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8 Steps to Buying a Vacation Home

If you’re like many Americans, you dream of having a beach house, a desert escape, or a mountain hideaway. Perhaps you’re tired of staying at hotels and want the comforts of home at your fingertips.

You’re ready to make this dream a reality. Before you do, consider these steps.

How to Buy a Vacation Home

1. Choose a Home That Fits Your Needs

As you begin your search for a vacation home, carefully consider your goals and needs. Start with the location. Do you prefer an urban or rural area? Lots of property or a townhouse with just a small yard to care for?

Consider what amenities are important to be close to. Where is the nearest grocery store? Is a hospital accessible?

Consider your goals for the property. Is this a place that only you and your family will use? Do you plan to rent it out from time to time? Or maybe you plan to be there only a couple of weeks out of the year, using it as a rental property the rest of the time.

The answers to these questions will have a cascade effect on the other factors you’ll need to consider, from financing to taxes and other costs.

2. Figure Out Financing

Next, consider what kind of mortgage works best for you, if you’re not paying cash. You may want to engage a mortgage broker or direct lender to help with this process.

If you have a primary residence, you may be in the market for a second mortgage. The key question: Are you purchasing a second home or an investment property?

Second home. A second home is one that you, family members, or friends plan to live in for a certain period of time every year and not rent it out. Second-home loans have the same rates as primary residences. The down payment could be as low as 10%, though 20% is typical.

Investment property. If you plan on using your vacation home to generate rental income, expect a down payment of 25% or 30% and a higher rate for a non-owner- occupied loan. If you need the rental income in order to qualify for the additional home purchase, you may need to identify a renter and have a lease. A lender still may only consider a percentage of the rental income toward your qualifying income.

Some people may choose to tap equity in their primary home to buy the vacation home. One popular option is a cash-out refinance, in which you borrow more than you owe on your primary home and take the extra money as cash.

3. Consider Costs

While you consider the goals you’re hoping to accomplish by acquiring a vacation home, try to avoid home buying mistakes.

A mortgage lender can delineate the down payment, monthly mortgage payment, and closing costs. But remember that there are other costs to consider, including maintenance of the home and landscape, utilities, furnishings, insurance, property taxes, and travel to and from the home.

If you’re planning on renting out the house, determine frequency and expected rental income. Be prepared to take a financial hit if you are unable to rent the property out as much as you planned. For a full picture of cost, check out our home affordability calculator.

4. Learn About Taxes

Taxes will be an ongoing consideration if you buy a vacation home.

A second home qualifies for mortgage interest and property tax deductions as long as the home is for personal use. And if you rent out the home for 14 or fewer days during the year, you can pocket the rental income tax-free.

If you rent out the home for more than 14 days, you must report all rental income to the IRS. You also can deduct rental expenses.

The mortgage interest deduction is available on total mortgages up to $750,000. If you already have a mortgage equal to the amount you on primary residence, your second home will not qualify.

The bottom line: Tax rules vary greatly, depending on personal or rental use.

5. Research Alternatives

There are a number of options to owning a vacation home. For example, you may consider buying a home with friends or family members, or purchasing a timeshare. But before you pursue an option, carefully weigh the pros and cons.

If you’re considering purchasing a home with other people, beware the potential challenges. Owning a home together requires a lot of compromise and cooperation.

You also must decide what will happen if one party is having trouble paying the mortgage. Are the others willing to cover it?

In addition to second home and investment properties, you may be tempted by timeshares, vacation clubs, fractional ownership, and condo hotels. Be aware that it may be hard to resell these, and the property may not retain its value over time.

6. Make It Easy to Rent

If you do decide to use your vacation home as a rental property, you have to take other people’s concerns and desires into account. Be sure to consider the factors that will make it easy to rent. A home near tourist hot spots, amenities, and a beach or lake may be more desirable.

Consider, too, factors that will make the house less desirable. Is there planned construction nearby that will make it unpleasant to stay at the house?

How far the house is from your main residence takes on increased significance when you’re a rental property owner. Will you have to engage a property manager to maintain the house and address renters’ concerns? Doing so will increase your costs.

7. Pay Attention to Local Rules

Local laws or homeowners association rules may limit who you can rent to and when.

For example, a homeowners association might limit how often you can rent your vacation home, whether renters can have pets, where they can park, and how much noise they can make.

Be aware that these rules can be put in place after you’ve purchased your vacation home.

8. Tap Local Expertise

It’s a good idea to enlist the help of local real estate agents and lenders.

Vacation homes tend to exist in specialized markets, and these experts can help you navigate local taxes, transaction fees, zoning, and rental ordinances. They can also help you determine the best time to buy a house in the area you’re interested in.

Because they are familiar with the local market and comparable properties, they are also likely to be more comfortable with appraisals, especially in low-population areas where there may be fewer houses to compare.

The Takeaway

Buying a vacation home can be a ticket to relaxation or a rough trip. It’s imperative to know the rules governing a second home vs. a rental property, how to finance a vacation house, tax considerations, and more.

Ready to buy? SoFi offers mortgages for second homes and investment properties, including single-family homes, two-unit buildings, condos, and planned unit developments.

SoFi also offers a cash-out refinance, all at competitive rates.

Got two minutes to spare? That’s how long it takes to check your rate for a mortgage with SoFi.



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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.
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.

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Cash-Out Refinance vs Home Equity Line of Credit

Cash-out refinances and home equity lines of credit are two borrowing options that allow homeowners to tap into the equity they have built in their home.

A HELOC is a line of credit secured by the borrower’s home. The line of credit can be accessed on an as-needed basis, up to the borrowing limit. The borrower is only charged interest and responsible for repaying the amount they actually borrowed.

For a cash-out refinance, the borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity. The total borrowed amount of the cash out refinance will be greater than the borrower’s original mortgage, and the borrower will receive the difference in a lump sum payment from the lender.

There are differences in how each type of loan works that may influence which is right for you. In general, HELOCs give borrowers flexibility since they can draw on the line of credit as needed and are suited for shorter-term financial needs. Cash-out refinances require the borrower to take out a new mortgage and the borrower generally needs to pay closing costs upfront. They often have a fixed interest rate and may be a better option for borrowers who have a long-term need.

Learn more about the pros and cons of a HELOC vs a cash-out refinance.

Difference in HELOCs and Cash-Out Refinancing

Home Equity Line of Credit (HELOC)

A HELOC is like a line of credit in that borrowers can draw from using their home as collateral. The amount of the line of credit is determined by the mortgage lender and is based on the amount of equity a homeowner has built. Lenders usually limit the line of credit to around 80% to 90% of the equity amount.

A unique feature of a HELOC is that it works somewhat like a credit card in that it is revolving. If a borrower, for example, is approved for a $30,000 home equity line of credit, they can access it when they want for the amount that they choose by writing a check or even using a specified credit card.

Many lenders, however, have a minimum draw requirement, which means a borrower has to take out a minimum amount even if it’s more than they need at the time. Also, lenders have the right to change the terms associated with the line of credit and can even close it, often without having to provide advanced notice.

A major drawback of a home equity line of credit is that the interest rate is usually adjustable. This means that the interest rate can rise, and if it does, the monthly payment can increase. Another point that borrowers should keep in mind is that there is a draw period of 5 to 10 years during which a borrower can access funds and a repayment period of 10 to 20 years.

During the draw period, the monthly payments can be relatively low because the borrower pays interest only, but during the repayment period, the payments can increase significantly because both principal and interest have to be paid.

Cash-Out Refinance

A cash-out refinance is a form of mortgage refinancing that allows a borrower the ability to refinance their current mortgage for more than what they currently owe in order to receive extra funds.

For example, if a borrower owns a home worth $200,000 and owes $100,000 on their mortgage at a high interest rate, they could refinance at a lower interest rate, while at the same time taking out a larger mortgage. Let’s say they refinance the mortgage at $130,000. In this case, $100,000 would replace the old mortgage, and the borrower would receive the remaining amount of $30,000 in cash.

Borrowers should keep in mind that a cash-out refinance replaces their current mortgage and even though they receive additional cash they only have to make one monthly payment. Unlike a home equity line of credit, a cash-out refinance may have a fixed interest rate, meaning that the interest rate remains unchanged for the life of the loan so the monthly payments remain the same. Additionally, interest rates are typically lower than with a HELOC.

The approval process for a cash-out refinance is similar to the initial approval process when buying a home. It can be somewhat cumbersome, but the payoff is a lower interest rate, a fixed payment, and access to additional cash.

Which is Better?

Like most things in the world of finance, the answer to which option is better will vary by person based on their individual financial circumstances and unique needs. In some situations, a HELOC may make more sense than a cash-out refinance and vice versa.

HELOCs can be useful for shorter-term needs or situations where a borrower may want access to funds over a certain period of time, for example when completing a home renovation. Because HELOCs generally have a variable interest.

Cash-out refinances can make sense if there is a need for a large sum of money or if they can be used as a tool to improve your financial situation on the whole.

Both a home equity line of credit and a cash-out refinance have fees associated with them. With a cash-out refinance, fees are paid upfront in the form of loan closing costs. With a HELOC, several types of fees can be charged periodically such as an annual fee or inactivity fee for non-usage. One way for a borrower to reduce these fees is to shop around and compare lenders.

While it’s typically faster to be approved for a home equity line of credit, the adjustable interest rate and lack of a fixed payment can potentially be a drawback. The approval process for a cash-out refinance is more complex than that of a HELOC, but the loan will have a set payment and a lower interest rate that can provide significant savings. Both options give borrowers the ability to turn their home equity into cash, which can make it possible to achieve certain goals, consolidate debt, and improve their overall financial situation.

The Takeaway

Both cash-out refinancing and HELOCs have their place in a borrower’s toolbox. In both cases, borrowers are borrowing against the equity they have built in their home, which comes with risks. In the case that a borrower is unable to make payments on their HELOC or cash-out refinance, the consequence could be selling the home or even losing the home to foreclosure.

HELOCs are generally used when a borrower has shorter-term financial needs. Borrowers are able to draw against the line of credit as needed however the interest rate is variable. Cash-out refinances are generally used for longer term needs and often have a fixed interest rate.

Borrow more with less money down.



SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com for details.

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Here’s How To Refinance A Mortgage (And Know If It’s Right For You)

Over the past decade, mortgage refinancing has grown in popularity. Not that big of a surprise, considering we’ve seen a sizable drop in mortgage rates during this time. At the height of the housing crisis in 2008, rates averaged about 6% for a 30-year fixed-rate mortgage for a 30-year fixed-rate mortgage.

Currently, the average rate for a 30-year fixed mortgage is about 3.26% , which gives some folks the opportunity to save some serious moola by lowering their interest payments. If you signed on for a higher rate years ago or your financial situation has improved, refinancing is worth considering.

While refinancing might not be right for every homeowner, but starting to look at rates and terms could be the first step to being able to save for other financial goals. Here’s everything you need to know about refinancing a mortgage from how to start the process, to figuring out if it’s right for you.

How much does it cost to refinance a mortgage?

Since you’re essentially applying for a new loan, there will most likely be fees if you choose to refinance. Because of this, it’s important to consider those costs compared to the potential savings. A good rule of thumb is to be certain you can recoup the cost of the refinance in two to three years—which means you shouldn’t have immediate plans to move.

Refinancing will generally cost from 3% to 6% of your loan’s principal value, though you should be sure to shop around to make sure you’re getting the best deal.

There are helpful online calculators for determining approximate costs for a mortgage refinance. Of course, this is only an estimate and all lenders are different. The lender will provide final closing cost information alongside a quote for your new mortgage rate.

When you refinance, you also have to consider closing costs. Some lenders may not have origination fees, but instead charge the borrower a higher interest rate.

If you have a great borrowing history and a strong financial position, there are some mortgage refinancing lenders, like SoFi, that reward such borrowers by offering competitive rates and no hidden fees.

Mortgage RefinancingMortgage Refinancing

What are the steps in the mortgage refinancing process?

The first (and arguably most important) step is to determine what you want to get out of your mortgage loan refinance. There are several mortgage loan types, but “rate and term” and “cash out” are the two most common.

Just as the name implies, a “rate and term” refinance updates the interest rate, the term (or duration) of the loan, or both. You can also switch from an adjustable rate to a fixed rate and vice versa.

It is important to understand that not every refinance will save you money on interest. For example, if you extend the loan terms, you may end up paying more money over the course of your loan.

With a “cash out” refinance, you are using increased equity in your home to take out additional money on your mortgage; This is usually done to fund home repairs or pay off other, higher-interest debt. This is an excellent tool if you use it wisely, but as with all loans, it’s rarely advisable to take out more than you absolutely need.

Once you determine your goal, your primary focus will be determining whether the fees are worth what you’ll gain by refinancing. Here are the steps you’ll need to take to refinance:

1. Check your credit score and credit history for errors. Your credit score is an important factor in determining whether you get a better rate. Make sure you take time to clear up anything that’s been reported erroneously, and if possible take steps to boost your credit score.1
2. Research your home’s approximate value. Check comparable sale prices—not just listing prices—in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this will be helpful in securing the best refinancing rate.
3. Compare refinance rates online. Don’t forget to ask about all costs involved. Most financial institutions should be able to give you an estimate, but the accuracy can depend on how well you know your credit score and LTV ratio.
4. Get your paperwork together. The process will move faster if you have your pay stubs, bank statements, tax filings, and other pertinent financial information ready to go.
5. Have cash on hand. You may have to pay some up-front costs, like property taxes and insurance.
6. The lender will (mostly) take it from here. They will send an appraiser for a home inspection. After the loan documentation and appraisal are submitted, loan officers determine the interest rate and create the loan closing documents. The closing is then scheduled with the refinancing company, mortgage broker, and real estate attorney.

How long does a mortgage refinance take?

The process can take anywhere from 30 to 90 days, depending on your diligence, the complexity of the loan, and the efficiency of the lender or broker.

If you want the process to move fast, look for mortgage lenders who are looking to disrupt the traditional mortgage process by offering a more streamlined service and a better customer experience.

If you’re like most people, you’ve got a life to live and don’t want your mortgage refinance to drag on for months. Keep this in mind while looking for a lender to refinance with.

Ready to check out your mortgage refinance rates with a competitive lender that values your time? SoFi can give you a quote (that won’t affect your credit score! 2) in as little as two minutes.



1. Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
2. 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 Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612. NMLS #1121636.
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 Mortgages not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com for details.

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How Much Are Closing Costs on a New Home?

Congrats if you’ve saved for a down payment on a new place. That’s a huge chunk of change, but dig deeper, because closing costs average 2% to 5% of the loan principal.

Whether you are buying your first house or you’re a seasoned buyer, know what you’re in for at the closing table.

When you apply for a mortgage, each lender must provide a loan estimate within three business days. It will estimate closing costs, interest rate, and monthly payment.

Your closing costs will depend on the sale price of the home, the fees the chosen lender charges, the type of loan and property, and your credit score.

What Closing Costs Include

Closing costs range from fees charged by professionals like appraisers and title companies to lender fees and home warranty fees.

Closing costs are traditionally divided between the buyer and seller, so you won’t necessarily be on the hook for the whole bill.

That said, the exact division between buyer and seller will depend on your individual circumstances, and can even be a point of negotiation during the buying process.

Here are some of the closing costs a homebuyer should account for:

Lender fees. This is the cost the lender charges for processing your loan. In addition to the origination fee, you may have “bought down” your interest rate with one or more points. Each point costs 1% of your mortgage amount, and that money is due at closing.

Appraisal, inspection, and survey fees. It is easy to be wooed by pristine wood floors and a shiplap statement wall, but you and your lender want to make sure that your potential new home is actually worth the purchase price. This means paying professionals to double-check that there are no major issues with the house and to provide a current market value.

Settlement agent, lawyer, or escrow fees. It turns out that paperwork can be difficult and is easy to mess up, so a settlement agent or lawyer is typically required so that your lender can be sure everything is properly prepared and signed.

Title service. To make sure you’re buying property that actually belongs to the seller and that the property isn’t subject to any legal obligations, it’s necessary to do a title search. Your lender will likely require a lender’s title insurance policy for its protection. You may also want an owner’s title insurance policy to protect yourself. The buyer and seller often divide these costs.

Recording fees. When the title of the property is transferred from the seller to you, legal documents need to be recorded in the county records to make sure the property is correctly transferred into your name. County recorders typically charge fees for doing this.

Home warranty. A home warranty can be purchased to protect against major problems. A warranty plan may be offered by the seller as part of the deal, or a buyer can purchase one from a private company. Your lender, however, will not require a home warranty.

Private mortgage insurance. Often lenders require PMI if you make a down payment that is less than 20% of the purchase price. This is usually a fee that you pay monthly, but it can also be paid at the time of closing.

Be aware that a “no closing cost mortgage” often means a higher rate and a lot more interest paid over the life of the loan. The lender will pay for many of the initial closing costs and fees but charge a higher interest rate.

Other Costs of Buying a Home

In addition to your down payment and closing costs, you also need to make sure that you can swing the full monthly costs of your new home. That means figuring out not only your monthly mortgage payment but all the ancillary costs that go along with it.

Understanding and preparing for these costs can help ensure that you are in sound financial shape for your first few years of homeownership:

Principal and interest. Your principal and interest payment is the amount that you are paying on your home loan. This can be estimated by plugging your sales price, down payment, and interest rate into a mortgage calculator. This number is likely to be the biggest monthly expense of homeownership.

Insurance. Your homeowner’s insurance premium should be factored into your monthly ownership costs. Your insurance agent can provide you with details on what this policy will cover.

Property taxes. Property tax rates vary throughout the country. The rates are typically set by the local taxing authorities and may include county and city taxes.

Private mortgage insurance. As mentioned, PMI may be required with a down payment of less than 20%. PMI is usually required until you have at least 80% equity in your home based on your original loan terms.

Homeowners association fees. If you live in a condo or planned community, you may also be responsible for a monthly homeowners association fee for upkeep in the common areas in your community.

The Takeaway

Before buyers can close the door to their new home behind them and exhale, they must belly up to the closing table with closing costs—usually 2% to 5% of the loan amount. A home loan hunter may want to compare estimated closing costs in addition to rates when choosing a lender.

Shopping for a home and a mortgage? SoFi home loans come with no hidden fees and competitive rates.

Get prequalified for a SoFi home loan in two minutes.



SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612.. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
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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What Credit Score is Needed to Buy a House

What’s your number? That’s not a pickup line; it’s what a lender will want to know. The number will range from 300 to 850, and it will weigh heavily in whether you qualify for a conventional or government-backed loan and at what interest rate.

The national average credit score has inched up in the past few years, all within the range considered “good.” But applicants with “fair” and even “poor” credit scores can and do secure mortgages.

Below, we’ll cover the minimum credit score for a mortgage and how you can improve your credit score if needed.

First, Why Does a Credit Score Matter So Much?

Lenders look at a credit score to help determine whether a potential borrower is trustworthy. Considering that the recent median home sale price was over $350,000 and that financial institutions hold about $10 trillion in mortgage debt, lenders want to know that a borrower is solid and that repayment will be made.

Credit scores were created by the Fair Isaac Corp. to put a simple numerical representation on a person’s history of obtaining and repaying debt.

There are now other institutions that also calculate credit scores, but FICO® scores are the most commonly used. Experian, Transunion, and Equifax are the three credit reporting agencies that collect information on your history of borrowing, and then FICO® or another company amalgamates the information into a score between 300 and 850.

In general, those with a strong history of making on-time payments on their debts will have higher credit scores. Here’s what goes into calculating a credit score:

•  Payment history (35%): Considers whether the applicant has made payments on time.
•  Credit utilization (30%): The ratio of how much you could borrow from all accounts vs. how much you are borrowing. The lower your credit utilization, the better.
•  Length of credit history (15%): Histories with accounts that have been open for longer are seen more favorably than those that have been open for less time.
•  Types of credit (10%): Having multiple types of debt is preferable. Installment credit, such as an auto loan, personal loan, student loan or mortgage loan, and revolving credit, like a credit card, are both considered.
•  New inquiries (10%): Each time a new inquiry on credit is made, there can be a negative effect on a credit score. Credit inquiries happen when opening credit cards and taking out loans, and even when a lender does a “hard pull” on your credit history.

A Look at the Numbers

Here’s how credit scores are generally classified:

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

In general, lenders consider applicants with “bad” or “poor” credit score subprime borrowers. Depending on what type of mortgage loan an applicant is trying to acquire, it may be hard to obtain a loan with a credit score lower than around 600.

If you are trying to acquire a conventional loan, you’ll likely need a credit score of at least 620.

With an FHA loan, 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.

The FHA program was created to get applicants with lower credit scores into homes. The loans are insured by the Federal Housing Administration, so lenders are more lenient.

A VA loan usually requires a minimum score of 580 to 620; and a USDA loan, 640.

Credit Scores Are Just Part of the Pie

Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, and bank accounts. A lender facing someone with a low credit score may increase expectations in other areas like size of the down payment or income requirements.

The lowest credit scores that lenders are willing to accept change with the economic environment. During the housing crisis of 2008 and the years after, it was very difficult for borrowers with credit scores lower than 700 to obtain loans.

During better economic times, credit score requirements for borrowers may loosen. Therefore, it is a bit of a moving target to nail down the precise average or the lowest possible credit score one must have to receive a mortgage loan.

How to Bump Up a Credit Score

Working to improve a credit score before applying for a home loan could save a borrower a lot of money in interest over time. Lower rates will keep monthly payments lower or even provide the ability to pay back the loan faster.

Let’s look at an example using a mortgage calculator: If you were take out a mortgage on a $400,000 home after putting 10% down with a 4.5% interest rate on a 30-year fixed rate mortgage, your monthly payment would be $1,824 and you would pay $296,663 total in interest over the life of the loan.

If you were to take out that same loan with a 5.5% rate of interest, your monthly payment would be $2,044 and you’d pay $375,854 total in interest. The difference of 1% in interest results in almost $80,000 paid over time.

Improving your credit score will take a bit of time, but it can be done. Here’s how:

1. Check for errors on your credit report. Reporting errors are quite common, so be certain that your credit history doesn’t mistake a missed payment or report a debt that’s not yours. You can get a free credit report once a year from each of the three reporting agencies: Transunion, Experian, and Equifax.

2. Pay all of your bills on time. If you haven’t been doing so, it could take up to six months of on-time payments to see a significant improvement.

3. If you do not have credit established, an easy way to do so is by opening a credit card. But only do this if you are prepared to use the credit card responsibly. This means paying back the card, in full, each month. Do not simply pay the minimum payments. If you are having trouble qualifying for a card, look into a secured credit card. With a secured card, you put a cash payment down that works as your line of credit, proving you can manage a credit card.

4. Request to increase the credit limit on one or all of your credit cards. This will increase your credit utilization ratio by showing that you have lots of available credit that you don’t use. It is best to keep the credit utilization ratio below 30%, meaning you’re only using 30% of your available credit at any time.

Understand that this number can be assessed at any time during the month, not just on the day that you pay your bills. Even if you pay your cards in full every month, if you’re consistently using more than 30% of your available limit, you could get dinged.

5. If you are working to pay off credit cards, don’t close them once you’ve paid them off. Keep them open by charging a few items to the cards every month (and paying them back). Remember, sources of debt that have been in use for longer are preferable to ones that are new. For example, if you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.

6. Consider obtaining a personal loan. If you have multiple credit cards and are struggling to manage them and pay them off, this might be a good solution. A personal loan may have a lower rate.

Another option for those with lower credit scores is to have a co-signer on a mortgage loan. If this person has a better credit score and financial situation than the main applicant, it could greatly improve the rate that a lender will offer. Only go down this route if this is a relationship that you can trust completely.

Once you feel that your credit score is ready, be sure to shop around for a home loan at several lenders. You want to be sure that you’re getting the best rate given your personal financial situation, and not every lender has the same criteria.

Know that even with credit scores that aren’t perfect, there are options for people who want to be homeowners; it’s just a matter of seeking out those options.

The Takeaway

What credit score is needed to buy a house? The numbers hinge on the economic climate, lender and type of loan, but those with imperfect credit often manage to secure home loans. First, know your credit score, take time to improve it if needed, and compare lender offers.

Find out your rate on a SoFi mortgage loan in just two minutes.



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

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

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