage can be defined as a second mortgage, typically a home equity loan or home equity line of credit (HELOC).

Piggyback mortgage loans might be a smart option for homebuyers looking to finance a home without a large down payment. They are taken out at the same time as main mortgages and may save homebuyers money over the life of their loans by not having to pay for private mortgage insurance (PMI).

Read on to learn more about what a piggyback loan is and how it works.

What Is a Piggyback Loan?

Homebuyers can use a piggyback mortgage loan to fund the purchase of a property. Essentially, they take out a primary loan and then a second loan, “the piggyback loan,” to fund the rest of the purchase.

Using the strategy helps homebuyers reduce their mortgage costs, such as by not needing a 20% down payment to qualify. It also helps them avoid the need for private mortgage insurance, which is usually required for those who don’t have a 20% down payment.

How Do Piggyback Loans Work?

When appropriate for a homebuyer’s unique situation, a piggyback mortgage might potentially save the borrower in monthly costs and reduce the total amount of a down payment.

Here’s an example to consider of how they work:

Jerry is buying a home for $400,000. He doesn’t want to put down more than $40,000 for the down payment. This eliminates several mortgage types. He works with his lender to secure a first mortgage for $320,000, then another to secure a piggyback mortgage of $40,000 and finishes the financing process with his down payment of $40,000.

Piggyback home loans were a popular option for homebuyers and lenders during the housing boom of the early 2000s. But when the housing market crashed in the late 2000s, piggyback loans became less popular, as a lack of equity proved homeowners more vulnerable to loan defaults.

Fast forward to today’s housing market and piggybacks are starting to become a viable and acceptable option again.

Recommended: Guide to Buying, Selling, and Updating Your Home

Types of Piggyback Loans

A 80/10/10 Piggyback Loan

There are different piggyback mortgage arrangements, but an 80/10/10 loan tends to be the most common. In this scenario, a first mortgage represents 80% of the home’s value, while a home equity loan or HELOC makes up another 10%. The down payment covers the remaining 10%.

In addition to avoiding PMI, homebuyers may use this piggyback home loan to avoid the mortgage limits standard in their area.

A 75/15/10 Piggyback Loan

A loan with a 75/15/10 split is another popular piggyback loan option. In this case, a first mortgage represents 75% of the home’s value, while a home equity loan accounts for another 15%. And like the 80/10/10 split, the remaining 10% is the down payment.

For example, a $300,000 75/15/10 loan would break down like this:

Main loan (75%): $225,000
Second loan (15%): $45,000
Down payment (10%): $30,000

80/10/10 Piggyback Loan

75/15/10 Piggyback Loan

Structure: 80% primary loan
10% down payment
75% primary loan
10% down payment
Typical use: Commonly used to avoid PMI and stay under jumbo loan limits Commonly used when purchasing a condo to avoid higher mortgage rates

The Potential Benefits and Disadvantages of a Piggyback Mortgage

A piggyback mortgage may help homebuyers avoid monthly private mortgage insurance payments and reduce their down payment. But that’s not to say an 80/10/10 loan doesn’t come with its own potentially negative costs.

There are pros and cons of piggyback mortgages to be aware of before deciding on a mortgage type.

Piggyback Mortgage Benefits

Allows for retention of liquid assets. Some lenders request a downpayment of 20% of the home’s purchase price. With the average American home price at nearly $303,288, this can be a difficult sum of money to save. A piggyback mortgage may help homebuyers secure their real estate dreams with less cash.

Possibly no PMI required. In what may be the largest motivator in securing a piggyback mortgage, homebuyers may not be required to pay PMI, or private mortgage insurance, when taking out two loans. PMI is required until 20% of a home’s value is paid, either with a down payment or by paying down the loan’s principal over the life of the loan.

PMI payments can add a substantial amount to a monthly payment and, just like interest, it’s money that won’t be recouped by the homeowner when it’s time to sell. With an 80/10/10 loan, both loans meet the requirements to forgo PMI.

Potential tax deductions. Purchasing a home provides homeowners with a list of potential tax deductions . Not only is there potential for the interest on the main mortgage loan to be tax deductible, the interest on a qualified second mortgage may also be deductible.

Potential Downsides of Piggyback Mortgages

Not everyone qualifies. Piggyback mortgages can be risky for lenders. Without PMI, there is an increased risk of a financial loss. This is why they’re typically only granted to applicants with superb credit. Even if it’s the best option, there’s no guarantee that a lender will agree to a piggyback loan scenario.

Additional closing costs and fees. One major downfall of a piggyback loan is that there are always two loans involved. This means a homebuyer will have to pay closing costs and fees on two loans at closing. While the down payment may be smaller, the additional expenses might outweigh the initial savings.

Savings could end up being minimal or lost. Before deciding on a piggyback loan arrangement, a homebuyer may want to estimate the potential savings. While this type of loan has the potential to save money in the beginning, homeowners could end up paying more as the years and payments go on, especially because second mortgages tend to have higher interest rates.

To quickly make an assessment, make sure the monthly payment of the second mortgage is less than the applicable PMI would have been on a different type of loan.

Pros of Piggyback Loans Cons of Piggyback Loans

Secure a home purchase with less cash Only applicants with excellent credit may qualify
Possible elimination of PMI requirements Extra closing costs and fees may apply
Could qualify for additional tax deductions A second mortgage could cost more money over the entire loan term

Qualifying for a Piggyback Mortgage

It’s essential to keep in mind that you’re applying for two mortgages simultaneously when you apply for a piggyback home loan. While every lender may have a different set of requirements to qualify, you usually need to meet the following criteria for approval:

•   Your debt-to-income (DTI) ratio should not exceed 28%. Lenders look at your DTI ratio — the total of your monthly debt payments divided by your gross monthly income — to ensure you can make your mortgage payments. Therefore, both loan payments and all of your other debt payments shouldn’t equal more than 28% of your income.

•   Your credit score should be close to excellent. Because you are taking out two separate loans, your risk of default increases. To account for this increase, lenders require a good credit score, usually over 680, to qualify. A higher credit score means you’re more creditworthy and less likely to default on your payments.

Before you apply for a piggyback loan, make sure you understand all of the requirements to qualify.

Refinancing a Piggyback Mortgage

Sometimes home owners will seek to refinance their mortgage when they have built up enough equity in their home. Refinancing can help homeowners save money on their loans if they receive a lower interest rate or better terms.

But, if you have a piggyback mortgage, refinancing could pose a challenge. It’s often tricky to refinance a piggyback loan because both lenders have to approve. In addition, if your home has dropped in value, your lenders may even be less enticed to approve your refinance.

On the other hand, if you’re taking out a big enough loan to cover both mortgages, it may help your chances of approval.

Is a Piggyback Mortgage a Good Option?

Not sure if a piggyback mortgage is the best option? It may be worth considering in the following scenarios:

If you have minimal down payment resources: Saving up for a down payment can take years, but a piggyback mortgage may mean the homebuyer can sign a contract years sooner than any other type of mortgage.

If you need more space for less cash: Piggyback loans often allow homeowners to buy larger, recently updated or more ideally located homes than with a conventional mortgage loan. This advantage can make for a smart financial move if the home is expected to quickly build equity.

If your credit is a match: It’s traditionally more difficult to qualify for a piggyback loan than other types of mortgages. For most lenders, a homebuyer will need:

•   10% down payment

•   Stable income and employment (proven by tax records)

•   Debt-to-income ratio of 43% or less

Piggyback Mortgage Alternatives

A piggyback mortgage certainly isn’t the only type offered to hopeful homebuyers. There are other types of mortgage loans homebuyers may also want to consider.

Conventional or Fixed-Rate Mortgage

This type of loan typically still requires PMI if the down payment is less than 20% of the home’s purchase price, but it is the most common type of mortgage loan by far. They’re often preferred because of their consistent monthly principal and interest payments.

Conventional loans are available in various terms, though 15 years and 30 years are the most popular.

Adjustable-Rate Mortgage

Also known as an ARM, an adjustable rate mortgage may help homebuyers save in interest rates over the life of their loan, but the interest rate will only remain the same for a certain period of time, typically for one year up to just a few years.

After the initial term, rate adjustments reflect changes in the index (a benchmark interest rate) the lender uses and the margin (a number of percentage points) added by the lender.

Interest-Only Mortgage

For some homebuyers, an interest-only mortgage can provide a path to homeownership that other types of mortgages might not. During the first five years (some lenders allow up to 10 years), homeowners are only required to pay the interest portion of their monthly payments and put off paying the principal portion until they’re better financially situated.

FHA Loan

Guaranteed by the Federal Housing Administration , FHA loans include built-in mortgage insurance, which makes these loans less of a risk to the lender. So while it’s not possible to save on monthly insurance payments, homebuyers may still want to consider this type of loan due to the low down payment requirements.

Other Options to Consider

Some other alternatives to a piggyback mortgage might include:

•   Speaking to a lender about PMI-free options

•   Quickly paying down a loan balance until 20% of a home’s value is paid off and PMI is no longer required

•   Refinancing (if a home’s value has significantly increased) and allowing the loan to fall under the percentage requirements for PMI

•   Saving for a larger down payment and reducing the need for PMI

The Takeaway

Before signing on for a piggyback mortgage, it’s always recommended that a homebuyer fully understand all of their mortgage options. While a second mortgage might be the best option for one homebuyer, it could be the worst option for another. If a piggyback mortgage is selected, understanding its benefits and potential setbacks may help avoid financial surprises down the line.

SoFi offers a variety of mortgage loan options for homebuyers securing their first mortgage or homeowners interested in refinancing their current home. There is an easy online application process and you can keep even more money in your pocket with SoFi’s low, competitive rates.

Explore mortgage options at 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.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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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How to Negotiate House Prices: 7 Tips

Buyers who learn how to negotiate house prices lay the foundation for a mutually acceptable deal.

Whether you’re a first-time homebuyer or not, these strategies to negotiate home prices may help you score a property at the best possible price.

Why You Should Be Negotiating House Prices

While negotiating the price of a home can seem intimidating, the benefits can often outweigh the fear. For starters, negotiating lets the seller know you’re serious about the home.

It also gives you the opportunity to create a concise offer that you’re happy with and helps you stay within your budget so you don’t break the bank to get the house you want.

Finally, if the asking price is over what you feel comfortable with, negotiating can help you see if there is any wiggle room in the price. That way you aren’t putting yourself in a stressful financial situation.

Things to Know Before Negotiating Home Prices

Know Your Market

The market will dictate how much leverage you have to negotiate a home price. Determining whether it’s a hot seller’s market or a buyer’s market will help you navigate your negotiations.

The power is typically in your hands if the property you want is in a buyer’s market when the number of homes for sale exceeds the number of willing buyers. In this case, you could offer 10% under the asking price and ask the seller to pay closing costs.

But you don’t want to offend sellers by lowballing them. There is a happy medium between a fair offer and getting the biggest bang for your buck. If you do decide to lowball, make sure you’re willing to walk away.

Markets can vary from city to city and neighborhood to neighborhood. So check with your real estate professional to be certain what type of market you’re working with. After all, you don’t want to lose the home of your dreams just because you were unaware of the market conditions in your area.

Recommended: Tips for Buying in a Hot House Market

Know the Value of an Agent

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

Besides the fact that Realtors® and other agents know the markets around your desired community, they have valuable experience that can help you make offers and handle counteroffers.

They know what’s reasonable for the current market conditions. Because they aren’t emotionally attached to the outcome, they are better set up to get the best deal without making ​​excessive concessions.

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

Got your eye on a house for sale by owner? You can use an agent or go it alone.

Recommended: How to Find a Real Estate Agent

How to Negotiate Home Prices

Here are several tips to help seal the deal on a home.

1. Do Your Homework

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

A real estate agent will have access to market trends in your area. But fortunately for us 21st-century dwellers, this information is readily available on sites like Zillow, Realtor.com, Redfin, and Trulia.

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

2. Get an Inspection

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

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

Along with helping you plan for unforeseen repair costs ahead of time, the inspection can also give you leverage to ask the sellers to knock down their price a bit, offer you a credit for closing costs, or fix the problem themselves.

3. Have Your Finances in Order Ahead of Time

Sellers are apt to be most enthusiastic about buyers who have been preapproved, as opposed to prequalified.

While both involve a lender taking a peek at your financial information, such as income, credit history, debts, and assets, preapproval involves an in-depth application and verification process, and thus carries more weight than prequalification.

TL;DR: Having a preapproval letter is a great way to send your offer to the front of the pile.

Also, if you’re a homeowner looking for an upgrade (or lateral move), selling your old home ahead of time could be a mark in your favor from the seller’s perspective: It means you won’t have to wait until your home is sold to go forward with the buying process.

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

Recommended: How Long Does a Mortgage Preapproval Last?

4. Don’t Negotiate House Prices Too Hard

You don’t want to insult sellers by pitching a price that’s too low, particularly if you’re negotiating in a seller’s market or purchasing a beloved property that’s been in the family for years.

While you may be able to get as much as 10% off the list price, depending on the local housing temperature, you could knock yourself out of the running if you lowball too hard.

In a hot housing market, you may even end up bidding more than the list price on a house.

5. … But Do Try to Negotiate Home Prices

On the other hand, you don’t want to shortchange yourself by failing to negotiate at all. So, starting from the first time you walk through the home, it’s a good idea not to show all your cards by appearing overeager, even if you’re totally in love with the place.

If you come across as desperate for the house, sellers may feel they can expect a higher offer from you.

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

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

6. Put Your Offer in Writing and Be Detailed

Rather than make a verbal offer on a home, many experts recommend putting your offer in writing and adding as much detail as possible. That way you avoid any disagreements on what was said and can negotiate on factors beyond price.

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

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

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

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

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

7. Include an Expiration Date

Although you’ll generally hear back on (realistic) offers within a few business days, sellers aren’t legally obligated to respond to your offer at all.

By including the expiration date, you’ll have a firm calendar date on which you’ll know for a fact you didn’t get the home, which means you’ll be able to redirect your efforts.

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

Recommended: First-Time Home Buyer’s Guide

The Takeaway

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

As important as it is to shop around for the right home — and negotiate for the right price — it’s also important to find the right mortgage.

SoFi offers competitive fixed-rate home loans, and qualified buyers can put down as little as 5%.

Get prequalified for a SoFi Home Loan in two minutes.

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.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.

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